Banking trends for 2023

Jan 6, 2023

   

 

What are the top banking trends to watch out for in 2023? We’re going to take you through the banking technology developments everyone will be talking about this year.

Even by the standards of the fast-moving world of fintech, the past few years have seen immense changes in the industry. Exacerbated by external factors such as COVID and driven by the ever-increasing speed of technological development, it’s no wonder organizations struggle to keep up with a dizzying array of options when it comes to digital transformation.

With that in mind, the beginning of a new year is the perfect time to get ahead of the game by looking across the emerging trends in banking for 2023.

 

Retail banking

2023 is set to be an exciting year in the world of retail banking.

Legacy platforms utilized by major financial institutions may have served them well for 20+ years, but they simply can’t keep pace with today’s digitalized world and the changing customer expectations that accompany it. Banks are looking to the future and assessing what kind of platforms will support them for the next 20+ years.

Here are the top 10 trends in retail banking for 2023:

  • Cloud migration: Hosting the retail core banking system (CBS) in the cloud grants access to superior tools and computing power and enables a bank to achieve instant scalability in line with long-term objectives. The flexibility of cloud combined with utilization of Agile DevOps has allowed banks to develop and test new products and services much quicker than on a traditional mainframe. According to Luxoft analysis, over 75% of applications will move to the cloud by 2030.
  • Shift to digital banking: Customers are moving to digital channels at a much faster pace than in the past. Online banking use has risen by 23% and mobile banking use is up by 30%. These changes are no doubt permanent, accelerating the migration to digital channels by 3–4 years over pre-crisis trends. As customers move online, banks’ position at the intersection of the customer and financial services is coming under attack. However, this doesn’t mean physical banks have no role to play — there may be fewer human contacts, but each one matters more. This gives rise to the concept of ‘phygital’ — using technology to bridge the digital world with the physical world to provide a unique experience for the end user.
  • Hyper-personalization: Technologies such as intelligent decisioning, open banking APIs, cloud computing, robotics and automation, embedded solutions, and cybersecurity will differentiate banks in 2023 and beyond. In each technology deployment, the focus must be to elevate digital customer experiences at speed and scale. Around half of all banks are focusing investments on identity proofing/digital identity, open banking, migrating workloads to public cloud infrastructure and delivering greater personalization. Customers don’t want to be treated as part of a broad segment, but a segment of one, and new developments such as cognitive computing can give a much more personalized banking experience.
  • Costs optimization and reorganization: Banks need to rethink and realign costs — starting now. Retail banks must become digital from front to back and they need to organize around value streams — a series of value-adding activities that lead to the overall result customers need. Without addressing costs, banks will struggle to monetize their current investments.
  • New players in the fintech sector: New fintechs are challenging traditional banks in many areas, including retail. Investors are plowing money into such initiatives because they believe that a major disruption in the financial market, similar to that imposed by Amazon on the retailer market, is only years if not months away. The technology maturity and banking knowledge within fintechs is increasing, and nonbank insurgents are making strong inroads in distribution, threatening to commoditize many banking products.
  • Digital and technical resilience: Organizations need to address several urgent priorities in this area, from reducing cyberattacks and increasing security, to a resolute technical infrastructure, knowledge-based authentication and electronic identity verification.
  • Agile and scalability: Customers expect more, now. The purpose of investment isn’t just to reduce costs — it’s to enable agility and drive up customer satisfaction.
  • Artificial intelligence (AI) and machine learning (ML): AI and ML offer a bank the ability to automate expensive processes and free up IT resources to focus on the customer experience. This technology offers advanced functionality in a number of different areas within the CBS — automation of credit approvals, financial advisory services, automation within deposits and customer self-service. Most modern CBS products offer advanced analytics functionalities, and according to Luxoft research, 64% of banks believe that advanced analytics and AI will have a very high impact on the banking business in 2023. The AI of the future has a role to play in a diverse range of functions, such as predicting system outages, chatbots, predictive analytics, enhancing UX and customization, automated conversion of legacy tooling and the use of automation to free up resources.
  • Blockchain: Blockchain and its associated technologies are an emerging trend within large financial institutions and have use cases across the CBS. Despite its link to the cryptocurrency market, the technology itself has much potential, and market confidence is indicated by the large investments made by some of the incumbent first-movers. So far, Bank of America has submitted 50 blockchain patents. Blockchain grants access to DLT and smart contracts, and has the potential to make 80% savings in post-trade infrastructure by leveraging DLT, according to research from the International Swaps and Derivatives Association.
  • Internet of Things (IoT): IoT is a buzzword to watch for 2023. Its technologies offer banks new and high-volume flows of data, creating opportunities to improve the customer experience through their products and services. It can be integrated with KYC strategies for more and immediate data, with real-time access to account information, enhanced analytic functions, integration with smart contracts and much more. Integration with smart-home devices has been tested with major banks, and there are many potential use cases for this emerging technology.

