In many ways, the trends Banking Dive is following in 2021 laid their roots in 2020. The trick is how to keep the momentum going.

Over 10 months, the value of crypto's flagship currency grew tenfold. Is that for real? How will that stick? 2021 may provide an answer. Banks' environmental, social and governance (ESG) efforts shifted from climate to racial equality. How will banks be held accountable for their follow-through? The new year may hold an answer. And COVID-19 — oh, COVID-19 — forced banks to back up their digital-first visions with real-world rollout. Where do they go from here? 

A make-or-break year for crypto

It would have been easy to dismiss cryptocurrency as a fad after the price of Bitcoin shrunk back from its previous 2017 high value of $19,783. But its charge from an early-pandemic low of $4,107 to more than 10 times that early this month makes it hard to ignore.

2020 provided an about-face on crypto from a major player in the banking space: JPMorgan Chase last spring began extending banking services to Bitcoin exchanges Coinbase and Gemini. Three years earlier, the bank's CEO, Jamie Dimon, called the currency "a fraud" and said he would fire "in a second" anyone at JPMorgan found to be trading in it. "You can't have a business where people can invent a currency out of thin air and think that people who are buying it are really smart," he told The Guardian.

A similar turnabout appears to be brewing in 2021. Goldman Sachs last year dismissed Bitcoin over its volatility, saying in a May report, "We believe that a security whose appreciation is primarily dependent on whether someone is willing to pay a higher price for it is not a suitable investment for our clients." However, the bank issued a request for information to explore digital asset custody, a source inside the bank told CoinDesk on Friday.

Perhaps a bigger tell is the attention regulators have focused on the space. The Office of the Comptroller of the Currency (OCC) last week gave cryptocurrency platform Anchorage conditional approval for a national trust bank charter. Fellow crypto firms BitPay and Paxos have charter applications pending. "The Anchorage approval demonstrates that the national bank charters provided under the National Bank Act are broad and flexible enough to accommodate evolving approaches to financial services in the 21st century," the OCC wrote in a release.

Looking only at that and other recent actions from the OCC — clarifying this month that banks can use stablecoins and blockchains to facilitate payments, and, in July, that banks can provide crypto custody service — skeptics could credit such progress to one regulator led, until last week, by a crypto enthusiast. (Former Acting Comptroller Brian Brooks previously served as chief legal officer of Coinbase.)

But other regulators, for better or worse, are weighing in on crypto. The Securities and Exchange Commission (SEC) sued blockchain payments company Ripple last month for allegedly violating investor-protection laws through the sale of the XRP coin.

The Biden administration's choice to lead that regulator, former Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler, has advocated for greater regulation of crypto exchanges. And greater oversight could trigger greater mainstream adoption, he said. "You want traffic lights and speed limits because then the public is confident to drive on the roads," Gensler told Bloomberg in 2018.

2021 could turn into a make-or-break year for crypto simply for the volume and variety of opinions on the matter. While crypto-focused businesses such as Coinbase and Bakkt charge toward initial public offerings, regulators such as the U.K.'s Financial Conduct Authority are warning crypto investors they "should be prepared to lose all their money." Swiss bank UBS similarly cautioned clients that the price of crypto coins could go to zero. "Netscape and Myspace are examples of network applications that enjoyed widespread popularity but eventually disappeared," strategists for the bank wrote Thursday, according to Bloomberg.

Niche-shopping M&As

Two distinct strategies emerged toward the end of 2020 regarding mergers and acquisitions: the splashy "we'll-take-it-all" growth method exemplified by the December tie-up between Huntington Bank and TCF, and the niche-shopping acquisitions and sell-offs that have begun to permeate 2021.

Perhaps the highest-profile purveyor in niche shopping is Wells Fargo. The bank laid out a plan Friday to cut its gross expenses by $8 billion in the coming years — 35% of that from streamlining organizational structure, according to American Banker. At one level, that means de-cluttering the management ranks. At another, that has meant analyzing which segments of the bank's business perform best, and which are less crucial to the bank's forward path.

Since October, the bank has dangled several units to gauge interest from potential buyers. The bank knows, for example, its asset-management unit, which holds north of $600 billion, isn't truly competing with arms of JPMorgan or Morgan Stanley that hold twice as much. And with Morgan Stanley's acquisition of Eaton Vance pushing it over the $1 trillion mark, a competitor that suddenly finds itself behind may want to catch up quickly. Six hundred billion dollars under management would do that. Plus, Wells Fargo's asset-management unit could fetch as much as $3 billion on the market, according to Bloomberg. That's a lot of cost savings for the nation's fourth-largest bank.

Wells reportedly put its corporate-trust and student-loan businesses on the market in October and found a buyer for the latter in December. It is also considering selling a unit that provides store-branded credit cards and point-of-sale financing, according to Bloomberg.

Selling units individually is also a way for a bank whose strategy is otherwise on point to maintain an abundance of caution as it exits the crisis mode portion of the coronavirus pandemic.

