In 2023, financial institutions are forging ahead with plans to prioritize customer experience and invest in technology while carefully monitoring the state of the economy. According to a survey conducted by Arizent and American Banker, customers continue to call for digital advancement within this sector – prompting firms across banks, credit unions and fintech alike -to innovate accordingly. Although expectations vary on economic recovery, organizations have shifted their risk strategies as they strive towards meeting consumer demand.
Top areas of focus for financial institutions
- Developing strategies based on evolving customer demands
- To stay competitive, financial service providers must continually adjust to their customers’ changing needs.
- To meet the rising demand for digital channels, companies are implementing tech initiatives, consolidating branches, and restructuring fees. 30% of the respondents are prioritizing customer data platforms, which gather and analyze customer information to create personalized solutions.
2. Uncertainty of economic recovery
- Despite efforts to manage economic downturns, the macroeconomic climate of the last year has posed significant challenges for many business leaders. Accordingly, over a third reported that their companies experienced direct impacts due to changes in this cycle – and most anticipate it will take at least until late 2023 or even 2024 before a full recovery can be realized.
- Among larger firms, there was greater optimism concerning future prospects; however smaller businesses were more likely than other groups to believe that full recovery had already occurred.
- Financial institutions are deeply concerned about the long-term effects of inflation on their customers, with only a small minority expressing no worries. Over 60% of those who expressed the highest level of concern were also less optimistic about a quick economic recovery.
3. Increase in technology spending
- Most of the surveyed companies will increase their tech spending by at least 10% in 2023. Over 50% of smaller businesses with less than $10 billion in assets believe that the changing competitive environments due to new players – both fintech and major corporations alike – making entry into the field will greatly influence investments over the next three years.
- However, one-third of organizations will not be increasing their investments due to inflation.
- The top tech priorities of organizations for 2023 include data and analytics, enhanced security and fraud mitigation, digital payments, cloud-based architectures, and mobile apps.
4. Enabling crypto transactions
- In 2022, cryptocurrency markets were rocked by tumultuous times as major players such as Celsius Network and Voyager Digital declared bankruptcy while FTX suffered a great decline. Although the future of crypto was seen as uncertain following this, financial institutions held differing views on its integration into their strategies.
- However, the survey reveals that more than one-third of companies intend to allow cryptocurrency transactions within the next five years whereas two-thirds anticipate Washington’s regulatory overreach into cryptocurrencies will cause significant competition among payment services providers.
5. Reduction in the number of mergers and acquisitions
- The past year has seen a significant decrease in the number of deals being made, which is in line with the current state of the economy. This is a contrast to the period from mid-2020 to late 2021, which was marked by increased activity in mergers and acquisitions (M&A). Most companies do not think that M&A activity will pick back up until 2024 at the earliest, and 12% of respondents said they do not think it will rebound at all.
- A recent survey by McKinsey & Co. reveals that 60% of bank corporate-development professionals anticipate increased merger opportunities in the upcoming year and a half, likely due to economic conditions resulting in lower valuations and greater demand for sales.
In conclusion, it is evident that 2023 will be a year of digital advancement for financial institutions as they prioritize the customer experience. With plans to invest in technology, enable crypto transactions and shift risk strategies, organizations are preparing to meet consumer demands.
Source: American Banker