The digital trends disrupting the banking industry in 2023 (2024)

• The banking industry is in a much healthier place now than it was after the financial crisis of 2008.
• As a result of the increasing complexity of the banking ecosystem, financial giants and disruptive startups are navigating challenges and opportunities daily.
• Do you work in the Banking industry? Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research.

The banking industry is in a much healthier place now than it was after the financial crisis of 2008. Total global assets climbed to $154,211 in 2022, up 3.79 percent YoY from 148,583 in 2021, according to The Banker’s Top 1000 World Banks Ranking for 2022.

With so much money to manage, major banks such as JPMorgan Chase, Bank of America, Wells Fargo, and more are releasing new features to attract new customers and retain their existing ones. On top of that, startups and neobanks with disruptive banking technologies are breaking into the scene, and traditional financial institutions are either competing with them or merging with them to improve their customer experience.

So let’s dive into the banking industry, the challenges it faces, and the road ahead.

Banking Industry Trends

The most prevalent trend in the financial services industry today is the shift to digital, specifically mobile and online banking (more on each of those in a bit). In today’s era of unprecedented convenience and speed, consumers don’t want to have to trek to a physical bank branch to handle their transactions. This is especially true of Millennials and the older members of Gen Z, who have started to become the dominant players in the workforce (and the biggest earners).

This digital transformation caused increased competition from tech startups, as well as the consolidation of smaller banks and startups, contributing to a record-breaking 2021. However, global fintech funding has cooled this year as funding conditions have become more challenging across most of the world. In Q3 2022, overall fintech funding dropped 38% quarter-over-quarter (QoQ) to hit $12.9 Billion—comparable with Q4 2020 funding, according to CB Insights.

Looking ahead, startups and scale up firms alike must demonstrate profitability and growth potential to earn back the trust of investors.

Mobile Banking

To be frank, mobile banking is all but a requirement for consumers at this point. In Insider Intelligence’s Mobile Banking Competitive Edge Study in 2020, over 45% of respondents said they identify mobile as a top-three factor that determines their choice of FI, up from 38.0% in 2019—making it the second most important factor behind fees.

When broken down by generation, 91% of millennials use it, 95% of Gen Xers, and 60% of Baby Boomers. Critically for the banks themselves, 64% of mobile banking users said that they would research a bank’s mobile capabilities before opening an account, and 61% say they would change banks if their bank offered a poor mobile banking experience.

Critically for the banks themselves, 74% of mobile banking users said that they would research a bank’s mobile capabilities before opening an account, and 49% say they would change banks for better mobile banking capabilities, per Insider Intelligence’s The US Mobile Banking Competitive Edge Report 2020.
But we’ve now reached the point where simply having a mobile app isn’t enough for banks to attract and keep customers. Additional tools and features – such as the ability to put temporary holds on cards, view recurring charges, or scanning a fingerprint to log into an account – are becoming increasingly necessary.

Online Banking

Online banking is extremely convenient, and is understandably one of the two main ways that consumers interact with their banks (along with mobile banking). But there is still a significant contingent of banking customers who want physical branches.

Despite an overwhelming reliance on digital banking channels and services such as chatbots and mobile banking apps, and the resulting decline in branch visits, consumers have maintained a preference for depositing checks in-branch, according to a recent Fiserv study. More than half (53%) of respondents said their top reason for visiting a branch in the past month was to deposit a check, compared with 41% who went to withdraw cash, and 36% who went to deposit cash.

Still, there’s no denying the rising prevalence of online banking, which has led to other innovations such as open banking. This system, implemented in the U.K., involves sharing customers’ financial information electronically and securely, but only under conditions that customers approve.

Open banking forces lenders to offer a digital “fire hose” of data that any third party can use to get standardized access — provided the startup is registered with the UK Financial Conduct Authority (FCA) and the customer agrees to share their data.

Investment Banking

Investment banking is a type of financial service in which a person or company advises individuals, businesses, or even governments on how and where to invest their money. For decades, this has been a human-to-human process that led to a mutually beneficial relationship.

But now, with the rise of robo-advisors, artificial intelligence (AI) and robotic process automation are starting to infiltrate the money management space. Predictive analytics can help investors make wiser and more profitable decisions in real-time—while saving on costs. AI can, in some cases, also help identify M&A targets. Lastly, AI can help validate an investment banker’s hypothesis and lead to more informed future decisions.

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Banking as a Service (BaaS)

Because of tight regulations (particularly in the U.S.), not everyone can just open a bank. This is wherebanking as a service(BaaS) comes in to fill the gap.

BaaS platformsenable fintechs and other third parties to connect with banks’ systems via APIs to build banking offerings on top of the providers’ regulated infrastructure. So, launching BaaS platforms helps banks benefit from fintechs entering the finance space, as it turns them into customers rather than just competitors.

While BaaS technically falls under the umbrella of open banking, it shouldn’t be confused with the aforementioned Open Banking system in the U.K. Open banking encompasses all actions in which a bank opens its APIs to third parties and gives those players access to data or functionality. The UK’s Open Banking focuses on providing third parties with data from incumbent banks, while BaaS looks at how these players can get access to banks’ services.

Banking is involved in almost every aspect of American life, from consumers to businesses to stocks. Because of this, the federal government has instituted numerous regulations on the banking industry, though the severity of those restrictions has waxed and waned in the last decade.

After the financial crisis of 2008, the Obama administration enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. Dodd-Frank overhauled the U.S. financial regulation system in the aftermath of the crash. The most sweeping and impactful changes from the act included:

• The elimination of the Office of Thrift Supervision
• The creation of the Consumer Financial Protection Bureau (CFPB) to protect consumers against abuses and unfair practices tied financial services and products such as credit cards and mortgages
• The reassignment of responsibilities for agencies such as the Federal Deposit Insurance Corporation
• The creation of the Financial Stability Oversight Council and the Office of Financial Research to analyze potential threats to U.S. financial stability
• The expansion of the Federal Reserve’s powers to regulate particular institutions

In 2018, President Donald Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), which rolled back some of the Dodd-Frank changes. Specifically, EGRRCPA raised the threshold under which the federal government deems banks too important to the financial system to fail from $50 billion to $250 billion.

It also eliminated the Volcker Rule (a federal regulation that largely forbade banks from conducting particular investment activities with their own accounts and restricted their dealings with hedge funds and private equity funds) for small banks with less than $10 billion in assets.

Despite the rollbacks, it’s still difficult in the U.S. to get a banking license, which has hampered some banking startups. On the other hand, this has increased mergers and acquisitions activity. As a result, regulation will be a key focal point for the banking industry in the coming years.

Banking Industry Analysis

With so many different facets of the banking industry undergoing change, it’s crucial for those connected to the banking industry to be informed and stay ahead. That’s why Insider Intelligence covers it all with our Banking vertical to keep you up to date on the latest banking trends and shakeups.