With 2022 in the rear view mirror, let’s take a look at the trends that will shape the banking and payments space in 2023. The current elephant in the room is the looming recession, and it is essential that financial institutions manage risk and prioritize budgets while maintaining a clear path to long-term growth.
Investment in technology will be reduced to basic capabilities
Budgets are tightening, so financial institutions need to prioritize technology budgets as well as positive customer experiences. Initiatives that do not improve customer experience or capabilities in the long term are likely to be dropped.
Automation technologies are one way to improve the overall customer experience, reducing response times and increasing value. Using automation technology means predicting customer needs while giving them visibility into their money. This gives more control to the customer and, at the same time, creates more meaningful interactions. Being a competitive force, despite tight budgets, requires modernizing platforms to enable faster changes and improving core processes through automation.
What will the recession mean for loans and deposits?
The current economic landscape creates a drastic impact on the way consumers will manage their finances in the coming months. While some will choose to put their funds in savings for a safety net, others will not have this option and will turn to BNPL and credit cards as a solution. In fact, the credit card delinquency increased from 1.85% in the first quarter of 2021 to 2.08% in the third quarter of 2022. As lending and deposit rates rise, it is important that financial institutions provide adequate resources to prevent their customers and members fall into arrears.
Innovate in a regulated environment
Although the Durbin 2.0 amendment is currently in the air, it draws attention to the uncertainty that regulatory changes can bring for financial institutions, which are often waging the battle of innovation with one arm tied behind their back compared to non-profit entities. non-bank, although some leveling of the playing field is underway at the CFPB. Despite the current handicap, financial institutions have an opportunity to react more quickly to the current regulatory landscape. With the right technology, financial institutions can focus less resources on compliance and more on innovation.
Manage risk while capturing Gen Z growth
It is clear that Generation Z is becoming an important market. With the growth of the young generation, it gives financial institutions a great opportunity to attract this audience. Generation Z has grown up surrounded by much more technology than previous generations, proving to be truly digitally native. With technology simplifying much of their lives, it’s no surprise they also expect secure and efficient banking services that appeal to their individualized needs.
This generation is at a crucial point in their financial journey where habits and preferences will be formed. If a financial institution waits to appeal to this generation, it will eventually fall behind the competition.
Evolution of competition with non-bank entities
It’s no secret that emerging fintechs often compete with smaller financial institutions, reducing growth and profits for banks. Many people lean toward faster, more innovative solutions that their current financial institutions can’t provide, and recessions can often reveal who has a more viable business model. In the new year, resistant fintechs will get stronger, while fintechs and banks that are not evolving could go out of business.
As we enter this year, we can learn and grow from the trends and innovation of 2022. Customer experience is key, and technology can be used as a resource to further enhance these experiences while simultaneously prioritize long-term success. It is necessary to maintain positive interactions with customers while identifying opportunities for growth among future generations. Overall, automated and modernized solutions will limit risk without sacrificing growth as we enter another year filled with advanced technology and innovative solutions.
Bhavin Turakhia is the Co-Founder and CEO of Zeta, a banking tech unicorn and tester of next-generation credit card processing.
