Venkatesh Varadarajan, Partner, Financial Services, Infosys Consulting
2022 put the UK though one of the most uncertain financial climates seen in over 40 years, with inflation and the cost-of-living crisis putting consumers, businesses, banks and government under enormous economic stress.
2023 will be a time for re-evaluating investment and streamlining processes. Banks will be focused on playing their part in protecting and supporting consumers against both fraud and financial instability, plus trying to stay competitive against tech-savvy challengers. Based on these key priorities, here are five banking trends I expect to see in 2023.
Banks are in wait and watch mode
The switching trend will continue into 2023 as consumers search around for better deals amidst a difficult economic situation. Banks are in wait-and-watch mode right now. They are passing additional costs on to consumers, effectively bumping up interest rates in the sentiment that these will increase even further next year. It’s unlikely they will go head-to-head with each other and offer aggressive rates, due to ongoing market uncertainties. We’ve already seen them take stock, withdraw offers and hike up mortgage rates. High rates will remain well into next year, and at least until the market situation stabilises further.
The power of AI in the fight against fraud
The globalisation of banking is opening finance up to a whole variety of new fraud situations. Increasingly, consumers can move finances online between standalone bank accounts in different countries, but this heightens the risk of money laundering and financial crime. In 2023, we’ll see more banks attempt to combat this by adopting tools that enable the earlier detection of suspicious activity in transactions. AI and machine learning tools have already seen a lot of traction post-Covid and during the economic bounce back. However, adoption will become more widespread as banks look to conduct data-backed sense checks which can identify causes and ensure the detection of fraud much earlier in the lifecycle.
Both banks and insurance firms will continue to beef up operational, security and technology remediation activities to better identify potential risks. This means more audits of various processes, including legacy technology and disaster recovery. As threats increasingly target these business-critical areas post-Covid, we’ll see more programmes being driven under direct guidance from leadership, and teams bolstered by SMEs and external support.
Increased competition between big banks and smaller fintech players
Buy Now Pay Later (BNPL) is here to stay. It’s cemented itself as a new payment method, offering a flexible, faster way for consumers to purchase items. In the past year, we’ve seen UK banks like NatWest, HSBC, Monzo and Virgin Money all launch BNPL products, to increase appeal amongst younger customers where demand for the service is high. In 2023, we’ll see the bigger players move from strength to strength in this area, buoyed by consumers typically gravitating towards more established banks during economic uncertainty.
This isn’t to say smaller players like Klarna will suffer. In 2023, we can expect the tussle between the two sides to continue. As the cost-of-living crisis continues, a key challenge is ensuring consumers don’t overspend and fall into debt. Bigger banks have an upper hand as they can access rich customer data based on multiple transactions, credit cards and mortgages. On the other hand, fintechs like Klarna and Clearpay are far nimbler and quicker at mining this information. Both sides will need to better utilise these capabilities, as it’s likely more regulation will be introduced in 2023 requiring firms to check customers can afford to use their products.
The promise of the Metaverse
The Metaverse is still a relatively small market, but it’ll grow substantially over the next decade—forecasts suggest by almost 40% yearly between 2022 and 2030. A lot of banks are already using the metaverse for training purposes, but it has huge potential to enhance the customer experience and excite customers to bank and shop for new products. Virtual banking is a growing space and can help keep banking costs down, reducing the need for physical space and enabling branch optimisation.
Big tech is already placing large stakes in this, and the intersection of tech and financial services will accelerate over the next few years. Major players like Meta, Apple, and Amazon all have a deep understanding of customer behaviour. They will use this data to wire up consumers in various ways and financial services are a critical component of this.
In terms of regulation, it’ll be smaller rules coming in that impact other channels, rather than big-ticket ones that we see in capital markets or investment banking. Like we’ve seen with certain sets of regulations introduced off the back of branch openings, then contact centres, then the internet and most recently mobile banking, the metaverse will be the next stage in this process as we look to virtual banks.
The generational appeal to stocks and shares
Capital markets activity will continue to grow despite market volatility as more consumers invest in stocks and Isas. Previously, the customer base in capital markets was very institutional in nature. However, the pendulum has swung, especially towards younger generations, thanks to the accessibility and ease of stocks and shares platforms online and consumers sitting on more savings from lockdown which they are willing to invest.
These platforms have not only increased awareness and knowledge around investing, but low or zero fees charged have made it far easier to invest smaller sums of money. We’ll see momentum with capital markets activity continuing into 2023 and beyond as younger consumers look to grow their investments in the long term.
