Top 10 banking trends for 2023

The shift from very low to higher rates changes a lot for banks—our Top 10 Trends for 2023 argues that it is either directly or indirectly the cause of all the trends shaping the industry in the year ahead. Rising rates increase banks’ income, with many of them likely to opt to use the money to invest in their future capabilities. But higher rates could also put borrowers into difficulty, raising questions about how banks should respond.

The traditional banking culture has been criticized for failing to keep pace with the requirements and preferences of customers and employees. Customers want banks to do more than just offer a functionally correct set of services and safeguard their money; they also want to feel that the bank cares about them and will help them manage their finances more effectively. Employees, on the other hand, want the bank to be more aligned with the issues and traits they consider to be important: sustainability, integrity, innovation, flexibility, compassion and more. Banks cannot afford to be out of sync with these two groups of stakeholders. Instead of acting as if their culture is a given, they should carefully consider their purpose and the kind of culture they need to realize it. If there is a gap between their current and required cultures, they should embark on a concerted, monitored program to change.

For banks, net zero means much more than just limiting the emissions caused by their own operations; it includes helping customers transition to net zero too. The former is difficult enough. The latter includes a number of big challenges, just the first of which is the assumption of more risk than banks are designed to cope with: funding a new green economy, with all the unfamiliarity and new infrastructure that entails, takes banks beyond their mandate of lending their customers’ deposits prudently. Added to this is the fact that few banks have the data, and the data management capability, to assess which customers they should lend to and how effectively these loans are being used. They also lack the expertise to help customers transition from ‘brown’ to ‘green’ organizations, a transition that's different for every industry—and most players within each industry. The majority of large banks have accepted these challenges, but they have much to do if they are to overcome them.

Banks have known for many years that they will inevitably have to retire their mainframes and move their core systems to the cloud. They have delayed due to the sunk cost, the risk of a move and a ‘devil you know’ mindset. But this has come at the cost of rising upkeep expenses and risks; a lack of support for collaboration, agility and innovation; and a more variabilized cost structure—among others. As cloud service providers improve their offerings and make it easier and safer for banks to transition, so the cost/benefit equation shifts in the favor of cloud. We believe 2023 will be the year when most banks decide core modernization can no longer be put off.