The global economy is both volatile and fragile, with many parts of the world suffering from high inflation, rising interest rates, looming recession and political uncertainty. At an industry level, financial services firms face increasing regulations, fierce competition from new entrants, higher customer expectations and rising levels of technical debt.
But it’s not all doom and gloom. In fact, the impact of the macroeconomic factors on financial institutions is decidedly mixed, with high-performing firms seeing opportunities despite the maelstrom.
It is in this context that I make my annual top three predictions for the Banking & Financial Services (BFS) industry in 2023.
- Financial institutions will continue to develop new digital products and services.
For example, in the metaverse, banks and financial services firms will explore and stake their claim as part of their search for new revenue channels, and to offer new investment opportunities in digital assets. Examples of early adopters trying to reach out to new customers via a new medium include JP Morgan’s Onyx Lounge in virtual world Decentraland and HSBC’s investment in The Sandbox. Both are creating innovative brand experiences. Given the hype around token-based economics and the fact that the price of metaverse virtual real estate plots rose by 700% last year, it’s not surprising that the suite of products and services being offered by financial institutions will become increasingly hybrid in nature – physical and virtual – in 2023.
- Banking as a Service will continue its rapid growth, but there are limits.
Embedded finance continues to proliferate, particularly for payments-related services including buy-now-pay-later (BNPL) payment plans, because they provide financial institutions with access to previously untapped while enabling the host (for example, a retailer) to offer regulated financial services for the first time. While overall growth may not slow dramatically in 2023, I expect to see some head winds. For example, consumers will start to question the trade-off between convenience and a clear picture of which institution is providing the financial service, so they can make conscious decisions based on their own preferences. By way of illustration, research shows that up to 10% of consumers would actually switch their bank if they are not seen as sufficiently ESG-focused. These consumers will start to demand to know which financial institution is behind the curtain, and this may affect their decision to proceed with a transaction.
- Global regulators will unlock the door to greater cryptocurrency democratization.
It is inevitable that, at some point soon, global regulators will come together to better regulate crypto exchanges and cryptocurrency more generally. Although some commentators are observing that the latest crypto exchange collapse at FTX was not due to a lack of regulation (they argue it could have been prevented by enforcing existing fiduciary laws), there is no doubt that one of the main obstacles to widespread adoption of digital currencies is a lack of public trust and confidence. Consumers are not confident the system will protect them in the event of a financial meltdown. Gripping TV shows like “Trust No-One” on Netflix are fun to watch but do little to dispel public concerns about the world of crypto. Even the outline of a globally consistent regulatory framework couched in the language of crypto would go some way to reassuring consumers. Users need to believe it can be a safe form of investment and trading before they will use it. Education about the fact that there is more to cryptocurrencies than just Bitcoin would increase adoption and allow these currencies to become more mainstream.
There is no doubt that 2023 will be a year in which the macroeconomic storms, competitive pressures and new opportunities enabled by emerging technologies will change the financial services industry forever. Leaders of financial institutions should look beyond the chaos, make brave investment decisions and reap the resulting rewards.
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About the author
Owen Wheatley
What he does at ISG
To say Owen Wheatley comes prepared to work through your operational concerns and transformational needs is an understatement. As ISG’s Lead Partner of Banking and Financial Services, he treats his 25+ years of experience in this ever-evolving, customer-centric field as a replete lexicon of applicable knowledge, relevant learnings and potentially executable solutions. In doing so, he makes the ethereal and theoretical, actual and obtainable.
Past achievements for clients
Knowledge-sharing is second nature to Owen. He provides his clients with market insights and meaningful thought leadership and helps them understand what similar (or different) organizations in comparable situations have done regarding transformational change. Many of Owen’s clients have sought his expertise to strengthen their customer engagement on the digital front, enhance the employee experience to improve the customer one and navigate new ecosystems—like integrating emerging partnerships—endemic to the industry. He makes sure that untangling this complexity and harnessing your new relationships always lead to your number one goal: driving better results for your banking or financial institution. In fact, Owen:
- Led a consulting team to design a commercially groundbreaking and elaborate deal for one of the largest hedge funds in the world to reimagine its middle and back-office operations, lessen the bureaucratic demand on the front office and serve institutional clients better. The measures of success for this co-designed and collaborative project included defined stages of excellence and experience metrics, delivered in a commercial model which positions all parties for success.
- Managed a large team of advisors to provide market insight and an "outside-in" perspective to multiple major North American banks looking to transform their operations, including indirect auto lending, core banking, cheque processing and the entire cash ecosystem.
- Led a team of experts in helping to transform the HR technology and operations of a major European bank, including designing the right strategy, creating the roadmap and business case, selecting the right partners for a new ecosystem and ensuring expedited and effective implementation.
