What’s trending and what’s not during H1 ’23 as FIs prioritize profitability, cost cutting, and meaningful customer acquisition

Article by Jenna McNamee | Jun 15, 2023

Trendspotting: Last week’s Money 20/20 Europe conference provided insight into what’s winning investors’ attention in banking this year, and what has gone out of style, per CNBC. Here we highlight the trends and discuss how they’ll influence banks’ strategies for the future.

Cool for the summer: All financial institutions (FIs) are looking for ways to rein in costs, better manage their risk exposure, and attract customers that will make them money. These are the areas where FIs should focus:

Business to business (B2B) apps and fintechs: FIs are finding it more lucrative to provide products and services to businesses and enterprises, rather than directly to consumers. Partnering with B2B fintechs allows them to easily work with SMBs and SMEs, offering features through embedded finance capabilities and banking-as-a-service (BaaS) platforms. We predict BaaS revenues in the US to reach nearly $6 billion in 2024.
Generative AI: It’s clear that generative AI will transform the banking industry in the coming years, though the technology is nascent and not without major risks. But banks should start experimenting with its uses now—like powering customer-facing chatbots or developing personalized marketing campaigns and products. AI can also aid in task automation and fintech integration, helping FIs decrease time and resources spent on back-office operations.

So last summer: Areas that were once hot have reached the peak of the hype cycle and are now on the decline. These are the trends that lost their luster:

Consumer-facing apps and fintechs: Consumer-facing startups and digital banks have felt the brunt of the economic downturn, with many seeing their valuations plunge and funding dry up as inflation soared and interest rates rose to record levels. FIs are now only interested in working with customer-facing platforms if they offer a unique revenue stream or if the FI is in a position to acquire the startup (which is what many of these apps are likely hoping).
Crypto: Once the talk of the town, crypto faced a tough year that uncovered liquidity issues and sparked regulator crackdowns. Now, many FIs are deciding to reduce or halt their crypto efforts as they see less consumer demand for crypto features.
Blockchain: In the same vein, FIs touted the used cases of blockchain to improve trading and settlement processes. But after a bout of pilot programs and proof of concept studies, many FIs are struggling to find a scalable and sustainable way to use the technology. Though there is value in the blockchain, FIs have realized it will take a lot more trial and error and some regulator guidance to create a viable solution.

The bottom line: The global economic downturn is forcing FIs to tighten their belts and do more with less to stay afloat. FIs are looking for ways to get more bang for their buck, and that means that their focus is turning to technologies and partnerships that will help them acquire more profitable customers at a lower cost.