Some people may dislike change. However, change is inevitable in industries whose success relies on rapid development, such as banking and FinTech.
For the upcoming 2023, analysts like Gartner put an accent on the expected higher personalization of services.
In their Global Banking Annual Review McKinsey stated that after a decade of flat returns, 2022 represented a new era of banking. Almost all segments of banking have seen improvements and this trend is about to continue in 2023.
Forrester predicts the steady growth of open banking. Additionally, they also stress the need for speed and ease of creating and using digital platforms.
Whatever the twists and turns of 2023, one thing is sure - an interesting future lies ahead.
But before we witness it all, we can confidently wish you:
A Happy New, even more, customer-centered digital transformation!
Now, let’s jump into the trends you should keep an eye on in 2023.
1.Smarter Banking with AI
Chatbots and virtual assistants already have developed immensely in recent years. This trend is to deepen even more.
Numbers say that 93% of consumers want their bank to know them and their banking needs. However, only 33% feel their current banks deliver this.
Based on that, we expect banks and financial service providers (FSPs) to transform into technology companies more than ever.
Furthermore, the new depths of AI-based relationships will result in reduced call center volume, developed virtual assistants, and extensive building of AI neobanks (digital-only banking platforms that operate solely online, unlike digital banking that acts as an extension of traditional banks).
Spotted opportunities: providing a personalized, automated customer experience.
Challenges to overcome: fraud, compliance, and trust; AI technology adoption.
2.Evolving Payments Functionalities
Since the upcoming 2023 is expected to be highly customer-centric, therefore, we look forward to evolving all services related to the ease of payments.
Banks will continue to scale their transaction volume through the fast adoption of P2P payments. This trend comes together with faster, real-time Account-to-account (A2A) payments and stored-value payment systems like mobile wallets.
In fact, Forrester predicts that in 2023 we will see at least one global retailer accepting bank-based payments on their website in an effort to reduce the cost of card transactions.
The growth of virtual cards will continue along with the growth in e-commerce and digital payments.
Moreover, BNPL is expected to become even more nuanced. Soon many BNPL providers will expand beyond their initial offerings and adopt new mechanisms for more diversified income.
In the next 10 years, embedded finance is expected to surpass USD 7 trillion in value, which is double the combined value of the world's top 30 banks. BNPL for businesses, merchant financing, and trade credit insurance have the potential to give embedded finance new heights.
Spotted opportunities: expanding offerings in embedded finance, closed-loop payment systems for P2P (digital wallets), BNPL, and real-time payments.
Challenges to overcome: smooth automation of payments and ease of integration with third-party providers.
3.New Open Banking, Open Finance & Banking-as-a-Service Options
The adoption of open banking technology will reach unprecedented levels in 2023, with consumers relying on it for all aspects of their financial lives - from tailoring their savings to personalizing their loan and credit applications.
Therefore, banks and FinTechs will have the task to answer this demand and offer numerous BaaS solutions according to the latest technology advancements.
To enter the open banking and BaaS playground, banks will increasingly implement open API platforms to expose select banking products and services to FinTechs.
FinTechs themselves will be provided by banks with more robust Developer Portals with API documentation and sandbox testing environments that will help them quickly embed the desired banking services. Here again, the key is integration and fast time-to-market.
Spotted opportunities: going beyond PSD2 compliance into the development of new BaaS models in SME lending, POS financing, virtual accounts as a service, and more.
Challenges to overcome: adopting a robust open API platform as a middleware for open banking and BaaS, providing rich Developer Portals to FinTechs, and regulatory compliance.
4.Super Apps with Super Powers
No more fragmentation in the finance sector. Super Apps are here to stay and will develop extensively in the next year. More customers prefer to manage their own finances. The one-stop-shop Super App platforms are convenient and innovative and embed more and more third-party value-add services.
The year 2023 comes with the updated role of the Banking App as a whole - from a self-service tool to a financial management all-in-one platform, including a highly personalized advisory element too.
This trend started with the wide digital wallet adoption that the financial sector is facing.
Globally, statistics show that mobile money services are expanding rapidly in underbanked markets in Africa, Asia, and Latin America. Mobile wallets will continue the transition to Super Apps with wider integration with other services.
Spotted opportunities: building a Super App ecosystem, greater third-parties integration, and adopting omnichannel platforms.
Challenges to overcome: implementing high-quality UX that helps users navigate more complex banking and wallet apps, and the right products and services for a Super App positioning.
5.The Dominance of Biometric Authentication
The bigger the transaction volume due to the digital banking and wallet systems, the more important becomes biometric authentication, including face, fingerprint, palm, or retinal scans for identity verification and mobile payments authentication.
The end game? Decentralized identification will ease the relationship between banks, businesses, and their customers. Apps that use decentralized identification can help digital wallets store sensitive data points and distribute them when necessary.
Thus said, the right application of the best practices will surely also serve as a future trampoline for the comfortable existence of banks and FinTechs in the Metaverse.
Spotted opportunities: decentralized identification, new levels of KYC.
Challenges to overcome: rising security standards, various regulations, and customer readiness in different countries.
6.Refined and Redefined Bank-Customer Relationships
People strive towards technology transformation but are still longing for human connection. The need for two-way communication with financial institutions will continue to grow.
