This blog post covers the top trends in retail banking for 2023, examining the future of financial technologies and how they will affect retail banking in the next 5 years.
Want to know our previous year’s predictions? Here is our 8 retail banking trends and predictions.
The spurt in digital banking usage, increased focus on innovation, burgeoning customer expectations, rapidly changing industry landscape and emergence of new technologies has put immense pressure on financial institutions. Their attempt to win over the trust of their customers and gain a competitive edge may go down the drain if they run their financial operations by their old playbook.
Thanks to the emerging technologies such as blockchain, cloud computing, RPA, Artificial Intelligence and Augmented Realty and Virtual Reality. From helping financial institutions improve customer experience to launching new products and services, the latest technologies have made it all easier and efficient.
In this article, we are looking at the 8 top trends in retail banking industry for 2023:
What is retail banking?
Retail banking, also referred to as personal banking or consumer banking, offers banking services such as loans, mortgages, credit and debit cards, savings and checking accounts etc., to individual consumers than large enterprises. They can be of three types;
- Local community banks that operate locally and support smaller transactions.
- Global corporate banks such as JPMorgan Chase, Wells Fargo, Citi Bank, are widespread across the globe and offering retail banking services for large entities.
- Credit unions are non-profit organizations offering loans and other financial services for a lesser fee.
Top consumer Retail banking trends for 2023
No matter what their shape and size are, retails banks are intent on embracing trending technologies to drive changes, tighten security, cut operational costs, automate redundant tasks and offer personalized experience for their customers. Below you can find 8 key technology trends that will pave way for the success of retail banks in the coming years.
1. Moving to the cloud
Most of the banking and financial institutions are yet to move their core systems to the cloud. Why? Because there is a lot of anxiety surrounding security, governance, data control, and risks. Banks are also in dire need to improve the speed of their operations and increase their capacity to scale.
According to a report shared by Arizent survey, 40% of US banks are expected to move at least 20% of their data in the Cloud this year. Without a doubt, cloud computing solutions would be embraced by banks and other financial institutions. When all of the bank’s critical workloads are on the cloud, it would result in better customer insights, enhanced innovation, better efficiency, more agility, and mitigated risks of security or issues with business continuity.
Cloud solutions can also increase the productivity of the employees, along with insights that can provide a 360-degree impact. 80% of businesses say that there are operational improvements within the first few months of adopting the technology. The legacy technology that most retail banks still use lets down the customers regularly. It is not only harder to keep it updated, but it is also costly to maintain and doesn’t do a great job either. Retail banks should look for flexible solutions that can be scaled at will- and moving to the cloud is the best solution for it. Even smaller banks can make use of this technology to propel themselves forward at par with the big ones.
2. Intelligent Process Automation (IPA)
IPA refers to the application of artificial intelligence and related technologies such as cognitive automation, computer vision, machine learning and robotic process automation. Capgemini says that the financial services industry could be expected to add around $512 in global revenues by implementing IPA.
Commercial lending operations, trade finance, bill discounting and financing, letter of credit and guarantees, anti-money laundering, sanction screening, banking regulatory and compliance, cash management operations, import and export payments, automated payment operations, payment investigations, inward and outward payments- are some of the banking services that can be automated with the help of IPA.
Most banking institutions struggle with how to initiate their intelligent automation strategy even though they are clear about the benefits. When it comes to IPA, the important thing is that you should start small and concentrate on the value that each process will stand to gain once you have implemented it across multiple systems in the banking organization.
Without a highly digital back office, it can be difficult to provide excellent customer service. Each of the above processes that we mentioned could be automated, and it will bring a world of change to the way customers view their bank.
For robotic process automation to be highly effective, banks should support it with intelligent process automation. Financial institutions are on the lookout for more ways to provide a great experience for their customers, and IPA is something that most of them will be eyeing to leverage in 2023.
3. Embedded Banking
Also known as embedded finance, it is the integration of financial services into a traditionally non-financial service. For example, if you use Uber eats, they are integrated with a payroll automation software which enables customers to make purchases and make embedded payments. In other words, embedded banking bridges the gap between financial services and end consumers. It makes access to financial services faster, that too in a hassle-free manner.
Embedded banking is a new trend that has become a rage in the last few years. The revenue generated by it in the US is expected to reach $230 billion USD by 2025. Globally, it is predicted to be worth $3.6 trillion by 2030.
According to a recent survey by OpenPayd, 70% of brands are expected to launch embedded financial services within the next two years. Embedded finance has a host of services to offer, which one do you choose? When you choose an embedded finance service, make sure that you always have the needs of the customer in mind during this exercise.
Companies of all sizes and types are looking to launch embedded financial services to serve consumers and businesses. While some retail banks are looking at it as a threat to traditional banking norms, most of them understand that it is an opportunity.
One of the biggest reasons why embedded financial services have a lot of takers is because consumers want to stay within an app during the entire purchase cycle. Businesses that implement embedded solutions should either partner, buy out or license the embedded finance technology. Therefore, banking and financial institutions will stand to gain here.
4. Cost transformation
Ultra-low interest rates, low loan demands, and limited fee income opportunities forced retail banks to look at ways to reduce their costs. They needed a solution that would eventually help them regain their footing. As retail banks are trying to gain some semblance of normality, cost-cutting measures are inevitable. To meet the new-age competition and increased online demands, retail banks need to invest in digital transformation.
