We’re a little over halfway through 2023, but it feels like we’ve already seen more than a year’s worth of major banking news since January.
With all due respect to the impact of generative AI—which we anticipated in our Top 10 Banking Trends for 2022—the biggest overall story so far this year is probably the continuing climb of interest rates. As I write this, the deposit section of bankrate.com is littered with APYs north of 4% and some past 5%. The downstream effects of higher rates shape every part of banking.
This includes exposing risks in many dimensions of the financial services system— most notably the run of banking failures kicked off by the collapse of Silicon Valley Bank in March. Our expectation that something like this might happen is why we named “Risk everywhere” one of our Banking Top 10 Trends for 2023 back in January.
But there’s a twist to the risk that we didn’t identify at the time. With the notable exception of the Credit Suisse takeover, all banks to fail so far have been American. This is driving a global market divergence. American banks are in turtle mode, pulling their heads inside their shells amid news that regulators plan to boost their capital requirements. Banks in Europe and elsewhere, meanwhile, are seeing record revenue and trying to find the smartest investment for the windfall profits.
Qorus–Accenture Banking Innovation Awards: a global competition showcasing the best new ideas and practices transforming the industry. Discover more and enter your winning innovation.
Since we’re about the same distance from the publication of our 2023 and 2024 trend reports, this is a great moment to check in on the impact of the trends we identified back in January. So with the caveat that around half the year is still to come, here’s my mid-flight assessment of our Top 10 Banking Trends for 2023.
Rising rates catalyze product innovation
We’re still waiting and seeing on this one, but I think it’s inevitable that rising rates will push banks to try new things—and that one of them will be an Amazon Prime-like offering that aimed at creating more holistic customer relationships.
My hunch rests on the fact that banks today are customer-centric with their experiences but not their value propositions. An Accenture Research analysis of leading banks in nine markets found that less than 15% of them run a comprehensive program that rewards customers who increase the number of products and services they hold with the bank. The first-mover’s advantage is there for the taking, and I know of several banks that are hustling hard right now to seize it.
The renaissance of the branch
This one gets a thumbs-up that keeps getting bigger every day. Banks are experimenting with branches, like the cash-free oneswe’ve seen in the UK, and opening new ones. Bank of America, for instance, announced in June that it plans to build 55 new branches this year after opening 58 in 2022. Singapore’s OCBC opened a branch in Wuhan this spring, bringing its total in China to 19.
What’s behind this? Our most recentglobal banking consumer studyfound that consumers of all ages value seeing branches where they live. (We even found they are growing in number in Finland, one of the famously branch-averse Nordics.)
But today’s branches look different. Expect banks to experiment, innovate, and reinvigorate their branch networks. Our research confirms that branches still matter in 2023, and that should persist for the foreseeable future despite the uncertain times.
The metaverse demystifies
You could say we had rose-colored glasses on for this one, but I still think the metaverse will create opportunities for banks in the long run. Apple’s Vision Pro headset, announced this summer, puts me in mind of the smartphone revolution. The Vision Pro is to the metaverse, I think, what the launch of the first iPod was to the smartphone revolution: a crucial stepping-stone on the way to revolutionary change. It will arrive, just not as early as I thought.
This might be the most important trend in global banking right now. At the risk of sounding like a gloomy Eeyore, I must mention that the regional banking crisis noted above is not the only story here.
Many economic observers in banking and beyond are clearly worried about commercial real estate in America. The world of work, post-pandemic, seems to include a lot less demand for office space. Valuations from San Francisco to New York City have been in free-fall for all of 2023 and there’s no end in sight.
And that’s not all. Debt as a portion of household income rose steeply in the 17 years of near-zero interest rates after the 2008 global financial crisis. The main driver of this climb was mortgages. Many of these have yet to come up for renewal since rates began to climb – for example, there are 2.4 million fixed-rate mortgages in the UK due for renewal between now and the end of 2024. As renewals arrive, the affected mortgage holders will need to allocate a greater portion of their income to mortgage payments at a time of significant inflation. In short, we seem to have all the ingredients for a major consumer finance crisis building.
Though I hate to admit it, this trend feels like an absolute bullseye to me now. Here’s hoping it feels a little less prophetic in six months.
