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7 banking tech predictions for 2023

Technology decision-makers will do well to guard against knee-jerk responses to trending terrors, and instead focus on current needs and longer-term vision.

Jan 23, 2023 / Technology

Fear is a powerful motivator. Over the next year, the anxieties of bank strategists around digital disruption, economic uncertainty and frenzied fraud schemes will galvanize substantial technology implementations.

Here are seven predictions regarding the future of banking that will compel decisive technology investments in 2023.

Budgeting solutions come back en vogue: In the face of inflation and a slowing economy, consumers will be looking for guidance on how to make the most of their money. This is good news for fintechs in the personal financial management space, which will likely see their customer bases grow considerably. Banks, meanwhile, will be on the hunt for ways to remain relevant as demand for loans diminishes. This may spark additional interest in fintech-bank partnerships that meet digital consumer demand for personalized finance tracking apps.

Identity protection takes pole position: The battle for primary financial relationships will drive bankers to deploy tech that helps existing customers ignore the siren song of competitor and fintech promotions. Digital products that act as armor for vulnerable consumer identities will be a primary enabler of that strategy. Personalized identity protection will replace cheap, one-size-fits-all solutions that lean too heavily on resolution and insurance. Regular touchpoints built into the experience will remind customers that the bank continues to occupy a very important role in their lives as a watchdog against identity crime.

Neobanks fade into the background: Easy pre-pandemic investor funds are drying up, which will cause most of the 100+ niche-focused neobanks to blink out of existence. Too often, these organizations have deployed a shiny new interface atop legacy, third-party banking rails. As it turns out, that strategy isn’t the money maker it was thought to be. Even the largest are struggling to turn a profit under that model. As investors pull back funding from losing fintech bets, they will redeploy capital to startups with clear paths to profitability.

Super apps accelerate dominance: A perennial fear of traditional banks is that super apps will reshape U.S. banking the way Amazon reshaped U.S. e-commerce. With a massive base of existing customers and a ton of newly unemployed neobankers on the market, super-developers have the scale and talent they need to make it happen in 2023.  Political factors may also play in their favor. Conservatives in Congress are looking to distinguish themselves from their liberal counterparts who have supported so-called “dangerous Silicon Valley disruptors” like the now-collapsed FTX. Super apps from well-established companies, these legislators may argue, reduce the risk to consumers’ finances and data.

Digital drivers licenses become the onboarding go-to: The Digital Identity Act (or some version thereof) will ensure that uniform standards are in place for the issuance and validation of the digital driver’s license. Most already follow International Organization for Standardization (ISO) specifications. Further uniformity in 2023 will bolster the business case for bank investment in fintech to accept these credentials for account opening across channels. Financial institutions that do so will quickly experience a marked decline in application fraud, creating further proof points for FOMO-motivated banks.

Fraud will chip away at profits: Large-scale fraud schemes accelerated by democratized technology will reduce the profitability of deposit accounts, which are becoming riskier in the face of liability shifts. Receiving banks, for instance, are now on the losing end of fraud related to remote deposit capture, and Zelle-related fraud will soon be handled with a similar liability paradigm. Banks will be forced to implement more comprehensive identity proofing schemes, increasing the origination costs for any bank with a model dependent on deposit growth.

The crypto exchange becomes persona non grata: The specter of considerable regulation following the FTX implosion will motivate traditional banks to run away from crypto association. Bank pullback will not be limited to crypto trading and custodial services alone. Banking-as-a-service relationships with crypto exchanges and others in the space are also likely to suffer, with the Federal Reserve now warning of the safety and soundness risks involved with all things crypto.

Decisions made out of fear or anxiety are highly effective at solving problems in the short term. Their influence on longer-term success is much weaker.

Bankers making technology decisions in 2023 will do well to police against knee-jerk responses to trending terrors. They can do this by considering their bank’s unique strengths and purpose, the needs of their distinct market segment and their vision for the future of their institution. The technology that dovetails best with these elements can set short-term orientation while also keeping the bank on course for long-term vitality.

Al Pascual is SVP of enterprise risk solutions for Sontiq, a TransUnion company.