The global economy and the banking sector will likely be in uncharted, even turbulent waters in the months ahead. However, we are confident that the disruptions will prompt retail banks to focus on resilience, reach and customer and ecosystem relationships.
Based on conversations with banking executives around the world, as well as information from Capgemini Key Retail Banking Trends 2023, sluggish consumer demand, price declines for excess inventory and favorable real estate sales will help moderate inflation. And this scenario may encourage central banks to press the pause button on rates.
Forecasts generally agree that the growth rate of the global economy will slow in 2023 as financial conditions tighten, investment appetite wanes and natural gas problems in Europe persist. . As a result, banks will assume highly strategic positions, including a growth imperative that mandates:
- Customer engagement that retains share of mind and share of wallet
- Efficiency and productivity to strengthen risk management and reduce the impact on results
- Sustainability that accelerates the transition to a circular economy (a sustainability framework that tackles global challenges such as climate change, biodiversity loss, waste and pollution)
Against this backdrop, bank customers will seek trusted experts to help weather the economic storm. Therefore, the most forward-looking banks will redouble their efforts to build meaningful relationships. The financial institutions best placed to offer advice when needed are financial institutions backed by a robust technological infrastructure. Armed with a reliable data pool including synthetic and alternative datasets, cloud capabilities, artificial intelligence and machine learning capabilities, these banks can provide customers with personal finance management tools and guidance.
Additionally, they will educate clients on how to grow their income. How? Banks can help customers set financial goals and contain spending, while tracking progress. Initiatives such as online account management tools build customer trust, drive loyalty, and provide opportunities to cross-sell and upsell relevant services.
In terms of reaching out to new customer segments, unbanked communities around the world remain excluded from the financial ecosystem because they do not have registered identities. For example, the world Bank reported that 1.4 billion people were unaffiliated with a bank in 2021. These people are the most vulnerable during economic and cost of living upheavals. A major obstacle to financial inclusion is the lack of proof of identity and the absence of credit history and personal identity documents.
In the coming months, banks can work with governments to create personal identity solutions that provide citizens with digital IDs that can be verified and authenticated. The World Economic Forum says financial institutions should spearhead digital identity systems because they are heavily regulated and already have robust cybersecurity infrastructure to enable scalability.
As retail banks adapt their performance goals to meet customer needs, sustainability will drive customer experience, connectivity and loyalty. Banks can reduce their organizational carbon footprint and support a circular economy by building energy efficient and environmentally friendly offices, digitizing business processes, adopting green IT initiatives and switching between traditional and green banking products.
Several banks have already launched sustainability-positive products, such as special rate loans for green vehicles, green mortgages and the integration of environmental, social and governance (ESG) standards into risk rating models. .
Additionally, banks can make targeted fintech acquisitions and nurture partnerships to build green portfolios. Sustainable banking mitigates the ESG risk of banks and reduces the volume of non-performing assets to boost profitability.
For some players in the banking ecosystem, digital maturity remains an aspiration, but there are ways to resort to continuous innovation.
For example, trend setters are cautiously exploring the evolving benefits of decentralized finance, which will likely grow as institutional DeFi becomes mainstream with the adoption of blockchain-based financial products suited to stringent compliance requirements. financial services companies. Despite headlines about less stringent ESG practices and inadequate crypto risk management, institutional investing in DeFi is holding up. Crypto markets and DeFi lending protocols can offer attractive risk-adjusted returns compared to traditional financial instruments.
We expect market volatility in 2023 to allow banks to restart their strategic thinking processes by leveraging their size, assets, large customer base and regulatory knowledge. Additionally, emerging technologies and the use of advanced data to extract actionable customer insights will open the doors to seamless, personalized and superior optichannel experiences.
Nilesh Vaidya is Head of Global Industry – Retail Banking and Wealth Management at Capgemini.