2023 digital banking trends: cost-cutting strategies, optimization solutions & new revenue streams
The market has experienced a series of shock waves in the past three years largely due to the ripple effects of Covid-19 and the Russian invasion of Ukraine. The economic swings have been so dramatic that it can almost seem as if continued uncertainty is the only certainty in the market.
Given the volatility, the banking industry is increasingly focusing on cost-cutting, optimization, efficiency, and new revenue streams to weather the financial storm. Below are some of the trends expected to play a significant role in the banking industry in 2023.
When people refer to AI learning models, in most cases, they are talking about discriminatory learning algorithms—algorithms that make decisions on new input based on training. Generative AI, on the other hand, is only given limited parameters during training, and then draws its own conclusions and can even generate new, innovative creations including digital images, video, audio, text, or code. In other words, it’s AI that teaches itself.
In banking, generative AI can be utilized in fraud detection, risk management, and even trading prediction. It can also enhance personalization, crafting a unique experience for each and every customer. The potential is so great that Gartner predicts that 20% of all test data for consumer-facing use cases will be synthetically generated using generative AI by 2025.
In its current iteration, generative AI uses a lot of computing power, making it more expensive than other types of AI. However, its far-reaching capacity is likely to make it a worthwhile investment for banks in the coming year and beyond.
2. Autonomic systems
Like its name indicates, autonomic computing (AC) refers to computer systems with self-management capabilities. Computer systems in banking are increasingly complex, posing a barrier to growth. AC breaks down that barrier, enabling computer systems to learn from their environment, become more agile, reduce complexity for users, and perform better.
The potential use cases for AC in banking are almost infinite and include anything from debt management to lending, or even financial assistance for customers. As AC is integrated into banking, the range of use cases is likely to expand even further.
3. Privacy-Enhancing Computation
Given the sensitive nature of financial data, customer privacy is always a key concern in digital banking, especially when conducted in untrustworthy environments. Privacy-enhancing computation (PEC) was designed to address that challenge by using a variety of privacy-protection techniques to secure personal data. Given the importance of privacy in data management, Gartner predicts that 60% of large organizations will use one or more privacy-enhancing computation techniques by 2025.
Within the context of banking, PEC allows banks to extract value from data while still remaining compliant with the many privacy and data protection laws that have been passed worldwide. For example, it can be used in fraud detection, anti-money laundering (AML), and other intelligence operations.
4. Focus on process optimization
The economic uncertainty is driving banks to look for ways to keep costs down. When it comes to tech investment, that means prioritizing technologies that focus on efficiency and automation. The calculation is simple—when simple, repetitive tasks are automated, costly human resources are freed up to focus on more complex tasks where the human touch provides added value.
Digital data intake can play a key role in optimizing processes and boosting effeciency in banking. First and foremost, it eliminates the need to invest resources in manual data entry. But it doesn’t stop here. Since data can be verified in real time, it prevents the errors that are inherent in any process with manual touchpoints. Furthermore, when data intake is digitized, it can be collected in a format that is compatible with all organizational systems, so data isn’t siloed and no additional resources are needed for integration. Data can be easily accessed by anyone in the organization, and the same data isn’t collected repeatedly.
5. Green finance
Green finance, or investment in sustainable development priorities such as renewable energy, is expected to surge in 2023, despite the overall economic slowdown. Many countries have committed to ambitious emissions goals, such as those outlined in the Inflation Reduction Act in the United States. Others are looking for ways to reduce dependence on oil from Russia and other problematic supplier countries by developing alternative energy sources. No matter what their goals are, these green initiatives need to be financed.
Many governments are supporting low-cost financing for sustainable projects, and Forrester estimates that green loans alone will reach $270 billion by the end of 2022. Green bonds have also been taking off and may continue to do so in 2023. Banks can leverage these trends to create new revenue streams in lieu of traditional ones that are experiencing a slowdown.
6. Biometrics for fraud
Biometrics can play a key role in fighting fraud in banking, and therefore more banks are expected to utilize biometrics in various banking processes. For example, when it comes to authentication, a password can be hacked or stolen, but biometric authentication data like a fingerprint cannot. Biometrics also reduces friction in the authentication process —it’s easier to swipe your finger on the screen than to copy an access code from an email or remember a long and complex password.
Biometrics are also important when onboarding new customers. Before a customer can open a new account, he or she needs to verify their identity. Rather than requiring the customer to come into a physical branch to show their ID to a bank employee, face biometrics can be used to match a digital image of a person to their government-issued ID, and also to ensure that the image is of a live person rather than a printed image, digital image, video, or someone wearing a mask.
7. Customer experience trends
Improving the customer experience has been a priority in the banking industry for some time, but many banks have been slow to implement strategies and technologies that give customers the delightful experience they expect. 2023 is the time to change that, and go all out to improve the customer experience in banking.
First and foremost, that means reducing friction, starting at the initial intake. It’s time for banks to say goodbye to physical forms and clunky PDFs, and invest in frictionless, user-friendly digital data intake processes.
Next, banks need to offer customers multiple ways to engage, and seamless transitions between them. Multiple studies have shown that customers prefer self-service options for simple transactions, but prefer to interact with human agents in more complex transactions, so banks need to offer both and ensure that transitions between them are seamless. Banks can also utilize technologies like chatbots and virtual assistants to provide 24/7 service.
8. Reimagining cost and new operational models
Banks are looking to cut costs, but it’s important to do so in a way that won’t have a negative impact on growth in the long term. For example, branches and physical properties are costly, and during the pandemic, customers realized that most transactions could easily be conducted online. However, the need for human interaction is still there. Banks can meet that need without the costly real estate by offering alternative platforms for inter-personal interaction, video calls for example.
If the past three years have taught us anything, it’s that we can’t predict the future. However, although no one knows what to expect in the financial market in 2023, the banking industry can invest in the technologies and processes that will best enable it to weather the storm and come out ahead.
Get the latest
on going digital