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Current economic headwinds create new pressures on banks, so stability and resilience are essential
Current economic headwinds create new pressures on banks, so stability and resilience are essential. However, innovation and digital transformation must be priorities for banks to deliver customer value and remain competitive. We’ve reviewed predictions and perspectives from the experts to share key themes around banking industry challenges for 2023.
Interest rates and inflation are high, and consumer demand is slowing. Economists say there’s a 7 in 10 chance the U.S. will see a recession in 2023. Yet, while battening down the hatches and waiting for the storm to pass, forward-thinking banks need to invest in innovation to be prepared for when the economy turns around. Banks should explore new sources of value beyond the current thinking.
It’s important for banks to prioritise operational efficiency and cost control. “Process miners” will be seen as heroes for banks as they focus on operational efficiency and effectiveness initiatives.
During the pandemic, customer experience (CX) was transformed to involve more digital and hybrid interactions. Customers now demand digital services and have high expectations.
Adopting advanced technologies can be a way to gain greater operational efficiencies and maintain a competitive advantage. Digital inertia and a lack of technology investment will come at a cost to banking organisations.
Everyone is looking ahead to the digital end game, and banks are realising that digital transformation has the ability to unlock cost savings and business value. Banks have plenty of data, but they often lack the means to derive value from it. Accelerated digital transformation gives banks the tools to transform the foundations of banking.
Banks are facing resource constraints including loss of productivity due to attrition among existing talent and challenges in recruiting new talent. They are now prioritising more conservative objectives — customer experience (CX), operations excellence and new products/services — above revenue growth. Initiatives around operational efficiency and effectiveness are a priority.
“PREPARE TO HELP BANKS TO IMPLEMENT THEIR DIGITAL ENTERPRISE VISION.”
We believe the trends discussed above will drive banking organisations’ decision-making in 2023 — either operationally, investment-wise or architecturally.
One overarching, holistic theme for banks this year is the drive to net zero. This is not only in terms of sustainability and carbon footprint, but also in terms of reducing an organisation’s footprint in the areas of real estate, physical assets, processes and technology debt. Bank branches are closing, and physical assets, including IT assets, will be reduced. Processes are being streamlined and modernised, including adopting an agile approach. Banks must eliminate outdated technologies and modernise legacy architecture. Finally, environmental, social and governance (ESG) has become a business imperative, and banks are under pressure to meet their goals. These include reducing environmental greenhouse gasses, achieving net zero carbon usage, and demonstrating tangible results.
At Iron Mountain, we work with customers who span retail, commercial and wealth management banking. In fact, 2,500 financial services institutions worldwide work with Iron Mountain. Here’s a closer look at how different subsectors within the banking industry will face the challenges of 2023.
In general, banks are facing 2023 in a position of relative strength. Capital buffers are strong, and liquidity is adequate. As a result, due to higher net interest income from rising rates, retail banking should fare well in 2023. However, investment banking performance will probably be mixed due to languishing underwriting and M&A advisory activities.
Retail banks will have to deal with higher rates, inflation and lower growth in the near term. However, customer engagement must be a priority for retail banks to stay competitive. Retail banks understand the importance of optimising digital customer experiences, yet only two out of 10 retail banks are regularly engaged in practices that enable them to do so. A Forrester study shows that retail banks that regularly practice CX optimisation grow 3.2 times faster than competitors that don’t. Developing a datadriven CX strategy typically requires front- and back-office harmonisation, as well as a branch infrastructure overhaul
Commercial banks are looking at high inflation, recessionary concerns and supply chain challenges in 2023, yet demand for working capital could remain robust. Many commercial banks have announced major layoffs, but IT staff is generally safe as the C-suite knows they can’t afford to fall behind in tech. Commercial banks are thinking more strategically about digital investment, utilising technology to drive efficiency in back-end processes, smarter workflows and more employee engagement. In addition, ESG initiatives present a massive opportunity for commercial banks to mobilise finance to aid corporate clients as they work toward their own environmental goals.
Wealth management is looking at brighter prospects for 2023. Millennials and Gen Z are becoming a larger target market for wealth managers; these clients are tech-savvy and expect a value-added digital experience. They also tend to be socially conscious and want to invest in a way that reflects their values. Front-to-back digitisation at wealth management firms is the key to achieving greater efficiency and superior CX. The wealth management segment is also leading the way in embracing AI. According to a recent study, 68% of wealth management organisations are using AI tools to support decision-making processes.
We believe banks will renew their focus on operational efficiency and effectiveness initiatives to maintain stability and resilience in 2023. At the same time, they’ll sustain a focus on innovation — including digital transformation — so they don’t fall behind.
Ultimately, by 2027, 93% of managers, directors and executives have a goal to eliminate paper records, according to a research survey commissioned by Iron Mountain. Clean-up of paper records cuts costs and risk, while opening the door to reveal new value from digital information. Digital transformation will be essential as the banking industry evolves and services customers.
Iron Mountain can help banking institutions achieve the following outcomes to fulfill their goals.
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