To boost performance and enhance client experiences, Banking and Financial Institutions (BFSIs) have been at the vanguard of digital transformation. Globalization and competition from a range of industries including fintech start-ups, alternative credit providers, retail, and internet behemoths have further accelerated the speed of digitization of banks. As per reports, global banks invested huge amounts in technology solutions in 2022. A major chunk of the investment was spent on cloud migration and digital-first initiatives particularly in wealth management and retail banking to enhance customer experience and use data and analytics for cost-saving and growth purposes.
One might argue that there are strong macroeconomic headwinds globally, which might impact the spending pattern, however, the transformation spending is expected to continue in BFS. Technology spending by the BFS industry is likely to see an upward trend in 2023 as well. Celent research expects IT spending to reach $263 billion next year, an increase of 5.2% over 2022. Banks are expected to keep aside large-scale cost takeout programs to fund the transformation initiatives. Coforge predicts that the top technology spending areas in 2023 will be around Legacy Modernisation, Migration to public cloud services, Advanced data analytics, Personalisation of customer experience, Cyber security enhancements, Open Banking, and Automation using LCNC platforms, RPA and AI. Let’s quickly deep dive into the top 5 trends that will be impacting the BFS industry in 2023 and beyond-
- Develop a risk-based approach to cloud strategy- Banks and other financial organizations in today's world are always trying to outperform the competition, achieve economies of scale, and lower capital costs. Many businesses are switching to cloud computing to reap these advantages. Organizations frequently choose one of two main approaches when working in the cloud: a cloud-native approach, in which they commit to working only on a single, exclusive cloud platform, or a cloud-agnostic approach, which places an emphasis on portability and functionality across the majority, if not all, cloud environments. The debate between using a cloud-native or cloud agnostic approach has gained more attention due to the increased popularity of multi-cloud strategies. Hence, banks need to develop a cloud strategy based on the criticality of the service.
- Core modernization is inevitable in 2023 – replacing or upgrading the bank's core operational and IT infrastructure is the first step towards modernization. These systems serve as the core and skeleton of the bank's IT infrastructure and carry out the bank's mission-critical functions, including processing accounts, loans, payments, and securities. In 2023, as customer centricity becomes inevitable banks must prepare to upgrade core platforms to enable business capabilities. Banks need to strategize and build a plan to equip them with the best solutions and build a composable platform for maximum benefits and agility.
- Evolve data strategy and commit to data culture- As features of all banking products are becoming increasingly commoditized, banks need to reorient and think about their differentiation factors or the next phase of expanding operations. Well, the answer lies in a data and analytics strategy. In 2023, if banks and financial institutions are not using data and analytics, they won’t be able to sustain in the market. The modern banking ecosystem can benefit heavily from analytics as it helps turn the massive quantities of data created by banks into valuable and actionable insights. Data analytics in banking is a potent instrument for raising income, among other things, as well as enhancing client experience and performance.
- Product innovation with a customer-centric approach - Consumer retention and trust are essential for the overall performance of any bank. Hence, banks must embrace smart technologies and partners to build the best service bundles for their consumers, simplify complex processes and infrastructure, and comprehend how to use customer data to provide service-first models. Rather than redesigning their entire system and implementing a digital core, they might start with a relatively low-risk approach that enables them to use their current infrastructure. Banks must find fresh approaches to designing and delivering the hyper-personalized services that clients need as the banking experience shifts from a product-based to a customer-based model. Younger audiences, such as millennials and Gen Z, who have grown up in the digital age and anticipate a smooth digital experience, are particularly affected by this.
- Adopting Automation- The excessive amount of repetitive work in banking and financial industry processes makes them perfect candidates for automation. The boost automation and reduce human intervention, the banking sector should adopt emerging technologies like AI (Artificial Intelligence) and Machine learning. These technologies are cost-effective, causing minimal disruption, and require no human intervention once deployed.
Overall, to meet the needs of increasingly tech-savvy customers, organizations will continue to rely on technology to accelerate their digital transformation journeys. Thus, 2023 will be about sustaining momentum and integrating relevant technologies to future-proof the business.
