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Digital trends disrupting the banking industry in 2023

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The banking industry is in a much better position now than it was after the financial crisis in 2008.
As the banking ecosystem becomes increasingly complex, financial giants and disruptive startups are dealing with challenges and opportunities on a daily basis.
Do you work in the banking industry? Get business insights on the latest technology innovations, market trends and competitors through data-driven research.
Banking Industry Overview
The banking industry is in a much better position than it was after the financial crisis of 2008. According to The Banker’s 2022 World Bank 1000 ranking, total global assets climb to $154,211 in 2022, up 3.79% from $148,583 in 2021.

With so much money to manage, major banks such as JPMorgan Chase, Bank of America and Wells Fargo are introducing new features to attract new customers and retain existing ones. Most importantly, startups and new banks with disruptive banking technologies are breaking into the scene, and traditional financial institutions are either competing with them or merging with them to improve their customer experience.

So let’s dive into the banking industry, the challenges it faces, and the road ahead.

Banking industry trends
The most prevalent trend in today’s financial services industry is the shift to digitalization, particularly mobile and online banking (more on that later). In today’s age of unprecedented convenience and speed, consumers do not want to travel long distances to a physical bank branch to process their transactions. This is especially true for Millennials and older members of Generation Z, who have begun to dominate the workforce (and are the largest earners).

This digital transformation has led to increased competition from technology startups and the consolidation of smaller banks and startups, contributing to record growth in 2021. However, global fintech funding has cooled this year as funding conditions have become more challenging in most parts of the world. According to CB Insights, overall fintech funding declined 38 percent sequentially to $12.9 billion in the third quarter of 2022, comparable to the size of funding in the fourth quarter of 2020.

Looking ahead, startups and scale-ups alike will have to demonstrate profitability and growth potential to regain investor trust.


Mobile Banking
Frankly, mobile banking is almost a necessity for consumers at this point. In Insider Intelligence’s 2020 Mobile Banking Competitive Advantage Study, more than 45% of respondents said they consider mobile to be a top three factor in determining their choice of FI, up from 38.0% in 2019, making it the second most important factor behind cost.

When broken down by generation, 91% of Millennials, 95% of Gen Xers and 60% of Baby Boomers use it. Crucially for the banks themselves, 64% of mobile banking users said they would research their bank’s mobile features before opening an account, and 61% said they would switch banks if they offered a poor mobile banking experience.

According to Insider Intelligence’s U.S. Mobile Banking Competitive Advantage Report, 74% of mobile banking users said they would research their bank’s mobile features before opening an account, while 49% said they would switch banks for better mobile banking features, which is critical for the bank itself 2020.
But we’ve now reached the point where simply having a mobile app is not enough for banks to attract and retain customers. Other tools and features – such as the ability to temporarily hold a card, view recurring charges or scan a fingerprint to log into an account – are becoming increasingly necessary.

Online Banking
Online banking is convenient and understandably one of the two primary ways consumers interact with banks (along with mobile banking). But there are still a large number of bank customers who need a physical branch.

According to a recent Fiserv study, consumers continue to prefer depositing checks in branches despite their over-reliance on digital banking channels and services (such as chatbots and mobile banking apps) and the resulting decline in branch visits. More than half (53%) of respondents said their top reason for visiting a branch in the past month was to deposit a check, compared to 41% who went to withdraw cash and 36% who went to deposit cash.

That said, it is undeniable that the growing popularity of online banking has led to other innovations, such as open banking. Implemented in the United Kingdom, the system involves the secure electronic sharing of customers’ financial information, but only under conditions approved by the customer.

Open Banking forces lenders to provide digital “fire hose” data that can be used by any third party to gain standardized access – provided the startup is registered with the UK’s Financial Conduct Authority (FCA) and customers agree to share their data.

Investment Banking
Investment banking is a financial service in which individuals or companies advise individuals, businesses and even governments on how and where to invest. For decades, it was a person-to-person process that led to mutually beneficial relationships.

But now, with the rise of robo-advisors, artificial intelligence (AI) and robotic process automation are beginning to permeate the money management space. Predictive analytics can help investors make more informed and profitable decisions in real time, while saving money. In some cases, AI can also help identify merger and acquisition targets. Finally, AI can help validate investment bankers’ assumptions and lead to more informed future decisions.

Like what you’re reading? Click here to learn more about Insider Intelligence’s leading financial services research.

Banking-as-a-Service (BaaS)
Due to strict regulations (especially in the U.S.), not everyone can open a bank. That’s where Bank-as-a-Service (BaaS) fills the gap.

BaaS platforms enable fintechs and other third parties to connect with banking systems via APIs to build banking products on top of a provider’s regulated infrastructure. Thus, the launch of a BaaS platform helps banks benefit from fintechs entering the financial space because it transforms them into customers, not just competitors.

While BaaS technically falls under the umbrella of Open Banking, it should not be confused with the previously mentioned UK Open Banking system Open Banking encompasses all actions where banks open their APIs to third parties and give those participants access to data or functionality. While Open Banking in the UK focuses on providing third parties with data from existing banks, BaaS focuses on how these participants access banking services.

Banking Regulations
The banking industry touches almost every aspect of American life, from consumers to businesses to stocks. Because of this, the federal government has enacted several regulations on the banking industry, although the severity of these restrictions has fluctuated over the past decade.

Following the 2008 financial crisis, the Obama administration enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The Dodd-Frank Act overhauled the U.S. financial regulatory system in the wake of the financial crisis. The most sweeping and impactful changes in the Act include

Abolition of the Office of Thrift Supervision
The creation of the Consumer Financial Protection Bureau (CFPB) to protect consumers from abusive and unfair practices related to financial services and products such as credit cards and mortgages
Redistribution of responsibilities among agencies such as the Federal Deposit Insurance Corporation (FDIC)
Establishment of the Financial Stability Oversight Council and the Office of Financial Research to analyze potential threats to U.S. financial stability
Expanding the Federal Reserve’s authority to regulate specific agencies
In 2018, President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) into law, reversing some of the changes from Dodd-Frank. Specifically, EGRRCPA raised the threshold for the federal government to deem a bank too important to the financial system to fail from $50 billion to $250 billion.

It also eliminated the Volcker Rule (a federal regulation that essentially prohibited banks from using their own accounts for certain investment activities and restricted their dealings with hedge funds and private equity funds) for small banks with less than $10 billion in assets.

Despite the setbacks, it is still difficult to obtain a banking license in the U.S., which has hindered the growth of some banking startups. On the other hand, this has increased M&A activity. As a result, regulation will be a priority for the banking industry in the coming years.

Banking Industry Analysis
With so many different aspects of the banking industry in flux, it’s critical that those involved with the industry are informed and stay ahead of the curve. That’s why Insider Intelligence covers it all with our banking vertical, keeping you up to date on the latest banking trends and changes.

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