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There’s no denying that retail banks and the banking industry as a whole has undergone substantial changes in recent years. The way banks and customers interact has transformed, with a more digital, personalized, and streamlined service overtaking more analog processes. 

However, simply offering a banking application, digital channels, or an ebanking portal isn’t enough to secure customer loyalty moving forward. In fact, this offering is seen as a prerequisite to meet minimum service expectations. To remain competitive or truly stand out, retail banks need to embrace the ever-evolving trends that are set to define 2023. 

In line with previous years, there’s a continued push toward hybrid service digital banking experiences – and yet the sophistication of this offering needs to be improved to address falling levels of trust and cybersecurity risks. It’s not a time for retail banking organizations with transformation initiatives to rest on their laurels as differentiation centers on the quality of the experience.

What is clear, however, is that for the retail banks that are able to achieve next-level service, the rewards are substantial. Below, you can find the 8 key trends that will influence the success retail banks experience in the coming year and provide a quick overview of the landscape.

If you’d like a more in-depth understanding, we’ve also drawn insights from the most cutting-edge sources to compile a report that offers a full picture of retail banking sector trends for 2023. Download the report here.

1. A fall in customer trust

Perhaps the most worrying trend that emerged in 2022 was a sharp fall in customer trust in banking institutions, particularly among younger generations. According to the J.D. Power 2022 U.S. Retail Banking Advice Satisfaction Study, on a 100-point scale, there was a 30 point decrease (JD Power).

The trend was backed up by Forrester, who found that trust had fallen for the first time in years in Australia, Canada, Germany, and the US (Forrester). What’s more, this trend may worsen as we face economic challenges and it becomes more difficult to take out loans and mortgages – or we see a spike in foreclosures. Given this, fostering trust stands out as a key area of focus for retail banks that want to remain competitive.

2. The popularity of online banking

The trend toward online banking has been building steadily over the years and it shows no signs of slowing. According to a Forrester report, most adults who have online banking use it regularly. When looking at specific regional demographics, the report found that 69% of Spanish customers, 77% of Canadian customers, and 71% of US customers use it once a month  (Forrester). 

Online banking is generally used for transactional activities, such as transfers, paying bills, or depositing checks. That said, 30% of millennial and Gen X respondents also state they prefer using digital channels such as mobile apps or online portals to contact customer service agents or financial advisors (Deloitte).

3. A move toward ESG initiatives

Increasingly, a clear disconnect is becoming evident between what customers consider important and where retail banks are focusing their efforts, specifically with regard to environmental, social and corporate governance initiatives (ESG).

There are a number of ways these initiatives could manifest themselves, such as dedicated digital banking service campaigns for the 20-35% of (generally older) non-digital customers who are being most severely impacted by the move to hybrid business models (PwC). There’s also a notable preference among customers to develop sustainable financing options for mortgages and sustainable investments – alongside a move toward environmental sustainability.

For example, the EU is seeking to become carbon neutral by 2050. To achieve this, they aim to cut carbon emissions by 55% by 2030, when compared with 1990 levels. These targets will become part of the new European Climate Law and incumbent banks will also need to adjust their strategies to achieve them. 

4. A surge in By Now, Pay Later

Alongside the larger, sweeping trends that are being dictated by customer preferences, there are also more individual, service-focused changes taking place. One example of this is a rise in the popularity of Buy Now, Pay Later (BNPL) options. 

From 2021 to 2028, The Financial Brand expects there to be an increase of 20.7%, with future growth of an estimated $100 billion in transaction volume predicted in the US by 2024 (Mercator). However, to date, much of this trend is being driven by fintech companies. As this trend matures, banks must move quickly to take advantage and avoid losing market share.

5. ‘Phygital’ experiences as a norm

Customers want options when it comes to engaging with their bank. While the trend in recent years has been towards digital service interactions, 82% of retail banking customers claim that having a local branch is extremely or very important. However, despite this statistic, the actual number of individuals who visit these branches is in steady decline, with 24% of the same group claiming they plan to visit less often (EY).

What we can understand from these somewhat contradictory statistics is that people want convenience, without sacrificing authentic human interaction. For retail banks, the most logical path is to build an effective customer experience that strikes a balance between physical and digital experience. In this context, tools such as Artificial Intelligence chatbots are undoubtedly useful, provided they are there to supplement or augment the abilities of real agents – particularly for complex products or services, such as mortgages or financial advice.

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

Fintech firms and other innovative players have undoubtedly solidified their position as competitors to traditional retail banks. The ability of fintech firms to provide superior financial services proved difficult for incumbent banks to compete with at first. 

Now, BaaS is helping traditional banks to create new revenue models that monetize their data, capabilities, and infrastructure. By partnering with more innovative companies, the revenue-sharing agreements are helping banks to diversify their sources and is proving to be a win-win for both parties. 

7. Evolving workforce

As the nature of banking changes, the workforce also needs to evolve. Branches, for example, are closing and existing jobs are transforming as banks leverage new technology. The need for change is undeniable, but much of this is taking place through reskilling rather than hiring new employees (The Financial Brand). The banks that are investing in their workforce and placing a priority on retraining are in a good position to support digital banking transformation.

8. The status of digital transformation

This begs the question, how is digital transformation coming along in the retail banking industry? A Forrester report claims that 35% of global banking executives in the banking sector have seen progress with their digital initiatives. On the other end of the spectrum, however, 12% only have plans to execute their transformation initiatives and 6% have no plans whatsoever. 

Given the importance of transformation and the publicity placed on it in recent years, this is a surprising statistic. Ideally, we would expect all financial institutions to have a strong focus on innovation and to be making serious progress with their digital transformation initiatives.

The coming year holds a lot of promise for financial institutions that are able to leverage them and meet changing customer expectations. Looking for more in-depth insight into the retail banking trends set to define 2023? Download the full report here!