Banking Technology Trends to Watch Out for 2023

Banking industry is undergoing significant changes to keep up with the technology disruption. From digital payments to artificial intelligence, the industry is transforming aggressively.

2022 was about banks accelerating their cloud adoption process, increase collaborations between fintech and traditional banking systems, and make an overall commitment to strengthening the IT infrastructure.

Now that 2023 is here, it's important to stay on top of the latest trends in banking technology to adapt to changes, stay compliance-ready, and determine new marketing opportunities. This will enable organizations to make strategic decisions and grow their business by identifying new risks and emerging threats beforehand.

From blockchain to open banking, this blog is an attempt to bring you the most impactful technology trends set to shape the banking industry and how money may move in 2023 and beyond.

Six Banking Technology Trends to Keep an Eye on in 2023

1. New Payment Methods

Global cashless payments have already grown by 42%. According to PwC, the cashless transaction volume will increase by more than 80% by 2025.

For instance, the rise of Venmo, a peer-to-peer payment app, and a social media centered approach was accompanied by the emergence of “un-banking” in payments. Venmo and other similar apps made consumer payments fun and attracted younger audiences in droves. Not only were Venmo’s users young and educated, but they also preferred the ease and social element of the app because it allowed them to split payments with friends.

Banks need to adopt customer-centric business models with similar payment methods to stay relevant and attract newer audiences. A convenient, easy-to-use P2P payment option with an integrated experience will increase customer loyalty, leading to better customer retention. Moreover, P2P payments can help banks gather valuable data on customer behavior and preferences. This data can be used to develop new products and services.

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2. Banking-as-a-Service (BaaS)

A bank’s system communicates with the digital banking ecosystem and other applications through APIs. So, customers can transact, pay bills and loans, and manage cards and banking accounts through a non-banking app, even if it does not have a banking license.

Fintech has disrupted the banking space and increased competition. However, BaaS enables legacy banks to partner with fintech solution providers to offer seamless customer service. It allows access to its APIs and customer insights and enables the development of specialized banking products.

In addition, legacy banks can capitalize on their banking infrastructure by monetizing it monthly or on a la carte basis for every specific service used. One example of a legacy bank enabling the push to BaaS is Deutsche Bank. It wanted to integrate solutions for supply chain financing into its offering, so it partnered with Traxpay and is now helming global supply chain financing.

3. Richer User Experiences

Unrestrained by traditional banking technology and physical infrastructure, neobanks are leveraging digitalization by offering fast, real-time banking services and attractive incentives online. While on the quest for delivering stellar user experiences and generating greater engagement, banks must now compete with the advantages neobanks offer.

Neobanks come in two flavors: full stack and front-end. While front-end neobanks cannot operate independently, they partner with banking institutions to offer their services. On the other hand, full-stack neobanks have banking licenses to deliver their services independently.

Neobanks are all the rage today. They have raised the bar of customer expectations for the banking sector by elevating the customer experience and offering faster processing times. The best way legacy banks can be on par with neobanks is to deliver equally engaging customer experiences. For instance, banks are switching to virtual onboarding as well as mobile banking with technologies like eKYC, facial recognition, AML checks, and offering APIs for open banking solutions.

4. Predictive AI

Predictive artificial intelligence is no longer a nice-to-have technology; it is a necessity for banks to thrive in a hypercompetitive industry. It makes better forecasts, detects fraud, and creates a personalized customer experience. No wonder it was one among the hot technologies list to invest in 2022.

Over 37% of banks have already seen an improvement in their operations after using AI. 33% of them have witnessed customer service enhancement. AI helps banks make informed business decisions and personalizes the entire banking journey for their customers. By 2030, the market value of AI in banking is expected to reach $64.03 billion.

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5. Reimagining Customer Engagement

The use of conversational interfaces is becoming increasingly common in customer engagement. According to a market research report by Arizton, the US smart speaker market is slated to reach $9 billion in 2023 at a CAGR of 21%. Prominent banks in the US have already implemented voice-activated assistants to provide real-time support.

Conversational interfaces can help banks improve efficiency, accessibility, scalability, and customer lifetime value, thereby strengthening their competitive position and financial performance when implemented effectively

6. Automation

Banks have started embracing robotic process automation (RPA) services to automate their manual processes and improve daily operations. They are helping banks across regulatory compliance, customer service, fraud detection, report reconciliation and more. Bank employees can save time and effort on manual processing for compliance processes like KYC, on which banks spend more than $384 million annually (Source: Thomson Reuters Research). RPA can also complete tasks swiftly and be easily scaled based on demand.

The Shifting Focus to Reduce Technical Debt

Financial institutions spend 20% of their IT budgets on technology modernization including product changes, middleware, and hardware. As global companies are taking measured approaches to their purchasing decisions in 2023, they must find ways to decrease their technical debt.

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Moving to a more agile and modernized banking infrastructure is one way to reduce technical debt. Through modernization, banks can streamline their processes, strengthen their security posture using encryption and advanced security systems, speed up IT service delivery, and eliminate shadow IT.

Solutions like cloud migrations, APIs, and containerization can help banks get started with modernization and reduce technical debt.

2023 will be a litmus test for banks as they bounce back from the pandemic’s aftermath. As new digital regulations come into play and the recession looms large, Banks must use this as a window of opportunity to embrace digital transformation, transform their approach and continue create a deeper, lasting relationship with their customers.

To make the transition from legacy to digital banking systems and keep pace with the trends above, banks must work with a technology partner that understands their business goals and provides end-to-end solutions that are cost-effective and efficient.

At Xoriant, we assist banks with:

Digital Transformation: We modernize retail banking products to make them future-ready.
Risk and Compliance: Our risk and compliance solutions ensure that the bank complies with regulations like AML and KYC and while also protecting them from fraud.
Open Banking: Our open banking solution keeps customer data safe and provides greater financial transparency.
Payment Solutions: We provide P2P, B2B, and other real-time, easy, and safe payment solutions.
Data-Driven banking: Our AI and ML-based solutions can help banks provide a seamless and hassle-free experience to their customers.
RPA: We help automate front, middle, and back-office operations to reduce operational overhead expenses.