The 5 Key Trends in Banking to Follow in 2023

Recently, I had the honor of representing DashDevs at the World Banking Forum in Greece. This event, which annually brings together the world’s leading financial experts, proved to be an enlightening experience. 

After engaging in several in-depth discussions and attending keynote speeches, I’ve identified five key trends poised to redefine the banking industry this year. 

Let’s delve into them.

Using Open Source solutions for quick and secure digital transformation

In a world constantly evolving through technology, open-source solutions stand out. In the banking industry, they have become the backbone of innovation, providing a transparent, collaborative, and accessible platform for all. 

Open source refers to a software development and distribution model that emphasizes transparency, collaboration, and community-driven development. 

In an open-source project or software, the source code is made freely available to the public, allowing anyone to view, use, modify, and distribute it. This open approach stands in contrast to proprietary software, where the source code is typically kept secret and controlled by a single entity.

Traditional banking systems, being proprietary, often operate in silos, limiting the pace and scope of innovation. Open-source solutions, on the other hand, thrive on collective collaboration. With developers from across the globe contributing to open-source projects, there’s a continual influx of fresh perspectives, ideas, and expertise. 

This means faster ideation, quicker problem-solving, and accelerated development of novel solutions.

Source: Ashnik

It is worth mentioning that open-source solutions also work well for reducing costs for banks.

Financial institutions often spend a significant chunk of their budget on procuring and maintaining proprietary software licenses. Open source solutions, being freely accessible, dramatically cut these costs. This doesn’t just mean savings; it also translates into funds that can be redirected toward other strategic digital initiatives.

Contrary to misconceptions, open-source solutions often offer robust security. With a global community of developers continually reviewing and enhancing the code, vulnerabilities are detected and rectified promptly. 

Moreover, the transparent nature of open source ensures that there’s no ‘security through obscurity.’ The community-driven approach ensures that the software is continually fortified against evolving threats.

In my keynote speech at the World Banking Forum, I described the benefits of open-source solutions for banks with practical examples. I have shared real cases of how we utilized open source for our banking clients. I hope the recording of this speech will bring you valuable insights.

Many tech giants are investing in open-source communities to get long-term business benefits. For example, Facebook not only supports the OpenStreetMap open-source community with micro-grants but also empowers OpenStreetMap solutions with its AI-enhanced tools. 

Mapping data is increasingly critical for businesses, and Google currently dominates this market. Many API services of Google Maps have limited free requests per day. This means that using Google API, Facebook and other vendors pay enormous daily fees. 

By investing in the open-source mapping data solution OpenStreetMap, Facebook empowers a solution that provides editable maps of the whole world for free. OpenStreetMap community’s motivation is to make a restriction-free mapping solution that can be used for commercial and non-commercial usage without any limitations.

Lending as a Service (LaaS) & Embedded Finance disrupting the world of financial institutions

According to McKinsey analysis, in traditional banks, the average “time to decision” for small business and corporate lending is between three and five weeks. The average “time to cash” is nearly three months. In my opinion, these times will soon seem unacceptable. 

Leading banks embrace the digital-lending revolution, bringing “time to yes” down to five minutes and time to cash to less than 24 hours. At the center of this transformation are Lending as a Service (LaaS) and embedded finance. 

These concepts, while nascent, are already causing seismic shifts in how financial services are delivered and consumed. 

LaaS is a modular lending approach where lending capabilities are offered as a service, typically via APIs. 

Rather than a business building its own lending infrastructure from scratch, it can seamlessly integrate LaaS into its existing frameworks, offering loans without the traditional banking bottlenecks.

Embedded Finance refers to the integration of financial services into non-financial platforms. 

Essentially, platforms like e-commerce sites, online marketplaces, and even social media can offer financial products such as loans, insurance, or payments without the customer ever needing to leave the platform. This becomes possible by using embedded finance solutions. 

One of the most profound impacts of LaaS and embedded finance is the democratization of lending. By breaking down barriers and reducing dependency on large financial institutions, a broader spectrum of businesses, even those outside of the traditional banking services domain, can now offer lending services. This has led to a more competitive and customer-centric lending landscape.

Powered by data analytics and AI, LaaS platforms can offer highly personalized loan products. Based on user behavior, purchase history, and preferences, loans can be tailored to suit individual needs. This personalization enhances approval rates and ensures customers receive terms that align with their financial situations.

Of course, traditional banks will always play a pivotal role in the financial ecosystem. Nonetheless, LaaS and embedded finance reduce the overarching dependency on them during financial crisis. With more players in the lending arena, power redistributes, ensuring a more balanced and resilient financial system.