Researches show that people actually want to text their bank and are frustrated if they cannot reply to a financial service provider with a message.
This need is supposed to be overcome partially with the advanced AI technology used for chatbots. Speed and efficiency are still on the top wish list. However, the option for human interaction especially when there is a problem escalating is preferred.
Therefore, the banking and FinTech industry should carefully examine the needs of their customers and offer them not only automation but communication too. Thus, including various channels in this communication.
Spotted opportunities: make your bank “a bank on the go” by adopting a channel-agnostic approach; include human interaction where required through direct chat, video, or call embedded within customer journeys in the apps.
Challenges to overcome: balancing digitization with human interaction; diversifying the channels for the customers (SMS, MMS, RCS, social media apps, email, voice, chat, etc.) to ensure the ultimate customer experience.
7.BaaE (Banking as an Experience)
Banks and financial service providers today are not static distant institutions. Banking is transforming into an experience-oriented industry.
BaaE is expected to be among the main differentiators. Future financial solutions will combine not only convenience and security but also a new dimension of engagement.
To become a preferred financial partner, banks and FinTechs are expected to advance in analytics and boost service quality. The customer-oriented approach of all players in the financial sector expectedly will be rewarded with multiplied customer retention over time.
In 2023 it won’t be enough just to offer financial services in the digital channel. Therefore, another key topic for the new year is the next level of UX/UI for banking and FinTechs. This means more intuitive, easy-to-use, and accessible digital solutions that create exceptional banking experiences for the customer.
UX will play an even more crucial role in enabling seamless onboarding and payment experience. The result is increased ROI and upscaled customer retention.
Spotted opportunities: Improving UX/UI for banking; Becoming the game-changer in BaaE.
Challenges to overcome: Finding next-level UX/UI talent.
8.Digital Lending for SMEs
The rising inflation and possible recession opened up new possibilities for banks and FinTechs to react and help SMEs to survive by offering them new lending products and services.
Lenders will continue to accelerate the digitization of their credit process to facilitate auto-decisioning for loan applications. Currently, there is an increase in the use of Machine Learning (ML), Analytics, and Artificial Intelligence by banks in the credit process.
With AI it takes a few seconds to score a customer and approve a digital loan. AI and ML models continuously analyze historical & alternative data to come up with the appropriate algorithms to score borrowers, contain credit risk & ensure compliance.
With the advancements in the financial industry, there will be developments in the field of RegTech too to execute regulatory monitoring, reporting, and compliance in the sector.
This process is expected to develop further.
Spotted opportunities: Seamless integration of innovative lending technologies to lenders’ existing digital channels and systems, to facilitate faster decisioning of loans and overall portfolio health.
Challenges to overcome: Staying competitive in the current uncertain reality; Reassessment of data and risk rating models regularly; Borrower engagement.
9.Alternative Financing like Factoring
Alternative financing refers to the business funding offered by nonbank institutions, like revenue-based financing (RBF), for example. Invoice factoring is another alternative financing option that sells a business's outstanding invoices for immediate cash at a discount.
These concepts are not new but are expected to go fully digital and grow significantly in 2023.
The rise of targeted banking products for niche markets is expected to benefit segments like MSMEs, freelancers, the unbanked, and the underbanked.
In fact, Gartner predicts that by 2027, 60% of larger banks will use nontraditional underwriting to finance underserved small businesses.
Several reasons can be spotted behind this:
- The post-Covid-19 financial gap still exists.
- The boom of e-commerce businesses and their high-risk profile for financing by traditional bank lenders.
- The will for financial inclusion worldwide.
With a current volume of USD 6.62 billion, the global alternative financing market size is expected to grow by 6.3% from 2022 to 2028, according to numerous statistics.
Spotted opportunities: Development of Digital Lending and Digital Factoring solutions.
Challenges to overcome: Providing accessible digital platforms for the target customers of alternative financing; Implementing digital banking platforms that allow flexible product creation.
10.The Rise of Environmental, Social, and Governance Initiatives
Also known as ESG (environmental, social, and governance), these initiatives will increasingly be taken into account by the financial sector and will go beyond the carbon footprint measurement in banking apps.
Analysis of Bloomberg predicts that global ESG assets will surpass the USD 53 trillion mark by 2025. Moreover, a number of incubators have emerged to cater to the needs of firms and organizations that are focusing on ESG in their FinTech solutions.
For example, the Monetary Authority of Singapore (MAS) is partnering with Google Cloud to introduce the Point Carbon Zero Programme which supports climate FinTech innovation in Asia.
Spotted opportunities: Creating offerings that help end customers be environmentally and socially responsible; financing ESG-oriented businesses
Challenges to overcome: Formulating practical green banking solutions and implementing them via digital technologies.
Key Takeaways
- There is expected even higher personalization of services that banks and FinTechs will offer aided by AI.
- BaaE (Banking as an Experience) is expected to be among the main differentiators in the financial sector.
- Banks will continue to scale their payment business through the fast adoption of P2P payments, together with real-time A2A payments and stored-value payment systems like mobile wallets.
- Decentralized identification will ease the relationship between banks, FinTechs, businesses, and their customers.
- ESG (environmental, social, and governance) initiatives will increasingly enter the banking sector.
Sources:
- Forrester
- Gartner
- McKinsey
- Statista
- Grand View Research
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