Cost of living crisis and banks to revamp digital banking offering. To say that 2022 has been a turbulent year is quite an understatement. While the energy crisis has driven high levels of inflation, causing people around the world to face higher costs of living, banks are now bracing for even tougher economic conditions and a possible global recession in 2023. This has created a real urgency for banks to further digitalize their channels and deliver new financial services that are more effective at helping customers to cope with ongoing inflationary pressures. As these macroeconomic realities intensify over the coming months, we are likely to see a greater number of banks pull the plug on their legacy, data-driven solutions in favor of more sophisticated tools that are backed by science and actively encourage users toward healthier financial habits. In 2023, the ability to anticipate evolving customer needs, and in turn design user experiences that effectively drive intrinsic human behavior and promote financial well-being, will differentiate forward-thinking banks from their rivals.
THE B2B fintech sector will boom as third-party alliances well. Ever since the pandemic began, banks have been forced to speed up their digital transformation processes. While many have found that building their own digital solutions is not only time-consuming but also extremely costly, there have been several regulatory changes in third-party policy that have come into place over recent years, which have enabled a superfluity of partnership opportunities between banks and fintech. As it is moving into 2023, the circumstances brought about by the cost-of-living crisis will put even more pressure on financial institutions to further digitalise their services and meet the evolving needs and wants of consumers. Consequently, the number of banks collaborating with third-party providers will drastically increase, meaning the level of growth and investment within the B2B fintech space will reach new heights. Additionally, B2B business models are more shielded from market volatilities than their B2C counterparts, and less vulnerable to rising inflation and interest rates. As the overall decline in spending continues to worsen in 2023, we can expect loan demands to fall and defaults to increase, which will further contribute to making B2B fintech an attractive proposition, for both financial institutions and the investment community.
The green banking movement gathering momentum and banks seeking new tools to address ESG targets in a more all-inclusive way. The green banking movement has been gathering plenty of momentum recently, with many banks having already committed to reaching net-zero carbon emissions. In order to deliver on that commitment, banks are starting to explore how they can address their ESG targets in a more holistic way, which not only spans their own operations but also supports their customers’ own decarbonization efforts. With this in mind, in 2023, many banks will move beyond the traditional green financial products that have dominated the market in recent years, such as carbon footprint calculators, and instead implement solutions that are less data-focused and more effective at helping consumers adopt sustainable ways of living and reduce their carbon footprint.
Discussions remain ongoing around standardization and the introduction of scope Industrial Revolution Four application as a way of making an impact in the ESG space and drastically accelerating the transition to net zero. Whether that comes into play in 2023 remains to be seen. What is certain, however, is that the concerns around climate change will not go away and the ESG agenda will only grow from strength to strength. The banks that truly stand out in 2023 will articulate a clear vision for playing a positive role in the lives of their customers, whilst improving their overall financial well-being and driving sustainable behavioral change.
Tracking for 2023, Banks and financial institutions are facing a great deal of uncertainty as 2022 comes to a close. Inflation is skyrocketing, rates are rising, and consumers continue to demand personalized, digital solutions to help them weather the storm. As the new year kicks off, we’re counting down the trends that will emerge through the uncertainty and offering predictions for 2023.
Generation Z disruptions into the financial mainstream. Gen Z is the new desirable demographic for banks and financial institutions. Firms must act now to nab these digitally native customers. This will be tricky, however. In 2023, half of the Gen Z population will be adults, but banks will need to also focus on the younger half of the cohort to instill brand loyalty as early as possible. It is predicted that banks will level up their social media strategies to attract Gen Z through channels that those consumers already consult for financial advice.
Controls become “need-to-have.”Financial institutions that prioritized consumer data protection in 2022 have set the precedent for the coming year. These firms have won consumer trust and now tower over their competition. Those that dragged their feet will now need to catch up to be considered. Expect these firms to spend time and energy on campaigning their new privacy-focused products and services.
Nearing the end of the runway. Digital challengers faced a lack of funding in 2022 as investors favored profitability over growth. For most banks, profits remained elusive and the economic climate grew increasingly harsh. In the coming year, banks will need to turn to new sources of revenue, like lending and credit cards, to flirt with profitability. Otherwise, they face being culled from the ecosystem. It is predicted that banks that can’t cut it in 2023 will be scooped up by fintech, incumbent banks, or other banks. Conversely, those that can cut costs and increase efficiencies to reach profitability will emerge stronger than ever.
Surrounded finance hits growing pains. Embedded finance saw a banner year in 2022, specifically when it came to payments. This year, it expects new avenues of embedded finance to take off, like embedded lending, as the constricting economy will force consumers to increase their borrowing. But 2023 will also be painful for some areas of embedded finance. Some partnerships between providers and brands are likely to end unprofitably, and banking as a service will struggle as interchange fees evaporate with the economic slowdown. And it is foretold that incumbent banks will lean into private label credit cards as a service, well-funded fintech will develop full-stack embedded finance platforms, and other fintech will tap into low-code and no-code solutions for payments, lending, and deposits.
Concluding thoughts and remarks: The bank of the future should integrate disruptive technologies with an ecosystem of partners to transform their business and achieve growth.
Disruption is creating opportunities and challenges for banks. While the risk and regulatory protection agenda remain a major focus, banks must also address financial performance and heightened customer and investor expectations, as they reshape and optimize operational and business models to deliver sustainable returns. Innovation and business-led transformation will be critical for future growth. To remain competitive and relevant, every bank must embrace disruption and strategically build a better ecosystem, not a bigger bank. Banks have to navigate digital innovation, new business models, and ecosystem partnerships, helping banks become the nimble, responsive organizations that customers demand.
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