Real-time payments as a new global standard in the banking industry

Once a luxury, real-time transactions are now becoming the norm, reshaping the way businesses operate and consumers transact.

Real-time payments refer to payment systems that instantly transfer funds between bank accounts, 24/7, 365 days a year. 

Unlike traditional payment methods, which could take days to process, real-time payments ensure the recipient has immediate access to funds.

For businesses, the implications of real-time payments are profound. Instant transactions mean improved cash flow, allowing businesses to better manage their finances. They can instantly access funds, making operations smoother and reducing the dependency on working capital. Additionally, real-time confirmations provide certainty, eliminating the ambiguities often associated with pending transactions.

One of the most significant benefits of real-time payments is that they advance financial inclusion. 

In many regions, especially developing nations, access to traditional banking systems can be limited. Real-time payments, often facilitated through various mobile banking platforms, can bridge this gap. People without conventional bank accounts can participate in the financial ecosystem, receiving and sending funds instantly.

As real-time payment systems become the global standard, there’s an emphasis on ensuring they are interoperable. This means that these systems can seamlessly communicate with one another, irrespective of the region or the financial institution. 

Such interoperability is crucial for a cohesive global financial ecosystem.

Using data responsibly and ethically while protecting customer privacy and security

In the information age, data is often called the ’new oil’ — a resource that can power insights, drive decisions, and create value. But with this immense potential comes great responsibility. The ethical use of data, coupled with ensuring customer privacy and security, has never been more critical.

Now we can observe how banks are acquiring a massive market of Gen Z, who are already opening their bank accounts, using loan services, and saving money in deposits. The survey by DepositAccounts shows that Gen Z has much less trust in financial institutions regarding personal data protection (60% compared to 80% for Baby boomers). That’s why it becomes crucial for banks to use customer data responsibly and communicate this clearly with their audience. 

Companies must be clear about how they collect, use, and store customer data. This involves open communication about data practices and ensuring customers understand what they’re consenting to.

Just because data is available doesn’t mean it should be used indiscriminately. Institutions should limit data use to the specific purpose for which it was collected. Data shouldn’t be used in a manner that discriminates against any group or individual, especially in decision-making processes like loan approvals.

While talking about using data responsibly, I can’t overlook bolstering security measures. This includes:

• Encryption: Encrypting data ensures that even if there’s a breach, the data remains unintelligible and useless to unauthorized entities.
• Regular audits: Periodic security audits can help identify vulnerabilities, ensuring that systems are always fortified against evolving threats.
• Multi-factor authentication: This adds an additional layer of security, ensuring that even if login details are compromised, unauthorized access can be prevented.

Strengthening Customer Lifetime Value in Wealth Management

The wealth management sector, once dominated by traditional practices, is experiencing transformative changes driven by technology, evolving client expectations, and shifting global dynamics. Amidst these changes, the need to strengthen customer lifetime value (CLV) is becoming paramount.

Source: Bain & Co

With the influx of AI and data analytics, wealth managers can use artificial intelligence to craft highly personalized investment strategies. Instead of a one-size-fits-all approach, portfolios can be tailored to match individual risk appetites, goals, and timelines.

Modern clients, especially millennials and Gen Z, prefer digital interactions. Offering intuitive digital platforms that allow clients to monitor their portfolios, project future growth, and simulate different scenarios can enhance engagement.

Moreover, the modern approach also requires robo-advisory integration to remain competitive and customer retention. Combining the insights of robo-advisors with the personal touch of human experts can offer clients the best of both worlds.

As wealth managers navigate the delicate balance of traditional relationship-building and modern technological integration, the focus should always remain on offering genuine value, fostering trust, and ensuring the client’s financial well-being. 

In doing so, wealth managers don’t just secure their business’s future financial stability but also play a pivotal role in shaping the financial destinies of their clients.

Wrapping Up Banking Trends 2023

The World Banking Forum 2023 served me as a lens into the nearest future of banking. While challenges persist, the industry’s trajectory is clear: a move towards more transparent, customer-centric, and innovative banking solutions. 

As someone deeply involved in fintech, I am excited about these emerging trends and optimistic about their transformative impact. 

As we often say in the fintech world, change is the only constant. And right now, that change is shaping a brighter future for all banking stakeholders. If you are looking for professional advice on digital transformation strategy for your bank, don’t hesitate to contact me. I and my team will be happy to help!