Full-scale banking digital transformation programs can take up to 5 years, so these once-in-a-generation undertakings need careful planning and consideration. Many organizations try to delay the inevitable by remaining on their existing core platform and opening it up with APIs, but this is merely a postponement of the huge technological challenge to come.

The transition period, moving from an outdated legacy system to becoming fully digitized, can be a challenging time for any organization. It requires strong leadership, careful thought and planning, and an experienced partner who has successfully guided organizations through these changes before. Luxoft has a proven methodology to help banks identify the technology best suited to their requirements, both current and future, as well as develop a road map and define the architecture and business processes necessary to get the bank safely through this transition period. To find out how we can help, click here.

 

Lending

Today’s borrower is tech-savvy, digitally focused and wants relevant communication across preferred channels. Borrower expectations have changed dramatically over the past few years, and traditional call centers seem outdated. In addition, regulatory and audit procedures have become more complex, while servicers are hampered by legacy platforms that are costly to maintain and limit agile, flexible growth.

So, what can lenders do to meet expectations and digitize this space? 81% of servicers say they are aggressively or very aggressively pursuing mortgage process digitalization (Forbes Insights - Digital Mortgages - How Leaders Are Harnessing Tech To Streamline Processes, Cut Costs And Improve Customer Experience / p. 8). Here are the top 5 trends that will be key to that process:

  • Call management: Guides agents to the best resolution and produces 25–30% savings in cycle time and resource productivity, as well as an improved customer experience and consistency among customer experiences.
  • Workflow management: It’s now possible to manage downstream processes and third-party interactions in a single case, resulting in a 30–50% lift in resource and efficiency gains and the ability to orchestrate the entire process and data in a single solution.
  • Decisioning: By extending software directly to customers, it’s possible to reduce inbound calls by up to 35%, reduce short sales timelines and improve customer interactions.
  • New portals: Portals are now available with scalable underwriting and investor eligibility and affordability waterfall rules built in. This can reduce decision timelines by 20%, increase underwriting capacity by 25–30% and improve underwriting consistency and quality.
  • AI processing: The use of automation, AI and RPA within workflow tools to reduce manual steps frees up resources and increases process speeds.

Luxoft’s EarlyResolution system provides the most advanced, flexible and scalable default management system for the treatment and resolution of mortgage, second lien, credit card and auto loans, with dashboards and customized reporting that enable rapid and informed decision-making. EarlyResolution automates the entire loan default management process and allows clients to self-serve, achieving lower call volumes and increased collections by allowing customers to pay and view statements online. To find out more, click here.

 

Wealth management

Competition in the wealth management space is evolving and gearing itself towards a more holistic and tailored approach to serving the ever-changing needs of the next generation of clients and advisors.

Combined with recessionary pressures, wealth managers must find a way to attract and retain clients while reducing the cost in servicing them.

We’ve seen a steep change in the focus of wealth managers on the digital agenda, and with it, a significant increase in the number of clients whose expectations are being met. However, provision of information remains the primary capability, and many organizations will have to overcome challenges of legacy technology and data in order to satisfy demands for increased functionality, and to bring all the elements together into a seamless multi-channel client journey. This being the case, the next steps will take skilled planning and execution, but with beneficial outcomes including client growth, retention, and increased efficiency, the rewards are high.

Let’s take a look at the top 5 emerging trends for 2023 in the wealth management space:

  • Next-gen client experiences: Firms are aggressively targeting the next generation of clients — the Gen X and millennial client base. This segment is positioned to inherit over $70 trillion of investable assets over the next 25 years from the so-called boomer and silent generations. These new clients want visualization, personalization and coordination.
  • Digital transformation: Firms are actively working on modernizing their legacy platforms by enhancing digital client and field experiences based on new generational preferences. Providing consumers with a digital experience is critical — 65% of wealth management firms said the digital client experience is very or extremely important to their success, up from 55% in early 2020.
  • Advisor succession: The transfer of clients from aging advisors (average age of 55) will happen in the next 10–15 years. Designing platforms and business models to accommodate this change will be critical as firms think about the next generation of advisors.
  • Operationalization of planning: Offering holistic, relationship-based goals planning and financial wellness using aggregation of accounts and other tools has been a target model for many firms.
  • Cybersecurity: Firms are increasingly worried about the security of their data and systems, particularly in light of wider global issues currently at play. In fact, cybersecurity is the top problem for more than 58% of wealth and asset management firms.

Luxoft has over 600 wealth specialists and engineers helping our clients modernize their technology stack in line with changes required by the market and clients. Click here to find out more about our offerings.

These are challenging yet exciting times in all areas of the banking industry, with huge opportunities presented by rapid technological development.

To find out how Luxoft can help with your transformation journey, contact us today.

  

For more Banking and Capital Markets insights, see Luxoft on LinkedIn

 

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