Despite the recent economic downturn, UK banks are expecting to be more profitable in 2023 as the industry continues to grow. An IBISWorld report on UK commercial banks found that the 2023 market size is currently valued at £101.0 billion, with a growth of 5.1% from 2022. Yet despite these positive numbers, 2023 could still be a difficult year for banks as the UK is expected to go into a recession. With this in mind banks need to stay ahead of the latest trends. Below are some of the top 2023 banking trends that financial institutions should look out for.
Artificial intelligence
When it comes to automating services from customer service to data analysis, artificial intelligence (AI) has become a far-reaching tool in banking. While these technological tools are already used for processes such as risk management and revenue generation, their solutions have become more viable for increasingly complex challenges. Business Insider notes that almost 75% of global banks with over $100 billion (£80.60 billion) in assets are implementing more AI strategies. Some critical applications include:
- Front-office – Customer identification and authentication, mimicking live employees through chatbots and voice assistants, providing personalised insights and recommendations
- Middle-office – Assessing risks, detecting and preventing payment fraud, and improving processes for anti-money laundering
Basel 4 compliance
Basel 4 is a revised framework for banks to change how they manage risk and handle capital requirements. On 1st January, the Basel Committee set into motion capital standards— with the UK requiring all financial institutions to meet all guidelines by 2025. With this deadline more financial institutions are seeking an integrated Basel 4 solution to help them comply with the new regulations. These cover different requirements from data management, financial risk analysis, regulatory calculators, and cash flow and exposure analysis— enabling banks to make informed decisions and overcome transition challenges. As changes are implemented toward compliance, financial institutions are expected to have a level playing field by improving the resilience of each banking system.
Green and ethical banking
As we reported at the beginning of this year, UK businesses are already having to comply with a new German ESG law designed to prevent human rights abuses or environmental degradation. With a growing concern over climate change and ethical practices financial institutions are also taking on sustainable action. Banks are now pressured to meet new standards, so many are shifting their strategies to adopt the ESG (environmental, social, governance) framework. In a Forbes report on ESGs, a survey of consumers and employees found that more than 80% of groups want companies to be actively involved in creating good ESG practices. In addition to social forces, working with ESG initiatives adds extra pressure to innovate and improve policies and technological capabilities— opening up market advantages and business opportunities. One notable green banking advocate in the UK is the Triodos Bank, which has actively invested in sustainable efforts like renewable energy firms, social housing, and Fairtrade organisations and charities.
Cloud-based solutions
Most traditional banks rely on legacy infrastructure to run daily operations. But with the shift in technology and the rise of digital banks, more financial institutions rely on cloud technology to keep all information in a virtual space without physical space constraints. These cloud services include software as a service (SaaS) and platform as a service (PaaS), which offer better storage scalability, employee collaboration, and decreased logistical costs. An added advantage of cloud-based solutions is their greater freedom for hybrid or even fully remote work setups. From the comfort of their own homes, employees can access critical financial data without sacrificing their security or quality of service, enabling banks to maintain high performance and improve the customer experience.
By staying updated on banking trends, financial institutions can learn the best investments to boost efficiency, ensure regulation compliance, enhance sustainability efforts, and save on operating costs.
