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2023 focus: Customer engagement and advanced technology

Market volatility this year may allow banks to reboot strategic processes by leveraging scale, a broad customer base and regulatory knowledge.

Jan 17, 2023 / Consumer Banking

The world economy and banking industry likely will be thrust into unchartered, possibly stormy waters throughout the months ahead. However, we are confident that disruptions will catalyze retail banks to laser focus on resilience, reach and customer and ecosystem connections.

Based on conversations with banking executives worldwide, as well as insights from the Capgemini Top Trends in Retail Banking 2023, sluggish consumer demand, inventory overstock price cuts and bargain real estate sales will help to moderate inflation. And that scenario may encourage central banks to hit the pause button regarding rates.

Forecasts generally agree that the growth rate for the global economy will slow down in 2023 as financial conditions tighten, the appetite for investment wanes and Europe’s natural gas problems persist. As a result, banks will assume highly strategic positions, including a growth imperative that mandates:

  • Customer engagement that retains mind share and wallet share
  • Efficiency and productivity to bolster risk management and reduce bottom-line impact
  • 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 them overcome the economic storm. Therefore, the most future-focused banks will step up efforts to build meaningful connections. Those most poised to offer time-of-need advice are financial institutions strengthened by a robust technology infrastructure. Armed with a reliable data pool that includes synthetic and alternative datasets, cloud capabilities, artificial intelligence and machine learning capabilities, these banks can provide customers with personal finance management tools and advice.

In addition, they will educate customers about how to make their income go further. How? Banks can help customers set financial goals and contain spending, while at the same time tracking progress. Initiatives such as online account management tools reinforce customer trust, boost loyalty and provide opportunities to cross-sell- and up-sell relevant services.

In terms of outreach to new customer segments, unbanked communities worldwide remain excluded from the financial ecosystem because they do not have a registered identity. For example, the World Bank reported that 1.4 billion people had no bank affiliation in 2021. These individuals are the most vulnerable during economic and cost of living upheaval. A key barrier to financial inclusion is a lack of proof of identity and non-existent credit history and personal identity documents.

Throughout the months ahead, banks can collaborate with governments to build 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 schemes as they are heavily regulated and already own robust cybersecurity infrastructure to enable scalability.

As retail banks tailor their performance goals to meet customer needs, sustainability will drive customer experience, connectedness and loyalty. Banks can reduce their organizational carbon footprint and support a circular economy by building energy-efficient and eco-friendly offices, digitalizing business processes, embracing green IT initiatives, and pivoting between traditional and green banking products.

Several banks have already launched sustainability-positive products, such as special-rate loans for green vehicles, green mortgage loans, and embedding environmental, social and governance (ESG) standards into risk-scoring models.

Moreover, banks can make purpose-driven fintech acquisitions and nurture partnerships to build green portfolios. Sustainable banking mitigates banks’ ESG risk and reduces non-performing-asset volume to boost profitability.

For some banking ecosystem players, digital maturity remains aspirational, yet avenues exist to employ continuous innovation.

For instance, trendsetters are cautiously exploring the evolutionary benefits of decentralized finance, which will likely pick up steam as institutional DeFi becomes more mainstream with the adoption of blockchain-based financial products tailored to financial services firms’ strict compliance requirements. Despite headlines about less-than-stringent ESG practices and inadequate crypto risk management, institutional investment in DeFi is holding up. Crypto markets and DeFi lending protocols can deliver attractive risk-adjusted returns compared with traditional financial instruments.

We anticipate that 2023 market volatility will allow banks to reboot their strategic thought processes by leveraging their scale, assets, broad customer base and regulatory knowledge. In addition, emerging technologies and the use of advanced data to mine actionable customer insights will open doors to seamless, personalized and superior optichannel experiences.

Nilesh Vaidya is global industry head – retail banking and wealth management at Capgemini.