With talks of the global economy being on the verge of a recession, the efficiency of our financial ecosystem will be crucial for stabilizing the economy. The collaboration between traditional and neo entities has never been needed more. As banks and Fintech continue to converge, it’s critical to understand the top banking trends of 2023.
It’s an exciting time for the banking industry. While there is a certain degree of uncertainty in the financial markets and disruption continues to shake up the space, the regulatory climate is favorable, and digital transformation technologies hold a lot of opportunities. Overall, US banks are healthy, with total assets in the United States at the peak of $600.973 billion as of September 2022.
Regulating bodies seem to encourage innovation to improve security and the customer experience. Financial institutions that dedicate resources to and prioritize digital transformation will be positioned to do well under competitive pressures.
The major trends to expect in 2023 include the reign of process miners, the management of technical debt by agile companies, and a heightened focus on green financing activities that aim to slow down climate change. As FIs are dynamically changing to keep up with disruption, they will continue to partner with organizations that will help them create more agile and scalable frameworks for managing data and leveraging that data to serve customers better. The question is how well some can manage to undergo such a transformation compared to others.
While the first two trends are just different facets of the same coin that talk from the perspective of industry players, the third one is of the essence for humanity.
Banks and Fintechs
The relationship between banks and Fintech continues to evolve. What started as a seeming rivalry has eased into a collaborative framework with Fintech and banks working together. While some of this collaboration may still err on the cautious side, incumbents are increasingly partnering with Fintech and Big Tech to push digital transformation and more customer-centric products and services. This has also been a boon for technology companies, as FIs serve as a significant revenue source. But to preserve the revenues in the economic climate ahead, the banks need to adopt automation and reduce headcounts to save money while still offering top-class services to one and all.
The transformation of the banking industry relies on collaboration with technology organizations. These partnerships will help drive the movement toward modernization and away from legacy processes and technologies. Although, banks should be mindful while ripping their manual systems apart by assessing the feasibility of automation and the extent to which it is required.
Banks and Digital Transformation
Digital transformation is a large agenda item for FIs, though this type of transformation must be strategic to have an impact. Digital transformation must be prioritized as a holistic process meant to pave the path to success for the next five to ten years and to be a foundation for improved customer experience built on the emerging technologies that will facilitate that goal.
Digital devices have fundamentally changed how people bank, forcing FIs to evolve to meet consumer expectations better and keep up with technology trends. The sheer amount of data collected and analyzed means traditionally siloed systems are poorly-suited to keep up. To remain agile and scalable, FIs must leverage cloud technologies, AI and machine learning, and advanced analytics to stay current in the digital age.
Complacency with technology must be avoided. FIs should embrace digital transformation as the regulatory climate supports it and as the technologies become more accessible, easier to implement, and economically feasible.
Going by recent reports, here are three trends and predictions for this year:
- Even though most banks globally use the cloud in some capacity, only 8% of their workloads across their functional areas have done so as of yet.
- Banks must embrace a BaaS ecosystem in order to expand their operations and make the most of their assets, including infrastructure, data, and capabilities.
- 73% of brands are going to launch embedded financial services in the coming years.
The element of data management and analysis becomes especially important as measures like PSD2 open up data to third parties and as GDPR strengthens security measures around customer data. Data integrity and protection are paramount but also require a fine balance to eliminate priority conflicts.
Deloitte suggests that the cloud will play a major role in some of the biggest transformation priorities, including AI-backed decisioning, core modernization, and data management. In turn, cloud providers will continue to develop increasingly sophisticated offerings that transform a more seamless process. Agile banks will end up flourishing, while the ones lacking technical prowess might succumb to the competition.
Steps Toward a Greener Future
The current US administration has ramped up the momentum for reversing the adverse effects of climate change by seeding various climate change initiatives. The prediction of the green finance market being overwhelmed with green bonds will be a considerable feat and signal an acceptance of responsibility towards climate change. Green consumerism has been witnessing a rise, especially since the pandemic. Innovation in tech products and services to help replace CO2 emissions is driving the wave of new advancements. As the Inflation Reduction Act has taken charge on US soil, the $369 billion bill for slashing GHG emissions to up to 40% in the next decade is where much of the action will be in the near future.
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