- Until the financial crisis of 2008/9, interest rates were the gravitational force that kept banking’s integrated deposit-lending model working.
- When that gravity disappeared, powerful waves of disruption and innovation reshaped the industry.
- The return of interest rates has pulled banking into a more predictable and familiar orbit.
- Deposits and balance sheets suddenly matter again.
A combination of well-established forces and recent developments is reshaping banking. Over the past 17 years low interest rates have acted as a Big Bang in banking. They shattered the industry's fundamental equation—that deposits drive lending power. For all this time, money has been effectively free and worth very little to banks.
In the absence of that revenue stream, banks shifted their focus from the totality of customers’ financial needs to isolated products that continued to generate fees. At the same time, fintech innovators burst onto the scene, awash with cheap capital and valuing scale over financial returns.
Now that positive rates have returned, the constellation of banking products is drifting into a more familiar and predictable orbit.
Leading banks recognize they need to accelerate change—not only to compete but to find new paths to growth. The five key forces of change that Accenture has identified have helped shape and added impetus to the trends which are likely to have the greatest impact on banking in the year ahead.
Our global banking lead, Michael Abbott, shares his top 10 trends for 2023—and how the return of gravity will change the industry’s trajectory.
Top 10 banking trends for 2023
Most of the trends shaping banking in 2023 are affected—if not actually caused—by the return of positive rates, the gravity that keeps the industry in a predictable orbit.
Michael Abbott / Global Banking Lead
Frequently asked questions
The year ahead promises to be an uncertain and risk-filled one, which is why banks around the world have made significant provisions for credit losses. Certainly, the macroeconomic situation could affect banks’ revenue and potentially cause customers to struggle to replay loans. The competitive environment, while dampened by the effects of the pandemic, is likely to continue to present surprises. Similarly, the risk of cyberattacks remains a very real concern.
Other risks are less dramatic but—over the long term—present a serious challenge to banks that fail to address them. These include the failure to make the internal changes needed to remain competitive: attract and retain the necessary talent; meet customer expectations by fostering more human relationships; optimize operations for efficiency, quality and innovation; capitalize on the cloud for agility, collaboration and security; use data more effectively for personalized experiences and insight-driven decisions and more.
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.