U.S. Bank last month agreed to buy MUFG Union Bank's debt servicing and securities custody portfolio, boosting its assets under management by $320 billion and giving it a greater West Coast footprint.

Silicon Valley Bank, looking to expand its wealth-management business, bought a niche player this month in Boston Private Financial Holdings.

Still other banks have reportedly been looking to exit particular markets. News that HSBC is allegedly shopping its U.S. retail banking operations came a mere two weeks after another international lender, BBVA, sold its U.S. presence — save for its New York branch — to PNC for $11.6 billion.

Last year, the banking space may have been on the lookout for a splashy, all-in Truist-type tie-up or, on a smaller scale, for credit unions gobbling up community banks. (There were seven such deals in 2020, according to American Banker, compared with 16 in 2019.) In 2021, banks will be tweaking their business models piece by piece.

Race will be ESG's true test

A year ago, it seemed climate might be the cornerstone of banks' environmental, social and governance efforts. Goldman Sachs in December 2019 rolled out an ambitious policy to commit $750 billion over 10 years toward projects focused on renewable energy, sustainable transportation and affordable education. Activists pushed banks to align themselves with the 2015 Paris agreement and, one by one, institutions from Barclays to JPMorgan Chase, pledged to aim for net-zero carbon emissions by 2050.

In the meantime, Morgan Stanley, Citi and Bank of America joined a group aiming to standardize the way banks measure and reduce their climate impact. And regulators, from New York's Department of Financial Services to a CFTC panel laid out suggestions for banks to level up their climate risk reduction.

But the focus of ESG shifted to the S — social — in May after the police killing of George Floyd, a Black man, was met with worldwide protest. A reexamination of the wealth gap along racial lines ensued, and banks from PNC to Bank of America made billion-dollar commitments toward rebalancing the scales through housing, investment in minority depository institutions and more.

Wells Fargo led an effort to tie executives' year-end compensation packages to their efforts to diversify the ranks of bank leadership (despite blowback over language the bank's CEO used to introduce the initiative). And banks from Santander to Truist pledged to give employees time off to commemorate Juneteenth.

The key in 2021 will be follow-up. Banks have said they're pledging the money, but what happens as time wears on. Will some banks fail to commemorate Juneteenth when the spotlight isn't so bright?

State Street is one institution insisting on progress at the corporate board level. The bank's investment arm said last January it would "take appropriate voting action" against board members at big U.S., U.K., French, German, Japanese and Australian companies that fall short on ESG standards if they "cannot articulate how they plan to improve" their score on State Street's metric of responsibility.

This year, it vowed to go further — voting against board members of S&P 500 and FTSE 100-listed companies if those firms fail to disclose the racial and ethnic makeup of their boards. And next year, it said it would begin voting against the chair of the nominating and governance committees of companies that don't have at least one board member who is a minority.

Not to be outdone, Nasdaq proposed requiring companies to have at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or lesbian, gay, bisexual or transgender.

Digital acceleration to continue

The coronavirus pandemic brought unprecedented digital acceleration to the financial services industry in 2020. Industry experts say the increased interest in digital technologies and fintech products is expected to continue its momentum this year, even once the pandemic subsides. 

"The amount of bank digitization that I've seen over the last 10 months is equivalent to what I saw over the last five years, in terms of the speed of acceleration," said John Pitts, head of Policy for data aggregator Plaid.

As social distancing forced consumers to rely on digital products for their banking needs, banks took stock of their tech investments and digital offerings to accommodate the changes.

"We found out a lot of banks had 'fake' digital offerings," said Aubrey Hawes, senior director of Oracle's financial services global business unit. "If something was broken, we could always go into the branch and fix it. When the branches are closed because of COVID, now behaviors are changing because places weren't open. It just kind of changes everything."

Banks will also be eyeing the gains made by fintechs in the digital-first environment, and will be looking to invest in more digital offerings and technology to remain competitive.

"The amount of consumer adoption of fintech that we saw over the pandemic was dramatically higher than anything we had seen during the previous five years," Pitts said. "Fintech at the consumer level went from being something that was a very nice thing to have to a need. ... We see that as likely to continue accelerating even coming out of the pandemic."

During JPMorgan Chase's most recent fourth-quarter earnings call, Dimon gave a blunt assessment of what banks are up against when it comes to the growth of fintech. 

"We should be scared s---less," said Dimon, adding banks are facing a whole generation of "newer, tougher, faster competitors."

"I expect to see very tough, brutal competition in the next 10 years. I expect to win, so help me God," he said. 

In its earnings presentation, JPMorgan Chase said it plans to add an extra $900 million to its $11 billion technology budget in 2021, with an emphasis on data analytics, cybersecurity and artificial intelligence. 

Participation in the Paycheck Protection Program (PPP) has also increased banks' demand for fintech services amid the demand for the forgivable Small Business Administration (SBA) loans. 

"In many ways, this is like so many things in COVID, just pushing banks into the future," Dan O'Malley, CEO of digital lending platform Numerated said ahead of the SBA's relaunch of the program last week. "If you don't have a high-quality self-service experience, the work is so much greater."