Fintechs—from disruptors to innovators
If you define a “unicorn” as a private business with a valuation of over $1 billion, the world of fintechs produced only one in the first quarter of 2023. This is the lowest birthrate since 2016, and another sign that the golden age of fintech disruptors is over. Another is the collapse of leading crypto fintechs like Celsius and FTX, along with the regulatory pressure facing Binance.
In this new environment, fintechs are much more likely to partner with incumbents or even be acquired. Deals like Visa’s acquisition of Pismo make me rate this trend a solid hit.
Life-centricity—from customer journeys to intent
Our most recentglobal banking consumer survey showed that banks may have crossed the “too much of a good thing” threshold on digital experiences. Almost every banking app around the world gets near-perfect reviews from customers. But our research found that only 25% feel their bank does a great job being aware of important changes to their personal or financial situations.
This can be turned into an opportunity—if banks can capture the digital dividend. With 99% of customer touchpoints now digital, banks should be able to move from charting customer journeys to truly understanding customer intent.
As the saying goes, it’s hard to make predictions—especially about the future. But 2023 is still a long way from over and many of our top trends are already reshaping banking around the world.
Read our full Top 10 Banking Trends for 2023 report. And if you’d like to discuss the future of your bank or the industry, I can be reached on LinkedIn.
This article is adapted from an earlier version, “It’s time to check-in! Banking Top 10 Trends for 2023,” which was published on LinkedIn.
As an enthusiast deeply immersed in the banking industry, I can confidently dissect the nuances of the article you've shared. My expertise extends to various facets, including banking trends, interest rates, the impact of generative AI, and the evolving landscape of financial services.
The article delves into the major banking events of 2023, emphasizing the significant role played by rising interest rates. The climb in interest rates is portrayed as the primary narrative, overshadowing even the anticipated impact of generative AI, which was highlighted in the Top 10 Banking Trends for 2022. This rise in interest rates is affecting every aspect of banking, revealing risks within the financial services system.
The discussion then shifts to the unexpected twist in the form of banking failures, with the notable exception of the Credit Suisse takeover, all being American banks. This divergence in the global market portrays American banks adopting a cautious approach, while banks in Europe and other regions are capitalizing on record revenues and seeking smart investments.
Now, let's break down the assessment of the Top 10 Banking Trends for 2023:
Rising Rates Catalyze Product Innovation:
- The article anticipates that rising interest rates will drive banks to innovate, possibly leading to new offerings akin to Amazon Prime. The focus is on creating more holistic customer relationships by rewarding customers for increasing the number of products and services they hold with the bank.
The Renaissance of the Branch:
- The resurgence of branches is acknowledged, with banks experimenting and innovating in this space. Despite the changing landscape, the article emphasizes the continued relevance of branches, backed by consumer preferences for local branches.
The Metaverse Demystifies:
- The metaverse is seen as a long-term opportunity for banks. Drawing a parallel with Apple's Vision Pro headset, the article suggests that the metaverse will revolutionize banking, albeit not as early as initially thought.
- Labeled as the most crucial trend in global banking, the article highlights the regional banking crisis, particularly in America. It points to concerns about commercial real estate and the potential for a major consumer finance crisis, especially with mortgage renewals coinciding with rising interest rates.
Fintechs—from Disruptors to Innovators:
- The golden age of fintech disruptors is deemed over, with fewer unicorn births and the collapse of leading crypto fintechs. Fintechs are now more likely to collaborate with traditional banks or be acquired, as illustrated by deals like Visa's acquisition of Pismo.
Life-centricity—from Customer Journeys to Intent:
- The article suggests that banks may have reached a saturation point in digital experiences. While banking apps receive high reviews, there's a gap in banks being aware of important changes in customers' personal or financial situations. The opportunity lies in capturing the digital dividend by truly understanding customer intent.
In conclusion, the assessment provides valuable insights into the evolving landscape of banking, shedding light on the dynamics influenced by interest rates, regional crises, the resurgence of branches, the metaverse, fintech evolution, and the need for banks to transition from customer journeys to understanding customer intent. If you have any specific questions or if there's a particular aspect you'd like to delve deeper into, feel free to let me know.