2023 Banking Trends: Architecting the Future of Banking and Wealth Management

These are difficult times for the global economy. With an economic slowdown in most major economies, along with high inflation and escalating cost of living, reasons to be cheerful about the economic outlook – and its impact on banks and wealth managers – may seem scarce. However, as the saying goes, “The best generals are made in battle.” The current economic slowdown provides an opportunity for financial institutions to reconsider how work gets done, and tap into market-moving trends to build for a better and brighter future.

Almost all financial institutions have embarked on strategic technology initiatives, though some have stumbled, and most have much more work to do. Decisions that are made now will define the shape of the industry for the next decade; this is a pivotal time for the industry to move forward and build a strong foundation for the future.

In banking and wealth management, the following key trends are likely to have the most impact in 2023:

Digital transformation on the cloud. Cloud has emerged as an essential baseline for banking success. Cloud is clearly much more than a data center in the sky – it’s much more about how computing is done, not where. There’s growing recognition that cloud is the gateway to new thinking, modern methods, and increased automation.

For most financial institutions, cloud is uniquely empowering. Without the burden of legacy tech, financial institutions can do things in innovative and groundbreaking ways – leveraging the power to technology to become truly customer-centric and data-driven. Likewise, wealth management is becoming an ecosystem business built on collaboration and data sharing. Digital transformation and open technology are prerequisites to participation in this new world.

Reduce cost and grow profitably. Modern technology is constantly redefining the economics of banking and wealth management. This is enabling financial institutions to address multiple challenges in parallel, even those that were previously at odds with each other – for example growing the business, while simultaneously reducing costs and tightening risk management.

Enhance the user experience. At a time of universal disruption, client retention is crucial. Client expectations are always on the rise, and recent research suggests that 50% of clients think their primary wealth manager should improve their digital capabilities. In a post-pandemic world, phone and video conferencing are often preferred over branch meetings, but clients want choice.[1]

Support industry consolidation. Convergence between banking and investing is accelerating. Many clients want to streamline and simplify their banking relationships and want to strike a better deal. It’s worth remembering that the separation of banking from wealth management is a historical anomaly that’s more bank-centric than customer-centric. Digital technology is essential to give clients what they want now, as well as to support future consolidation.

Become data driven. Data & analytics tools remove the guesswork from front-office decision making. Financial institutions need modern technology – such as artificial intelligence and machine learning –  to make sense of their data and to maximize its potential. If you don’t act now, your competitors will – research confirms that 43% of wealth and retirement providers will invest in enhanced analytics in the year ahead.[2]

Embrace scale and real time. The world is racing toward real-time payments. Although some major economies have had real-time payments for over a decade, progress in the US has been slower. This is partly due to the fragmented nature of US banking – around 5,000 banks spread across 50 states. Although much of the discussion about real time has revolved around P2P payments, in practice real time heralds a new era of instancy in banking and wealth management.

Last year, The Clearing House added many more banks to its RTP rail with 45 million transactions in Q4 2022.[3]  In parallel, the US Federal Reserve's real-time payment project is expected to launch in 2023. Experience suggests that the arrival of real time creates an unlimited potential for innovation. But it will also raise client expectations further, and redefine what’s perceived as a good experience. Real-time payments signal the move toward real-time financial services, so it’s a good time to prepare for this massive change.

Put ESG into practice. Despite escalating energy costs, research suggests that 41% of wealth managers consider Environmental, Social and Governance (ESG) investment as very important and likely to increase in the coming years. For wealth managers, having sound ESG credentials is currently a source of competitive advantage. But successful ESG investing is highly dependent on data and having the right technology to manage it. In practice, a wealth management firm’s ESG strategy is inextricably linked with its technology strategy; the two should not be considered in isolation.

Embed finance. Modern technology empowers financial institutions to position services exactly where and when they are needed. This trend is going mainstream and will enable wealth managers to reach new customers and markets with bespoke services and offers.

An economic slowdown is not the time to do less. Like all storms, today’s economic uncertainties will pass. To use an analogy, “When you’re flying through a storm you don’t cut the main engine.” By building a strong “cloud first” foundation, financial institutions can prepare for the upturn and a bright, frictionless future that is powered by data to more than satisfy customers. There is some real work needed to architect the future of banking and wealth management, and the time to lean into that work is now.

[1] https://www.mckinsey.com/industries/financial-services/our-insights/us-wealth-management-a-growth-agenda-for-the-coming-decade

[2] https://empower1.fisglobal.com/wealth-and-retirement.html

[3] https://www.theclearinghouse.org/payment-systems/rtp