2022 was the year things “returned to normal” as the COVID-19 pandemic finally receded – or, at least it was supposed to be! Instead, the world was thrown into further economic turmoil as consumers and businesses faced an assault on two fronts from record inflation and rapidly rising interest rates. Now, with 2023 finally upon us, there is no shortage of uncertainty about what the year ahead will hold. However, one thing that is certain is that the importance of digital banking is only going to grow. 

While widescale digital adoption in all aspects of commerce was already well under way, the pandemic accelerated it past lightspeed and straight into ludicrous speed. 2022 showed us that many of the habits we learned while locked down at home are indeed here to stay – not the least of which is the expectation that business, including banks, will at least give us the option to take a digital-first approach to just about everything. 

With that in mind, there are three major trends that will continue to shape the evolution of digital banking in 2023 as the industry looks to further adopt a tech-driven, self-serve model: 

  • Increased pressure from consumers and merchants to make banking more frictionless; 
  • Accelerating partnerships between banks and fintechs to meet those customer demands; 
  • A wave of new regulation to establish order as traditional finance meets lightning-fast innovation. 

 

Consumers and Merchants Alike Will Continue to Demand Better User Experience

Once upon a time, the customer experience was not a top priority for banks. If anything, banking was often frustrating, involving long lines and branches that closed their doors before the average person even got off work. Today, it’s a different story, and increasingly-demanding customer expectations for frictionless, convenient banking are driving a revolution in the industry towards digital-first self-serve options – a trend that will help define 2023 and the years to come. 

While the vast majority of bank customers still use in-person services on occasion, mobile app and website access are ranked significantly higher in importance as interaction options, and 75% of customers now use mobile banking at least once per week. Personalized services are also increasingly important, particularly among younger customers, who want not only personalized loyalty and rewards programs, but also personalized feedback and recommendations on their spending habits, cash flow, and financial goals. In short, banking in 2023 and beyond needs to be fast, easy, and highly personalized – a trifecta that only digital banking can deliver consistently. 

On the merchant side, the same expectations are driving similar changes. Merchants of all sizes know they have access to third-party processing solutions that are fast and convenient – albeit a bit more expensive – and the onus is now on banks to keep up. Time-to-processing matters, and banks and ISOs alike need to find ways to make traditional payment processing feel more like the fast, frictionless experience offered by companies like PayPal and Stripe. Merchant services companies also need to find ways to offer solutions that are simultaneously thorough, flexible, and personalized, driving a migration in the industry towards one-stop omnichannel providers, like NMI’s Full Commerce Enablement platform. 

 

More Banks and Fintechs will Join Forces to Capture Market Share

Technology constantly reduces friction in all areas of our lives, and customers have come to expect convenience and speed as a core part of their banking experience. Unfortunately, banking is as legacy as an industry can get, and many banks – especially large ones – are slow to adapt at best. That wasn’t a big deal for the decades upon decades in which the average bank’s customers were both predictable and extremely loyal, but today, legacy banks are losing ground to smaller, more agile, more innovative financial technology companies that can offer merchants and consumers the kind of frictionless customer experience they increasingly expect. 

For years, fintechs were a thorn in the legacy banking sector’s side – a new insurgent to be fought off with ever-increasing difficulty. But that’s now changing. Recently big banks have started to recognize that fintechs’ strengths tend to complement the weaknesses of legacy banking perfectly, and vice versa, making them ideal digital banking partners. Just a few high-profile fintech partnerships and acquisitions in recent years include:

From big national and international banks to credit card associations to regional players, the list of bank-fintech partnerships is constantly growing. 2023 will see that trend not only continue, but accelerate as large institutions look for ways to gain turnkey innovation and adaptability and fintechs look for ways to instantly access a larger customer base.   

 

Regulation Will Accelerate to Meet a Changing Landscape

The impacts disruptive fintechs have had on the financial space have been both significant and rapid, and there is no area of banking and finance they haven’t touched. From instant P2P payments to point-of-sale loans to faster payment processing to cryptocurrency exchanges to more frictionless capital access and everything in between, fintechs have changed the way both businesses and consumers interact with, use, and move money. But the speed and scope of the changes have felt a little like the wild west at times. With so many new services and technologies available that didn’t exist even just half a decade ago, regulation has been slow to keep up. 2023 is likely the year that will start to change, especially in relation to open digital banking and the sharing and handling of customer data.  

“As regulations become clearer, many fintechs are turning to banks to help them navigate the complicated issue of compliance,” NMI CEO Vijay Sondhi recently told Global Banking & Finance Review.  “With organizations like the Consumer Financial Protection Bureau (CFPB) further looking to increase regulations, bank and fintech partnerships will be critical in 2023 and beyond.”

Sondhi also pointed out the importance of impending regulation on securing legacy systems against new threats as we move into an era of banking-as-a-service and open banking, where the sharing of consumer data is core to service delivery.  

“With BaaS on the rise, digital banks and third parties are increasingly connecting with banks through APIs to build additional offerings on top of the bank providers’ regulated infrastructures. While this opens the door for new financial services to be added to banks’ existing infrastructures, it also brings about new and different risks. And with these risks, more regulation will be needed to clarify procedures to ensure legacy bank systems aren’t left vulnerable.”

 

About IRIS CRM:

IRIS CRM is the nerve center of NMI’s Full Commerce Enablement platform. It centralizes merchant acquisition, onboarding, account management, residual management, and administration in a single, easy-to-use platform. With advanced automation and an unparalleled feature set that benefits the entire organization, IRIS CRM makes it faster, easier, and cheaper for companies to recruit merchants, deliver great service, and maximize portfolio growth. 

To find out more about everything the payments industry’s best payments CRM can do for your ISO, schedule a free guided demonstration of IRIS CRM today.