Top Retail Banking Trends for 2023

Our friends at The Financial Brand have their top ten retail and strategic priorities for 2023.  You can access the full article here – Top Retail Banking Trends and Priorities for 2023.  I must say that I wasn’t all that surprised about the top elements in each of the lists. In fact, what appears to be the top trends for 2023 align closely to the ideas I have been advocating in this blog.  Perhaps confirmation bias?

Moving on. The survey that is driving the trends results comes from respondents all across the world, not just in the U.S.  And it’s clear that the U.S. is not as advanced in some aspects of the banking experience as other developed countries. Nonetheless, I found that the top trends are applicable to the pressing issues that we face as bankers.  The survey is in two parts: one set of trends focused on Retail Banking and the other on Strategic Issues that bankers face.  Let’s address these each in turn.

According to the Financial Brand article, the top 4 Retail Banking trends for 2023 are:

  1. Removing friction from the customer journey
  2. Expansion of digital services and payments
  3. Use of Big Data and AI
  4. Use of APIs and Open Banking

The list details more trends, but these garnered the most significant responses.  Here’s my take on these 4:

  • Removing friction from the customer journey – I have written extensively on this topic. I use the term Customer Experience (CX) to describe how our customers (and prospects) perceive our institution across all touchpoints. By way of example, if a bank enables an online account opening experience but that service is difficult to use (as evidenced by high abandonment rates), then there is too much friction. Removing friction is eliminating online steps, putting mobile device menus and action options where your fingers can reach, not requiring manual steps (i.e.: calling or coming into the bank) to complete any transaction, including when opening new accounts. Since as bankers we don’t use the tools, we make the customers use, we are often blind to just how much friction we have enabled. Find the friction, wherever it exists and remove it.
  • Expansion of digital services and payments – Again, this is a hot topic. The pandemic moved more of our customers to use our virtual tools. How effective is the overall digital experience at your bank? Does your virtual branch meet or exceed expectations that customers and prospects have, measured by all the other online experiences they have? Check out my recent posts on the importance of the virtual branch as this topic is generally ignored by most bank’s leadership team.  When you treat the virtual branch like your physical ones, your ability to deliver on the virtual branch promise will dramatically increase.  From a payment’s perspective, I would simply point to two areas, the advance of faster payment options including the upcoming FedNow and how you enable your business customers to efficiently acquire and post payments. Payments are your franchise, why would you allow your SMBs do all their payments with Box (Square) by default?
  • Use of Big Data / AI – If you are a regular reader, you know that I don’t believe that bankers have “big data”. Yet, I have opined a good deal on how banks need to do a better job of harvesting the data they have and intelligently using it to assist in servicing and marketing to customers.  Both avoiding something negative from happening (alerts on account activity) and encouraging positive behavior that increases wallet share (next best product recommendation) are examples of how banks can better utilize the data they have.
  • Use of APIs and Open Banking – Not sure that Open Banking isn’t more hype than hope, but I certainly endorse the aggressive use of APIs. Making integration happen where it positively affects the CX is certainly money well spent. After looking at several of the open banking options in the past 12 months, these might enable a fintech to create a niche banking service, but they are not ready for prime time as a fully functional core banking system that a community bank can acquire, configure and use. The legacy cores have decided they need to evolve, so pay attention and see what emerges as viable open-banking core options in the coming years.

Regarding the top strategic priorities for 2023, there were 10 elements listed in the Financial Brand article. But after the top 2, the response percentage dropped off significantly.  So, I want to focus on just those two. And perhaps no surprise, these strategic priorities nicely aligned with the top 4 elements from the retail list above:

  1. Improve the Digital Experience for Customers – It is just an immutable fact, the future of bank services centers around a digital experience. It doesn’t mean that branches will go away, but the daily transactional nature of banking can be fully digital/virtual. The bank that enables its customers and prospects to access and transact, at a time and place of their choosing, with whatever device they have in their hand, will have the prospect of long-term success and longevity. The large regional banks fully understand this and have poured millions into their online / digital experience.  And what they have created is quite good.  Who cares if a megabank’s in-branch experience is lacking if their virtual experience is thrilling and delighting customers? Remember, the digital experience goes beyond just the capabilities of your mobile app. It’s intelligent self-service via chat. It’s the ability to provision new faster payment services. It’s being able to use ACH to fund an account at the end of an online account opening. And so much more …
  2. Enhance Data and Analytics Capabilities – The data that banks possess is rich, it’s just not “big”. You have access to customer transactions and can access how they navigate around the web during search, surf and social activities.  Here’s just a few examples:
  • You can harvest cell phone data using geolocation services and beacons, then cross reference that with the numbers of your customers
  • You can create meta data across broad categories of similarly situated customers so you could make product and service recommendations
  • You could allow business customers to make paternalistic offers to retail customers for products and services (i.e.: buy local)

You could do all of those things, but I suspect you are doing none of those things.  Why not? I’ll bet it is because you feel that these are activities that generally fall into an area considered … kind of creepy (I get it, creepy is not a standard banking term, but while it would be hard to define creepy, everyone knows creepy when they experience it …). Bankers don’t want to be creepy, but with all the data harvesting and use of machine learning / AI that is going on across all vertical markets, why would anyone not accept (or expect) that it would be happening with financial services?  I firmly believe that there is a way banks can harvest data and use it for the good of our customers and prospects … and not be creepy.  But you have to at least start with the premise that intelligent and professional use of data is inherently a good thing worth pursuing.

So how do the 2023 trends and strategic initiatives outlined by the Financial Brand article align with what you have on your 2023 strategic plan?  Is it possible that some of the elements I have opined on above should be a part of your 2023 strategic focus?  If not to implement, to at least get these topics on the table so that they can be a focus for the coming years. If you had the will to implement a true virtual branch or intelligent data harvesting in 2025, what would you need to do in 2023 to move towards that goal?  Consider these 2023 trends and strategic initiatives and my analysis of them as conversation starters for your institution.  Trust me, it’s a conversation worth having.