Mid-2023 Financial Industry Trends Outlook: Key Impacts and Challenges

As we enter into the third quarter of 2023, the outlook for the financial industry trends is varied.

On one hand, tightening economic conditions have the potential to slow growth and inhibit investments in innovation — especially when it comes to adopting high-risk, high-reward technologies like blockchain. 

On the other hand, economic uncertainty can often spell reduced competition within the financial services industry. As a result, organizations that choose to strategically embrace innovative technologies and implementations can position themselves as industry leaders, and can more confidently tackle economic challenges without sacrificing operational resilience. 

The financial services industry will undoubtedly play a major role in helping to re-establish economic stability, with partnerships between traditional institutions and FinTechs being the key to success. 

Examining the Ongoing Recovery of the Global Economy

Although economic forecasts for early 2023 predicted an uptick in global growth, ongoing financial turmoil has kept the global economy from staging a swift comeback to more stable conditions. 

In April 2023, the International Monetary Fund (IMF) published its latest edition of the World Economic Outlook, revealing that economic uncertainty is still alive and well in the financial sector. The outlook predicts a fall in growth from 3.4% in 2022 to 2.8% in 2023 — although, it is important to note that the global growth rate is expected to even out to 3.0% by 2024. 

According to the IMF, this slowed rate of growth can be attributed in part to tightened global financial conditions and ongoing efforts to re-establish price stability in financial markets. 

For financial institutions specifically, the IMF highlights three current challenges to growth — tightened credit conditions, tightened funding conditions, and stricter regulatory supervision. 

Meanwhile, Deloitte’s 2023 Banking and Capital Markets Outlook highlights that, despite fragile economic conditions, banks entered 2023 in a “position of relative strength,” further stating that:

The reality of current economic conditions is that they are largely unpredictable due to the many global factors at play. As Deloitte emphasizes, the financial sector must stand tall amid economic uncertainty and take on a proactive leadership role to not only remain competitive, but also to support greater stability.

Financial Service Providers Challenges in Mid-2023

Financial service providers are no strangers to overcoming challenges in the face of uncertainty.

The best providers in the financial services space recognize that with challenge comes opportunity, so long as you know where to look. This makes it crucial for financial organizations to approach current operational challenges with an optimistic perspective. 

With this in mind, let’s discuss three key challenges currently impacting the financial services industry:

Challenge 1: Keeping Up with Regulatory Change

Considering recent events — like the collapse of the leading crypto exchange FTX or the now infamous Silicon Valley Bank failure — it’s no wonder why regulators are cracking down on the financial sector, particularly when it comes to leveraging crypto and blockchain. 

Just last month, in June 2023, the U.S. Securities and Exchange Commission (SEC) officially sued the highly popular crypto exchanges Binance and Coinbase on the grounds of securities law violations.

At the same time, regulators around the globe are paying more attention to several key advancements in financial technologies, such as the use of blockchain technologies in traditional financial settings and the enablement of instant payments in specific regions.

Keeping up with the many regulatory changes in the financial sector requires financial service providers to have a strong approach to compliance management. 

To achieve an effective compliance strategy in the wake of ongoing economic uncertainty, the key is to leverage the right mix of regulatory technologies, or RegTech for short. RegTech offers many vital advantages to financial services providers, with one of the biggest benefits being compliance automation capabilities that simplify and streamline the process of adapting to regulatory change. 

Challenge 2: Retaining Talent & Leveraging Strategic Partnerships

Maintaining stability during times of economic uncertainty is highly dependent on an organization’s ability to retain in-house talent and supplement that talent with external experts when necessary. 

Rather than focusing on reducing staff size through lay-offs, financial organizations need to be considering how to best optimize their team’s talents and time. Doing so can lead to improved workplace mindsets that help to drive internal productivity and innovation.

According to one McKinsey report published in October 2022, the number of FinTech jobs in Europe could surpass 364,000 if the FinTech ecosystem in the region could reach an optimal level of performance. The report further highlights that this optimal performance is driven by providing enhanced experiences for customers and modernizing financial processes. 

Given the tightening conditions surrounding funding in financial services, it is also vital for financial service providers to know when to turn to strategic partnerships for supplemental talent and guidance. Rather than onboarding entire new teams to handle business innovation, the key is to facilitate collaboration between existing teams and third-party partners specialized in FinTech. 

Challenge 3: Driving Operational Resilience

When economic outlooks are murky, operational resilience is king. 

From back to front, financial service providers must assess their current operational models to determine what is driving versus inhibiting innovation. 

According to KPMG’s 2021 report Redefining Operational Resilience, a broad approach to operational resilience in financial markets is needed and should equally incorporate people, processes, technology, and information. Additionally, customer impact, governance, and accountability must remain priorities.

To successfully embed operational resilience within a business strategy, KPMG suggests that connectivity is key, further stating that:

This idea of connectivity inherently ties together the challenges of operational resilience, talent retention, and strategic partnerships. Though the financial sector may have once been defined by siloed operations and business-centricity, today’s financial services industry is characterized by collaboration, open finance, and an evolving ecosystem that values collaboration and customer-centricity over competition. 

Leveraging Strategic Innovation to Empower the Financial Services Industry

To summarize the key points for financial industry trends we have covered thus far, financial service providers need to focus on implementing RegTech solutions to simplify compliance, adopting strategic partnerships that offer crucial support to existing teams, and driving operational resilience by embracing connectivity. 

Achieving this will involve a diverse mix of technologies and advanced applications. For example, many financial service providers already employ artificial intelligence (AI) to help streamline manual processes. However, AI can be useful for far more than just back-end optimization, such as the use of generative AI to create more personalized experiences for customers. 

Blockchain is also likely to play a crucial role in financial services in the coming years. 

Currently, regulators around the globe are deciding how they want to deal with blockchain and its related technologies, like cryptocurrency and stablecoins. While regulatory opinions differ from region to region, the very fact that blockchain is considered a priority by regulators showcases its powerful potential. 

At the end of the day, a clear and well-defined strategy is the key financial industry trend to driving innovation during times of both economic uncertainty and stability. 

Transform Uncertainty into Opportunity with Exadel

Here at Exadel, our team strives to provide the financial services industry with both the technological and human support needed to face any challenge head-on. 

In times of economic uncertainty, what matters most is finding the right solution to foster innovative thinking amongst your team while also leveraging the latest technologies in a cost-effective manner. With decades of experience in financial services and technology, Exadel provides the strategic partnership your organization needs to turn today’s challenges into tomorrow’s opportunities. 

Exadel offers a wide range of services to help support long-term growth and resilience, including:

• Transformational Services: We provide a host of innovative transformational services that can optimize your organization’s digital transformation in little to no time. Our experts are well-versed in today’s top technologies, such as artificial intelligence, predictive analytics, robotic process automation, cloud computing, open banking, and more. 
• Managed Services: To keep up with the changing times, Exadel can provide you with ongoing support that matches your specific goals and business timelines. Our managed services help you build efficiency into your platform solution, as well as simplify the processes involved in regulatory change and digital development. 
• Consulting: No matter the scope of your needs, Exadel is prepared to provide thorough consultations and recommendations based on your exact objectives and immediate needs. Our team is committed to helping clients reach their goals in a way that is sustainable in the long term and promotes operational resilience and cost efficiency. 

The time is now to take advantage of the opportunities hidden within this current economy. 

With a little creativity and a whole lot of technical expertise, Exadel can be the strategic partner your organization needs to become a leader in the financial services industry. 

Get in touch with Exadel today to get started.