December 2022 | Report

2023 Outlook: The Future of the Banking Industry

Challenges persist—but so does the opportunity to improve customer experience and meet customers where they are

An uncertain economy—highlighted by high inflation and increased cost of lending—will force banks to pivot to build momentum and provide high-quality customer experiences in 2023. Debate is rampant around the certainty of an economic downturn and its duration, painting a murky outlook heading into the new year. For banks specifically, defaults, credit quality, and deposit runoff are threatening performance, leaving them to evaluate profitability, where and how to best meet and serve customers, and what types of digital solutions will get them there.

To stay on top of industry trends, banks must find ways to meet their customers where they are, with precisely what they need, at the right time. It’s also more urgent than ever that banks find ways to meet these needs efficiently and in ways that manage risk.

2-Minute Takedown

Growth in an uncertain economy

Interest rates are climbing, loan demand has slowed, and talks of a recession mount. Plus, the tidal wave of change in customer demographics and the long-awaited generational wealth transfer has arrived. 2023 will push banks to optimize, leaning into segmentation and revenue-generating levers in different ways. It will be key to leverage data more strategically and expand digital solutions—both internally and customer-facing.

The industry is fragmenting: Banks should move to offense

With a massive rise of non-traditional challengers to banks, those which are not considering distributed banking strategies—comprised of open banking, BaaS, and embedded finance—will quickly fall behind in creating opportunities to connect with a younger customer base that’s quickly becoming the majority consumer. Engaging a distributed banking strategy will equip banks to battle industry fragmentation by extending a bank’s products and services beyond traditional channels, driving new customer segments, increasing non-interest revenue, and fostering seamless customer experiences.

Operation: Efficiency

There’s a lack of efficiency among banks’ current operating models; ROI on the status quo is shrinking, and 2023 presents the opportunity to build more digital and AI optimization into your organization. Banks must lean into automation, AI, and data analytics to build a digitally driven operating environment and digital mindset among employees. It won’t be an all-at-once overhaul but rather a gradual journey toward a ‘zero waste’ operations model.

Finding the value of digital and in-person engagement

Banks must pivot to orchestrate a top-of-the-line experience to create the most value through strategic digital and in-person outlets. Blended approaches will become the greatest value proposition for banks and customers alike. Leveraging data and technology—centered with human guidance and judgment—customers will be able to have a strong, evolving digital experience with the benefits of expert interactions through hybrid platforms.