2023 Banking Trends In Australia And New Zealand A Perspective From Iron Mountain
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Current economic headwinds create new pressures on banks, so stability and resilience are essential
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Six key trends banks will have to consider as they drive change
- Balancing stability with innovation: We all know interest rates and inflation are high, and consumer spending is slowing. But despite the well-publicised stress in the US and European banking systems, the major banking groups in Australia and New Zealand are well-positioned to weather a downturn, buffered by a collective $A1.7 billion cash profit increase to $A28.5 billion in FY22 (up 6.5% on the previous year). So while preparing for the economy to tighten, banks in Australia and New Zealand should continue to invest in innovation to take advantage of better times when conditions ease
- Pursuing process efficiencies: Executives who can deliver operational efficiencies will be seen as heroes for making cost savings while at the same time reducing the environmental footprint of banks in Australia
- Prioritising a compelling, digital-first customer experience: During the pandemic, the banking experience in Australia and New Zealand
transformed to involve more digital and hybrid interactions. With 97% of all transactions now digital, according to the Australian Banking Association, the onus is on banks to improve the digital customer experience further to meet customers’ high expectations.
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Trends that drive innovation
What trends will banks consider as they drive change?
Difficult economic conditions are putting new pressures on ANZ banks just as customers want to see stability and resilience. Despite the unpredictable global financial climate, innovation and digital transformation will continue to underpin value for customers and provide banks with a competitive edge. In this report, we have distilled a range of expert industry predictions into the key trends that will help you navigate the challenges facing banks in 2023.
“Healthier institutions implement end-to-end digitisation; 77% of banks could improve in this area.”
- IBM Institute for Business Value
What’s inside?
- Six key trends banks will have to consider as they drive change
- Iron mountain’s point of view on 2023 banking trends
- Impact on retail banking, commercial banking, and wealth management
- How the banking industry benefits
Banks are challenged to provide a more compelling digital customer experience.
During the pandemic, customer experience (CX) was transformed to involve more digital and hybrid interactions. Customers now demand digital services and have high expectations.
Banking organizations compete by delivering new sources of value, often based on technological advancements.
Adopting advanced technologies can be a way to gain greater operational efficiencies and maintain a competitive advantage. Digital inertia and a lack of technology investment will come at a cost to banking organizations.
Digital transformation is forging ahead in the banking sector; don’t get left behind.
Everyone is looking ahead to the digital end game, and banks are realizing that digital transformation has the ability to unlock cost savings and business value. Banks have plenty of data, but they often lack the means to derive value from it. Accelerated digital transformation gives banks the tools to transform the foundations of banking.
Resource constraints lead to prioritizing conservative objectives.
Banks are facing resource constraints including loss of productivity due to attrition among existing talent and challenges in recruiting new talent. They are now prioritizing more conservative objectives — customer experience (CX), operations excellence and new products/services — above revenue growth. Initiatives around operational efficiency and effectiveness are a priority.
“Cost-cutting has become a priority for 73% of financial services firms.”
Iron Mountain’s point of view on 2023 banking trends
The impact of these predictions and how they drive decisions.
We believe the trends discussed above will drive banking organizations’ decision-making in 2023 — either operationally, investment-wise or architecturally.
One overarching, holistic theme for banks this year is the drive to net zero. This is not only in terms of sustainability and carbon footprint, but also in terms of reducing an organization’s footprint in the areas of real estate, physical assets, processes and technology debt. Bank branches are closing, and physical assets, including IT assets, will be reduced. Processes are being streamlined and modernized, including adopting an agile approach. Banks must eliminate outdated technologies and modernize legacy architecture. Finally, environmental, social and governance (ESG) has become a business imperative, and banks are under pressure to meet their goals. These include reducing environmental greenhouse gasses, achieving net zero carbon usage, and demonstrating tangible results.
In 2023, banks should:
- Face the Looming Recession Head-On. The year 2023 is expected to be economically tumultuous. A global recession is looming; it will drive loan loss provisions higher and also weigh on earnings, asset quality, funding and liquidity. All businesses must prepare for difficult times, yet there are also opportunities in a recessionary environment. This is the time to reassess traditional product, service and industry boundaries to create new sources of value.
