2023 will be a challenging year for financial institutions. Innovative new technologies are redefining the sector, shaping the services that financial organisations offer, the ways in which they interact with consumers, and the ways in which they apply new sources of data across departments. But the onset of growing economic instability is putting entire markets in jeopardy and threatening to yield mounting uncertainty for lenders and borrowers alike.
Nevertheless, the evolution of financial services is set to continue. Let’s examine the 4 top trends for financial organisations in 2023:
- Open banking will dominate the future
- Cloud-native systems will replace legacy alternatives
- Artificial intelligence (AI) and machine learning (ML) will increase in importance
- Cybersecurity continues as a top priority
1. Open Banking will dominate the future
According to Statista, the number of global open banking users “is expected to grow at an average annual rate of nearly 50 percent between 2020 and 2024, with the European market being the largest”. Considering how open data benefits consumers as well as financial players, it’s easy to understand why this trend will become increasingly popular moving forward.
By granting third parties access to consumers’ financial data, organisations can better understand how consumers behave, what they want, and most importantly, what they need. In turn, financial institutions can therefore improve their customer experience, which results in higher retention and engagement.
According to PWC, the “retail customer propositions that are enabled or enhanced by Open Banking will include:
- Account aggregation to provide single view of accounts across different banks
- Financial management tools using data analytics to identify spending patterns to budget and save more effectively
- Tailored product offerings based on transaction history, such as customised holiday loans based on flight and hotel bookings and anticipated spend
- Increased access to credit for ‘thin-file’ customers due to improved access to financial data”
PwC goes on to state that Open Banking has created a £7.2 billion revenue opportunity. Financial institutions are beginning to act as they look to embrace this opportunity. 47% of banks developed Open Banking APIs in 2021, with another 25% following suit in 2022. In addition, this momentum has been furthered by political action, such as President Biden’s Executive Order on Promoting Competition in the American Economy.
Expect Open Banking to dominate the financial services sector in 2023 and beyond.
2. Cloud-native systems will replace legacy alternatives
Leading financial organisations continue to embrace cloud-native systems. For example, in 2020, HSBC signed a long-term deal with Amazon Web Services to move their existing legacy functions over to new cloud-based alternatives. And then there’s Deutsche Bank, which partnered with Google to deliver a cloud-native “fully-managed environment for applications”.
But why is the cloud so important? According to IBM, cloud-based systems support increased agility, decrease IT costs and operational expenses, and play a key role in ensuring that employees can be effective when working remotely.
This last point is especially important. Hybrid working is the future—in fact, 90% of employees surveyed by Loom are happier with the increased freedom that working from home gives them. By leveraging cloud-native systems, employees can access crucial financial data at any time and any place. With cloud-native capabilities, financial institutions can maintain high performance at all times and dramatically improve both customers’ and employees’ satisfaction.
Cloud-native architecture and systems also enable faster new feature development and automatic upgrades (instead of disruptive updates that require downtime).
3. Artificial intelligence and machine learning will increase in importance
Artificial intelligence (AI) and machine learning (ML) make organisations more efficient and more effective. These technologies gather, sort, and analyse enormous datasets in seconds—and are almost error-free. Financial institutions can spend their time acting on these data-driven insights, instead of wasting unnecessary time and effort manually digging through the data itself.
IDC predicts that by 2026, 85% of organisations will use AI and ML in some capacity to augment their foresight, resulting in a 25% increase in productivity. Low-code/no-code AI is a great example, allowing people without coding knowledge to build applications themselves. While Gartner reported that “low-code tools will make up 65 percent of all app development by 2024”, Forrester also outlined that low-code/no-code industry spending was on track to reach approximately $21 billion by this 2022.
Whether these technologies are used to personalise service offerings, better understand consumers’ behaviour, or reduce errors, one thing is for certain: AI and ML will only grow in importance moving forward.
4. Cybersecurity will become a top priority
Cybersecurity has always been crucial for financial institutions. However, with the number of data breaches up until the 30th of September 2021 exceeding the total number of events throughout 2020 by 17%, it’s clearly more of a concern than ever before. These cyber attacks have a wide-ranging impact on organisations. In fact, 42% of businesses say that digital fraud prevents innovation and halts their expansion into new channels.
Cybersecurity breaches are particularly damaging for financial institutions. Their customers’ financial and personally identifiable information (PII) are incredibly valuable for hackers—and security breaches may well result in the bank losing a huge quantity of customers as well as revenue.
Hence, financial institutions must prioritise cybersecurity in 2023 and beyond. They must not only optimise their own internal processes, but they must also be selective about only working with third parties that put data security at the heart of everything they do.
A make-or-break year ahead
The financial services sector is rapidly evolving. The 4 trends outlined above will only accelerate this evolution, dramatically redefining the industry over the next 12 months. The pace of change is so quick that financial organisations cannot afford to fall behind, even for a moment.
Working with innovative partners, ones that understand and implement new technologies and trends, is the best way for financial players to future-proof their business going forward.