2023: A year of banking innovation

As we reach the end of another eventful year in banking, it’s time to take stock and reflect. From the accelerated fall of high street bank empires, the ongoing fight for market share from both incumbents and their challenger peers, and how everyone is harnessing the power of AI, it’s been quite a ride. 

Here we give a run-down of some of the most innovative ideas, features, and technology that banks have put into practice in an effort to capture and retain customers in 2023.

1. Challengers evolving 

The secret recipe to owning the market over the longer term is developing an ability to cross-sell a variety of products and services at low cost, as efficiently as possible. For a while, this is something newer names have fallen short of by focusing on more immediate goals, like offering market-leading savings rates to attract new customers.

Monzo bucked that trend this year, by partnering with BlackRock and adding investment products to its range, giving it the benefit of a major name and indicating that it has added the older clientele to its sights. We predict many will follow suit.

2. AI: Breathing new life into old ideas

This year the news has been packed with stories of how AI is making new ideas a reality, but in 2023, we have seen evidence of how AI could also prove useful should banks want to revisit past innovations. Particularly ones that were hyped as ‘the next big thing’ but did not live up to expectations.

A prime example is transaction categorisation, which can provide a detailed breakdown of the customer’s various types of spending. For several years this feature was promoted as the next major selling point but met with indifference and failed to achieve traction. Advances in AI and the move towards a cashless society could allow the concept to be revived and developed into a useful banking feature that provides customers with helpful information that they can actually use. 

Brazil’s Nubank, Latin America’s largest fintech bank and dubbed ‘the one-stop shop for all things banking’, has been a pioneer in this field, when back in March it recently added personalised recommendations to its app via open finance. 

3. Bricks and mortar holding ground?

Digitisation is behind many fintech stories of late but grabbing the headlines this year have been traditional players making decisions that have gone against the grain. A perfect example of this is the UK’s biggest building society Nationwide’s pledge to maintain its high street network of 605 branches, which recently won a slew of positive media attention.

However, the move still feels no more than a temporary reprieve, strategically timed as the ‘big five’ banks of Barclays, Lloyds, HSBC, NatWest and Santander appear to be accelerating their branch closure programmes that have already seen more than 5,000 outlets shut their doors since 2015, with around 420 more scheduled to disappear. 

Another side to the ‘physical bank’ story that has gained traction this year is the innovative idea of banking hubs ─ shared spaces on the high street letting customers of multiple banks deposit and withdraw cash and perform other everyday banking tasks. 

Since August 2023 eight banking hubs have opened in the UK, with most of the country’s big banks  taking part, covering the ‘vast majority’ of customers. Time will tell if this model will continue to gather traction, but if the data in our next point is anything to go by in ten years’ time visiting any type of branch will be an activity that will have been consigned to the history books.

4. Neobanks gaining ground

This year, JPMorgan’s neobank, Chase UK, attracted more than 1.6 million customers and is now about to roll the concept out to Germany and other EU countries. Chase joins other relatively new names led by Revolut, Monzo and Starling Bank, Holvi in Finland and N26 in Germany. These Neobanks are each enjoying a growing market share due in large part to their innovative approach to digital banking and highly-rated overall customer experience that includes quick onboarding and a chat line that can speedily resolve any issues. 

Of course, these are all individual examples, but taking a macro view of the market, a recent US study by Cornerstone Advisors found that since 2020, digital banks/fintechs increased their share of all new accounts from 36% to 47%, while that of the megabanks fell from 24% to 17% and the regional banks from 27% to 21%. The data really does say it all.  

Looking to a successful 2024 and beyond

2023 has seen no shortage of outstanding fintech innovation, so inspiration for banking leaders should be easy to come by as we head into the new year. What these examples here show is those who are flourishing have an ability to execute combined with the right technology tooling that is needed to make their propositions come to life.

It’s unlikely to be the case that a single, well-selected ‘golden feature’ will tilt the entire market in their favour. Instead, delivering many of them will have a cumulative and compounding effect. In considering how to achieve this, my advice has always been “buy for parity, build for competitive edge” – something I speak more about in my other recent Finextra blog. The decision for each individual bank will be guided by how they establish themselves in a keenly fought market, develop a genuine differentiation and their action plan for reaching that goal.