- Ensure Stability, Resilience and Trust, backed by Data Security. Stability, resilience and working with trusted organizations will be guiding principles in 2023. This is supported by data security which is foundational to all decisions. Operating models may be improved with better processes, skills and cybersecurity. We anticipate some banks will move their tech budgets away from transforming core systems toward digital engagement solutions — but this won’t solve the problem. A modern core lets banks provide real-time information to deliver better products and services.
- Renew Focus on Operational Efficiency Initiatives (OEI). Operational efficiency and cost control will be prioritized in 2023, aligning innovation with the initiatives of automation and efficiency. Advanced technologies, such as AI, have the potential to help banks achieve radical cost reductions, which will be a major focus in such a volatile revenue environment.
- Embrace the Hybrid Experience. Banking customers often prefer hybrid experiences over purely digital or physical experiences. It’s important to prioritize CX strategies that are data-driven, consistent across channels, and offer consumers personalized advice to navigate difficult economic conditions. This requires coordination between the front and back offices, as well as the way branch infrastructure works.
- Tackle the Technology Debt. Many banks are dealing with technology debt as they enter 2023. They are struggling both with technologies that are no longer useful and with legacy architecture that needs to be modernized. Although it’s tempting to avoid technology investment in a downturn, banks that don’t handle their technology debt will lose out to the competition.
- Invest and Innovate. Given 2023 economic conditions, investment and innovation will be approached cautiously. But those who do not innovate will find themselves further behind. A continued move toward end-to-end digitization will enable complex workflows to be streamlined and automated. Innovation around AI and IoT will help with enhanced decision making and robotic process automation (RPA).
Impact on retail banking, commercial banking and wealth management
Different subsectors of the banking industry will experience different challenges.
At Iron Mountain, we work with customers who span retail, commercial and wealth management banking. In fact, 2,500 financial services institutions worldwide work with Iron Mountain. Here’s a closer look at how different subsectors within the banking industry will face the challenges of 2023.
In general, banks are facing 2023 in a position of relative strength. Capital buffers are strong, and liquidity is adequate. As a result, due to higher net interest income from rising rates, retail banking should fare well in 2023. However, investment banking performance will probably be mixed due to languishing underwriting and M&A advisory activities.
Retail banks
Retail banks will have to deal with higher rates, inflation and lower growth in the near term. However, customer engagement must be a priority for retail banks to stay competitive. Retail banks understand the importance of optimizing digital customer experiences, yet only two out of 10 retail banks are regularly engaged in practices that enable them to do so. A Forrester study shows that retail banks that regularly practice CX optimization grow 3.2 times faster than competitors that don’t. Developing a data driven CX strategy typically requires front- and back-office harmonization, as well as a branch infrastructure overhaul
Commercial banks
Commercial banks are looking at high inflation, recessionary concerns and supply chain challenges in 2023, yet demand for working capital could remain robust. Many commercial banks have announced major layoffs, but IT staff is generally safe as the C-suite knows they can’t afford to fall behind in tech. Commercial banks are thinking more strategically about digital investment, utilizing technology to drive efficiency in back-end processes, smarter workflows and more employee engagement. In addition, ESG initiatives present a massive opportunity for commercial banks to mobilize finance to aid corporate clients as they work toward their own environmental goals.
Wealth management
Wealth management is looking at brighter prospects for 2023. Millennials and Gen Z are becoming a larger target market for wealth managers; these clients are tech-savvy and expect a value-added digital experience. They also tend to be socially conscious and want to invest in a way that reflects their values. Front-to-back digitization at wealth management firms is the key to achieving greater efficiency and superior CX. The wealth management segment is also leading the way in embracing AI. According to a recent study, 68% of wealth management organizations are using AI tools to support decision-making processes.
Stability, resilience, and innovation
As banking institutions move forward with their digital transformation initiatives, iron mountain knows the ropes.
We believe banks will renew their focus on operational efficiency and effectiveness initiatives to maintain stability and resilience in 2023. At the same time, they’ll sustain a focus on innovation — including digital transformation — so they don’t fall behind.
Ultimately, by 2027, 93% of managers, directors and executives have a goal to eliminate paper records, according to a research survey commissioned by Iron Mountain. Clean-up of paper records cuts costs and risk, while opening the door to reveal new value from digital information. Digital transformation will be essential as the banking industry evolves and services customers.
Iron Mountain can help banking institutions achieve the following outcomes to fulfill their goals.
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