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7 banking technology predictions for 2023

Fear is a powerful motivator. Over the next year, banking strategists’ worries about digital disruption, economic uncertainty, and frenzied fraud schemes will galvanize substantial technology implementations.

Here are seven predictions for the future of banking that will require breakthrough technology investments in 2023.

Budget solutions are back in vogue: In the face of inflation and a slowing economy, consumers will seek advice on how to get the most out of their money. This is good news for fintechs in the personal financial management space, which will likely see their customer base grow significantly. Banks, meanwhile, will look for ways to stay relevant as demand for loans declines. This could spark additional interest in fintech-bank partnerships that address digital consumer demand for personalized financial tracking apps.

Identity protection comes first: The battle for primary financial relationships will prompt bankers to deploy technology that helps existing customers ignore the siren song of competitor promotions and fintech. Digital products that act as armor for consumers’ vulnerable identities will be one of the main enablers of this strategy. Personalized identity protection will replace cheap, one-size-fits-all solutions that rely too heavily on resolution and insurance. Regular touchpoints built into the experience will remind customers that the bank continues to hold a very important role in their lives as a watchdog against identity crime.

Neobanks take a back seat: Funds from easy pre-pandemic investors are drying up, leading to the demise of most of the 100+ niche-focused neobanks. Too often, these organizations have rolled out a shiny new interface on legacy third-party banking rails. It turns out that this strategy is not as lucrative as previously thought. Even the biggest struggle to make a profit under this model. As investors withdraw funding from the loss of fintech bets, they will redeploy capital to startups with clear paths to profitability.

Super Apps Accelerate Domination: An abiding fear of traditional banks is that super apps will reshape American banking the same way Amazon reshaped American e-commerce. With a massive base of existing customers and a ton of newly unemployed neo-bankers in the market, super-developers have the scale and talent they need to get there in 2023. Political factors may also be working in their favor. Conservatives in Congress are seeking to distinguish themselves from their liberal counterparts who backed so-called “dangerous Silicon Valley disruptors” like the now-collapsed FTX. According to these lawmakers, super apps from well-established companies reduce the risk to consumers’ finances and data.

Digital driving licenses are becoming the benchmark for integration: The Digital Identity Act (or a version of it) will ensure that uniform standards are in place for the issuance and validation of the digital driver’s license. Most already follow International Organization for Standardization (ISO) specifications. Greater uniformity in 2023 will strengthen the business case for bank investments in fintech to accept these credentials for account opening across all channels. Financial institutions that do so will quickly experience a marked decline in claim fraud, creating new evidentiary points for FOMO-driven banks.

Fraud will reduce profits: Large-scale fraud schemes accelerated by democratized technology will reduce the profitability of deposit accounts, which become more risky in the face of liability shifts. Receiving banks, for example, are now the losers in remote deposit capture fraud, and Zelle fraud will soon be treated with a similar liability paradigm. Banks will be forced to implement more comprehensive identity verification systems, increasing origination costs for any bank whose model depends on deposit growth.

The crypto exchange becomes persona non grata: The specter of considerable regulation following the FTX implosion will motivate traditional banks to flee the crypto association. Banking withdrawal will not be limited to only crypto trading and custodial services. Bank-as-a-service relationships with crypto exchanges and others in the space are also likely to suffer, with the Federal Reserve now warning of the security and soundness risks associated with anything crypto.

Decisions made out of fear or anxiety are very effective in solving short-term problems. Their influence on longer-term success is much weaker.

Bankers making technology decisions in 2023 would do well to combat knee-jerk reactions to fashionable terrors. They can do this by considering their bank’s unique strengths and purpose, the needs of their distinct market segment, and their vision for the future of their institution. The technology that best fits these elements can set near-term direction while keeping the bank on track for long-term vitality.

Al Pascual is Senior Vice President of Enterprise Risk Solutions for Sontiq, a TransUnion company.

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