In 2023, banks and financial companies will have both challenges and chances. They deal with new technology, economic ups and downs, and evolving consumer expectations. The way people handle money is changing a lot because of these things. It’s like a significant change is happening in how money works worldwide.
Open Banking Dominance:
In 2023, many people worldwide are expected to start using open banking. This means companies can share financial information with other companies to improve things. It helps make customers happier and more involved and could create an ample money-making opportunity of about £7.2 billion. Leaders like President Biden support this idea, so open banking will likely become a big deal in the financial world.
Cloud-Native Systems Revolution:
Big financial companies are using new cloud-based systems instead of old ones. These cloud systems are better because they are more flexible, cost less, and work more smoothly. Since many people now work in different places, these cloud systems let employees get important financial information from anywhere. This helps them do well at their jobs, keeps customers happy, and makes it easy to add new features quickly. For example, HSBC and Deutsche Bank are working with companies like Amazon Web Services and Google to make these changes happen, showing that the cloud is becoming important in the future of finance.
AI and ML’s Ascendance:
Artificial Intelligence (AI) and Machine Learning (ML) are becoming essential for banks and finance companies. They help these businesses work better by being faster operations, offering efficiency, accuracy, and data-driven insights. Almost all companies are expected to use these smart technologies by 2026, making work 25% more efficient. Also, there’s an easier way to create these smart programs, called low-code or no-code AI, which is supposed to be used in making apps by 65% of people by 2024. Whether it’s making personal services, understanding how people act with money, or avoiding mistakes, these smart technologies are crucial in finance.
Cybersecurity is important for banks and financial institutions. There are more and more cases where Cyber attacks get into computer systems and steal information. This is causing problems and making it hard for companies to develop new ideas and get more customers. In September 2021, there were already more cases of stolen information than in 2020. So, these companies need to improve their internal processes and selectively collaborate with third parties, prioritizing data security. In 2023, having strong cybersecurity measures for information is more than just something they must do. Still, it helps them do better than other companies by keeping customers’ trust and safeguarding sensitive information.
Blockchain technology, mostly known for dealing with cryptocurrency (digital money), is now integral to traditional financial systems. Banks are using it to make transactions cheaper, more secure, peer-to-peer lending, and innovative insurance solutions. Firms like HSBC, Wells Fargo, Paypal, Mastercard, and JP Morgan are already starting to use blockchain in their work, signaling a broader acceptance within the industry. As blockchain becomes even more popular, it is expected to streamline processes, enhance security, and foster new financial opportunities.
RIAs Transform Wealth Management:
People who help others manage their money, called Registered Investment Advisers (RIAs), are becoming more popular. They always have rules from the government to put the client’s interests first, making them a trusted choice. In 2020, RIAs handled a huge amount of money, way more than in the early 2000s. More than half of the people who want someone to manage their money prefer to have an RIA who follows these rules. With 47% of RIAs believing there is room for further growth, the industry is expected to continue reshaping wealth management practices.
Loyalty Programs Drive Business:
Banks are starting to use loyalty programs like CitiBank’s “thank you” rewards, just like stores do. These programs help keep customers loyal and make them spend more money. People in these programs are 62% more likely to spend more. This gives traditional banks an advantage over emerging financial players, such as PayPal and Buy Now, Pay Later programs. Many young people (80% of millennials) and older (68% of non-millennials) are interested in joining these special loyalty programs. So, banks must invest in these programs to keep current customers happy and attract new ones.
Cloud Banking’s Acceleration:
Because of the pandemic, banks are moving more towards using the cloud to offer digital services. The cloud’s scalability and agility are crucial in a world where digital transactions are rising. A research group called IDC estimates that by 2025, people will spend more than $1.3 trillion on cloud services worldwide. Big banks like JPMorgan Chase and Arvest Bank are already changing their main systems to work with the cloud. Cloud banking is the future, supported by offerings like Microsoft Cloud for Financial Services. It makes things work better and makes customers’ experiences with the bank smoother.
Overdraft Fee Reevaluation:
Financial institutions are reevaluating overdraft fees, with some, like Ally Financial and Capital One, eliminating them. Features like Bank of America’s Balance Connect and PNC’s Low Cash Mode aim to help customers avoid overdraft fees, showing a customer-centric approach. In 2019, the fees from spending too much money totaled $15.47 billion. Banks are making these changes because people have been asking for fairer fees. They also want to ensure they’re doing things right as the rules for banks get stricter, and they want to keep customers trusting them.
Mainstream Adoption of Cryptocurrency:
Cryptocurrency market capitalization reaching $2.79 trillion in November 2021 signifies mainstream acceptance. Traditional investors, venture capitalists, and even governments recognize crypto’s potential. The first Bitcoin ETF on the New York Stock Exchange and El Salvador’s acceptance of Bitcoin as legal tender underscores the growing influence of cryptocurrency. As more non-tech individuals enter the crypto space and regulatory oversight increases, cryptocurrencies significantly shape the financial landscape.
ESG and Sustainability Focus:
Environmental, Social, and Governance (ESG) initiatives are gaining prominence as financial institutions commit to net-zero carbon emissions. Green loans, funds, and operational changes to reduce carbon footprint are integral to sustainability efforts. With consumers and regulators prioritizing ESG impact, financial organizations diversify product offerings to align with eco-friendly choices. As regulatory scrutiny intensifies, tracking and measuring ESG impact will be crucial for organizations aiming to be leaders in sustainable finance.
Regulatory Compliance Challenges:
The financial sector anticipates increased regulation in 2023, with 79% of banks expecting heightened scrutiny. Regulatory activity focusing on consumer protection, ESG, and security necessitates enhanced compliance measures. Financial institutions must prioritize leveling processes to meet compliance requirements by creating audit trails or employing data analytics tools. As regulatory landscapes evolve, firms proactively addressing compliance challenges will navigate the shifting terrain more effectively.
Rise of Personal Finance Apps:
The surge in personal finance app downloads, particularly during the pandemic, highlights a growing trend among individuals seeking convenient ways to manage their finances. With its rewards system, apps like Square’s Cash App exemplify the industry’s focus on customer-centric solutions. As the U.S. embraces open banking, the allure of these apps is expected to grow, promising users enhanced security and a seamless financial management experience.