Aggressive interest rate hikes to tame soaring inflation shook the financial services industry in 2022. The S&P 500 fell for three consecutive quarters in Q3 for the first time since 2009. Sky-high tech firm valuations were brought back down to earth, with Google and Meta’s share prices nosediving 60%. And fintech funding dried up after a record-breaking year in 2021.

2023 promises to be another year of significant disruption. Financial services firms will have to contend with the prospect of slowing economic growth alongside rising customer demands and other challenges. Pockets of growth remain for innovative firms that put data at the heart of their business and reorientate their offering around customer demands.

With this in mind, here are the four major trends we believe all financial services firms should be aware of in 2023.

Data Becomes a Competitive Advantage

Turning data into a competitive advantage is an imperative for all financial services firms. Insights from data will unlock a deeper understanding of customers and their business environments.

Banking customers are demanding a hyper-personalised experience, yet banks are missing the mark: 93% of global consumers want tailored products and services, yet only 33% feel their bank delivers on this, per a 2022 Sinch report.

Insurers need more abundant quality data to accurately assess and price emerging risks – such as climate change and cyber threats – and close widening coverage gaps. For example, only 56.2% of UK medium-sized and 40% of small-sized businesses had a cyber insurance policy in 2022, according to GlobalData.

Investment managers need to overcome data challenges to take advantage of sizeable ESG assets under management growth opportunities while avoiding punitive regulatory action and a loss of client faith.

Yet few firms can truly claim to be making the most of the data they hold. Nearly three-quarters of global retail banks say they struggle to turn data into insights, per a 2022 Capgemini global retail banking report. And they’re not alone, with capital market firms and insurers reporting similar data challenges.

We strongly believe cloud migration is critical to unlocking data insights at an enterprise scale. Cloud provides companies with a standard platform to break down data silos and enrich existing datasets with third-party data. Advanced analytics can then be applied to consolidated datasets to derive the necessary insights to inform decision making.

2023 Prediction: Leading financial services firms will accelerate their cloud migrations to unlock data at an enterprise scale.

Financial Services Players Will Focus on Becoming Trusted Partners

The proliferating risk of cyber attacks and the cost of living crisis will force financial services players to prioritise initiatives that build trust among their customers in 2023.

Financial services companies will bolster their cyber security defences to not only protect their businesses but also hold onto the trust of their customers. CIOs in banking expect cyber security to see the largest increase in tech spend in 2023, whereas insurance CIOs expect cyber security to experience the second largest increase.

Firms will prioritise identity and access management solutions to ensure network security perimeters are fit for purpose, as well as security solutions to enhance operational excellence, resilience, and security maturity.

Supporting customers through the cost of living crisis will also go a long way to building trust. Replicating “get paid a day early” features made popular by neobanks will be a quick win for incumbent banks, whereas insurers will earn trust by quickly paying out claims.

Low-code solutions will accelerate feature development and enable firms to quickly respond to further disruption. While automation solutions that digitise insurers’ claims functions will reduce claims resolution waiting times; a long-standing bug bear for policyholders.

Our 2023 prediction: Financial services companies will build trust by bolstering their cyber security defences and rolling out tools to help ease the financial strain on their customers.

Hybrid Customer Servicing Becomes the Norm

Financial services companies will respond to demands for a blend of human and digital customer servicing by putting in place hybrid options.

Customers across all demographics have displayed a remarkable willingness to trade, bank, and buy insurance policies online over the past few years. And some organisations are cutting back on human customer servicing in response to the economic downturn - HSBC just announced it will close 114 branches by April 2023.

However, despite the high appetite for digital financial services, the majority of customers still want access to human contact for a specific set of circumstances. This is illustrated by the mixed picture painted by UK customers’ banking preferences: two-thirds prefer to use digital channels for communication, yet 77% say the ability to speak to a human when needed, builds trust.

What’s more, they now expect a seamless, omnichannel experience. Yet, almost half of global retail banks say they fail to provision personalised content through the right channel, per Capgemini.

Financial services firms need to take a human-centred design approach to building digital products to ensure their mobile apps are easy to use. And legacy application modernisation and API development will be crucial to ensure the customer journey is consistent across channels.

But firms can’t forget about the need to provide access to human interactions for value-add activities, such as financial advisors giving customers market updates through their preferred channel.

2023 Prediction: We expect mobile-first, hybrid-advisory customer servicing to become entrenched in 2023 and beyond.

Open Ecosystems Will Become Ingrained in Financial Services

Open ecosystems will become increasingly prominent within financial services, ushering in more collaboration, new value chains, and new business models.

Open Finance regulation could come into force in 2023 and bring the full spectrum of financial services companies into the scope of data sharing requirements, stimulating more data sharing across the ecosystem and arming challengers with more abundant customer data to offer more personalised products.

But it’s a two-way street: Open ecosystems will enable incumbents to offer third-party products and services through their platforms to cater to a wider range of their customers’ needs.

Financial services companies will need to build APIs to participate in open ecosystems. They will also need to assess their technical capabilities to understand the role they could play in open ecosystems, and identify strategic options that will enable them to respond to challenges and seize new opportunities.

2023 Prediction: Open ecosystems will foster more collaboration and create new revenue opportunities for incumbents and challengers alike.

Conclusion

The prospect of slower growth and macroeconomic uncertainty only strengthens the case for digital transformation. Financial services firms need to modernise their legacy applications and build APIs so that their organisations are ready for more modern technologies and open ecosystems.

Fast-moving firms will become data-driven so that they can build a deeper understanding of their customers. They will deliver tailored products and services across their customers’ preferred channels at the right time.

Financial services companies should also prioritise building trust among their customers given the current bleak economic outlook. In the context of the cost of living crisis, guiding customers through tough times will build a loyal customer base.

If you'd like to learn more about what BJSS is doing with clients across the financial services industry, click here.