Over the next few months, the world economy and banking sector could be pushed into uncharted and potentially stormy waters. However, we believe disruption will drive retail banks to focus on resilience, reach, and customer and ecosystem connectivity.
Subdued consumer demand, price cuts on stockpiles and low-price property sales will help moderate inflation, according to conversations with global banking executives and insights from Capgemini’s key retail banking trends for 2023. This situation may encourage the central bank to hit the pause button on interest rates.
Forecasts generally see global growth slowing in 2023 as financial conditions tighten, investment interest wanes and Europe’s gas problems persist. As such, the bank will assume a highly strategic position, including the requisites for the growth of:
- Customer Engagement That Keeps Mindshare and Wallet Share
- Increase efficiency and productivity to enhance risk management and reduce impact to the bottom line
- Sustainability for Accelerated Transition to Circular Economy (Sustainability Framework to Address Global Challenges such as Climate Change, Biodiversity Loss, Waste and Pollution)
Against this backdrop, bank customers will seek trusted experts to help them weather the economic storm. As such, the most future-focused banks will step up their efforts to create meaningful connections. Those most willing to provide timely advice are financial institutions strengthened by a strong technological infrastructure. With reliable data pools including synthetic and alternative datasets, cloud capabilities, artificial intelligence and machine learning capabilities, these banks can provide customers with personal financial management tools and advice.
Plus, they’ll educate clients on how to take their income to the next level. how? Banks can help customers set financial goals and control spending while tracking progress. Initiatives such as online account management tools can strengthen customer trust, increase loyalty and provide opportunities to cross-sell and up-sell related services.
In terms of reaching new customer bases, the global unbanked community remains excluded from the financial ecosystem because they do not have a registered identity. For example, the World Bank reports that 1.4 billion people will have no bank affiliation in 2021. These are the people who are most vulnerable during periods of upheaval in the economy and cost of living. A major barrier to financial inclusion is the lack of identification and non-existent credit histories and personal identification documents.
In the coming months, banks could partner with governments to build personal identity solutions that provide citizens with digital IDs that can be verified and authenticated. Financial institutions should be the first to implement digital identity programs because they are highly regulated and already have a strong cybersecurity infrastructure for scalability, the World Economic Forum said.
Sustainability will drive customer experience, connection and loyalty if retail banks align their performance targets to meet customer needs. Banks can reduce their organization’s carbon footprint and support a circular economy by building energy-efficient and environmentally friendly offices, digitizing business processes, adopting green IT initiatives, and switching between traditional and green banking products.
Several banks have launched pro-sustainability products, such as special-rate loans for green cars, green mortgages, and the integration of environmental, social and governance (ESG) criteria into risk-scoring models.
Additionally, banks can make purposeful fintech acquisitions and cultivate partnerships to build green portfolios. Sustainable banking mitigates a bank’s ESG risk and reduces the number of non-performing assets to improve profitability.
Digital maturity remains aspirational for some banking ecosystem players, but pathways exist to adopt continued innovation.
For example, trendsetters are cautiously exploring the evolutionary advantages of decentralized finance, as institutional DeFi becomes more mainstream, adopting blockchain-based financial products tailored to the stringent compliance requirements of financial services firms. Trends may accelerate. Despite headlines about lax ESG practices and insufficient cryptocurrency risk management, institutional investment in DeFi continues. Crypto markets and DeFi lending protocols can offer attractive risk-adjusted returns compared to traditional financial instruments.
We expect market volatility in 2023 to allow banks to leverage their size, assets, broad client base and regulatory knowledge to restart their strategic thought process. Additionally, emerging technologies and the use of advanced data to mine actionable customer insights will open the door to a seamless, personalized and superior optical channel experience.
Nileshwadia is Capgemini’s Global Industry Leader for Retail Banking and Wealth Management.