Simplifying existing legacy IT systems, consolidating core platforms for better operations, reducing spend on contractors, offloading non-core businesses, digitalizing more services, reducing office space, etc., are some of the activities carried out by retail banks to reduce their costs. According to Global Workplace Analytics, the average saving for an employee working at home 50% of their time equates to $11,000 per annum.
Here are a few examples of what banks did to reduce its costs:
- Barclays is re-evaluating its use of office space. Retail bank branches could be used only for call centre and investment banking employees.
- Wells Fargo & Co announced that they have a 4-year expense reduction plan, which is expected to bring down their annual expenses by 8 billion USD. Their plan involves eliminating multiple layers in management, reducing workforce, and reducing 20% of office space by the end of 2024.
5. Banking-as-a-Service Approach (BaaS)
Providing end-to-end financial services over the web is called Banking-as-a-Service. In BaaS, licensed banks integrate their digital banking services into the products of non-banking services. For example, an ecommerce website can offer digital banking services such as loan payment services, mobile payment cards, debit cards, etc., without even having to acquire a banking license.
By embracing the BaaS ecosystem, retail banks can find more income opportunities. While reducing cost is an important part of a bank’s objective, so is creating more revenue streams. According to Finastra, more than 81% of banking executives agree that BaaS will be a huge help to scale their business. US-based Coastal Community Bank explored BaaS as early as 2015. Between 2018 and 2020, its income from BaaS offerings increased by 233%.
Traditional banks also will be able to create new revenue models with the help of BaaS. These models enable banks to monetize their banking stack, such as capabilities, data, and infrastructure. Revenue-sharing agreements, set up charges (one-time), subscription fees, etc., are some of the ways in which banks can increase their bottom line by leveraging BaaS.
Getting a banking license is incredibly hard, not to mention the fact that there are a lot of regulatory compliances that need to be adhered to. Non-banking service providers will be more than happy to partner with banks as they do not have to go through all of this hassle.
6. Experiential Banking
Offering customers contextual and lifestyle banking experiences should be one of the most important pursuits of retail banks in the Banking 4.0 era. Retail banks should aggressively leverage data to create experiential customer journeys. While retail banks do have truckloads of data, they can be used only if they are gathered as a part of the value chain.
A Capgemini Research Institute report says that 73% of banks are planning to launch new initiatives around data ecosystems during 2022-2024. Industry experts and academics from more than 12 markets who were surveyed indicated that 40% of these banks will invest more than 50 million USD annually on data-related initiatives.
The pandemic drove customers to become increasingly digital and connected. They are only looking for customized products and services. This implies that retail banks should invest in creating a hyper-personalized customer experience.
Focusing on the customer experience calls for leveraging a variety of technologies and adopting an agile approach. Even though agile poses a number of technical limitations, its underlying philosophy of early delivery and continuous development can be the best option out there. Banking institutions will have to simplify their technology stack and modernize it with the help of microservices, adopting lightweight and reactive systems, analytics, artificial intelligence, machine learning, etc., to offer experiential banking.
7. Understanding Gen Z’s preferences
Gen Z is a moniker for anyone born after 1996. With each passing year, millions of them are barging into adulthood. Invariably, all of them will require retail banking and financial services. The interesting aspect surrounding their entry is that they have a completely different outlook towards a variety of things, including money. More importantly, they are now the largest generation at 32% of the world’s population.
Attracting the Gen Z audience is not as easy as doling out freebies. They are better educated and are a sensitive audience. They expect their banks to treat them fairly. You have to be straightforward with them. Banks must also find a way of providing them with guidance and give them a sense of autonomy over their money.
Instead of a faceless interaction, retail banks can also leverage social media groups on platforms such as Facebook, Twitter, LinkedIn, etc., to provide them financial awareness. Easier to establish a rapport with Gen Z using such a technique instead of a top-down approach. Use personalized interfaces such as emojis, profile pics, reward systems, gamification, etc., to seem more approachable.
8. More personal interactions
We could call this as a future of retail banking. Customers of today expect to have more personal interactions regarding their finances. They might not consider personalized and digital self-service to be personal service. Especially after the pandemic, customers are looking to either get on calls or have some sort of interaction with a human being. While conversational AI-based virtual assistants are the in-thing nowadays, customers want a bit more than that.
While modern technology stack does offer effective solutions to take care of customer needs, most of them will not consider it as a personal service. The technology that we have today has not matured enough for customers to think that they are interacting with a human on the other side, when it is actually a bot. Even though customers of today love using digital interfaces, they still might require personal interaction with their banks for special cases.
Retail banks are more aware of future banking trends and are better prepared as they take the leap forward. One of the most important agendas for retail banks is always going to be improving customer experience. In their quest to deliver excellent customer experience, they will focus on achieving operational excellence.
While banks have been able to discover new models and revenue streams, they should always be on the lookout to embrace digital trends in retail banking and processes so that they could remain relevant. The last few months have been an excellent reminder to retail banks about the importance of leveraging trends in banking technology, now is the time for them to be more innovative.
If you are a financial institution looking for a technology partner for a 360-degree digital transformation, you have come to the right place. Zuci prides itself on working with a number of BFSI organizations, taking care of their technological needs and improving their operational firepower.
Schedule a free consultation call with us today!