January 3

The FedNow network and the Consumer Financial Protection Bureau’s upcoming data-access proposal will usher in faster payments and open banking, which will level the playing field for smaller banks and give customers much more flexibility in switching. This, in turn, will spur institutions to step up their retention efforts.  

This year will bring two important landmarks for the banking industry: The launch of the Federal Reserve’s long-anticipated instant-payment system, FedNow, and proposed regulation to force banks to share data with other institutions when asked by a consumer.  

Both changes could have rippling impacts:  

FedNow is widely seen as poised to give smaller banks and credit unions a way to compete with their larger competitors on instant payments, while the proposed regulation would make it easier for people to “break up with banks that provide bad service,” according to CFPB director Rohit Chopra.  

Ultimately this would reduce the traditional “stickiness” of banks, requiring them to either work harder to keep customers happy or risk losing them. For example, community banks with higher interest rates may suddenly become more attractive to customers that may otherwise not have wanted the hassle of switching institutions or losing access to instant payments.  

Per American Banker’s John Heltman: These “two regulatory innovations — faster payments and open banking — are consequential on their own, but when taken together are greater than the sum of their parts.”  

While the full promise of the metaverse remains distant, financial institutions like Société Générale and Deutsche Bank are experimenting with ways to use virtual reality to create stronger connections and more dynamic presentations.  

French banking giant Sociéte Générale started hosting client presentations for its investment bank in virtual reality about three years ago and hasn’t looked back:  

“First you have the ‘wow factor,’ and then you can use the format to present content in a way that’s really relevant and valuable,” SocGen’s Klaus von Massenbach told Insights Distilled. The bank has onboarded ~250 clients and hosted many meetings in VR through a platform from Arthur Digital, which lets it create dynamic meeting rooms and interactive presentations.  

According to von Massenbach, the format encourages personalization – “we make fewer slides that are more interactive and let us follow the road the client wants to take” – robust discussion – “the atmosphere breaks away hierarchies” – and focus – “you cannot read emails or WhatsApp next to it – so there’s even more focus than in a board room.” 

The technology also allows SocGen to bring its top research analysts to more clients in a very person-to-person way, without having to lose time hopping on planes or trains.  

This year, SocGen aims to start experimenting with virtual reality for more internal purposes, too, like HR or cross-team meetings. Similarly, Deutsche Bank recently announced plans to use digital avatars to help employees navigate internal systems or answer questions.  

“It can be one of the technologies where you break silos,” von Massenbach said. “It’s a new way to work together.” 

With banks under fire for falling short of their racial-equity promises, software that helps chip away at specific issues – like building a more diverse workforce – can ensure forward progress.

2020’s racial reckoning included reflections on how bias impacts the entire financial system – from home loans to money management education – as well as how many banks have dismal internal diversity statistics.  

To that end, several financial services firms have deployed unconscious bias training from recruitment company Rare, according to a report in FNLondon. Rare’s software gives workers from the likes of BlackRock, Credit Suisse, HSBC, and EY insight into how they might bring racial or socio-economic biases into interviews and other interactions.  

After employees complete the 90-minute program, they’re given feedback on ways they appear to treat people with certain traits or demographics differently, delivered in a sensitive way intended to help them interrogate their biases without getting defensive. 

“That is quite powerful for some people,” Rare director Raphael Mokades told FNLondon. The aim, he added, is to make sure that biases “aren’t creating distortions and unfair outcomes,” which is “a significantly different message to ‘you are a bad person.’” 

This ultimately helps institutions better recruit and retain diverse candidates and move towards achieving their DEI hiring goals.  

Software like Rare’s offers a concrete way for firms to improve their recruitment practices as diversity, equity, and inclusion issues remain in the spotlight in 2023. Late last year, activist investors called out JPMorgan’s racial-equity audit for being “deficient” in several ways, including because it didn’t examine any internal DEI issues, while other banks are under fire to conduct third-party audits as well. 

Instead of cyber protection, firms should focus on cyber resilience, which includes plans for response and recovery.

The tides are shifting on how financial firms think about cybersecurity, thanks to a combination of heightened threats, sophisticated hacking tools, and increasing compliance requirements, including incoming US regulation to get corporate boards more involved.  

One way that will manifest itself is through the shift from cyber protection to cyber resilience, according to the CEO of security firm Immersive Labs, an Insight Partners portfolio company. Companies need to take the position that they’re inevitably going to be attacked and form a plan for continuity and recovery that avoids significant damage.  

“Cybersecurity is a means to an end, but really, what you need is your business to keep going following a cyber incident,” CEO James Hadley told Insights Distilled. “That’s a huge change: It’s much more strategic versus tactical.”  

Building resiliency in an organization requires a clear-eyed understanding of gaps, with comprehensive benchmarking to demonstrate improvement, both internally and for regulators.

“It’s a business-wide issue and a one-size-fits-all approach doesn’t work,” Hadley said. “Organizations need to turn what a lot of people used to call the greatest threat – your insiders – into your greatest asset, in terms of how you protect yourselves.” 

That means training all workers – both technical and non-technical – to boost their judgement, skills, and speed in dealing with security risks and attacks. 

“Companies are just becoming more aware now that cyber isn’t this stand-alone thing,” he said, “It’s everywhere.” 

Large financial institutions will continue to embrace cloud computing this year and execs predict that the hunt for talent will remain competitive, artificial intelligence still has lots of personalization potential, and sophisticated developer tools will help teams shine.

While big FinServs have made major progress in their shifts to the cloud, there’s still a long way to go.  

In that spirit, executives from some of the biggest financial firms shared their thoughts on cloud strategies and trends with Insider: 

• The talent wars will rage on and banks should lean on upskilling to cope: “While talent might become more available, I would say that high-end talent in the cloud security and data space, where you’ve really got niche skillsets, is going to remain competitive,” Morgan Stanley’s head of cloud, Allison Gorman Nachtigal, said, adding that upskilling employees will be a key way to help fill the gap.  
• AI and automation are perfect for personalization: Vanguard CTO Michael Carr said that the firm will continue to build cloud-based AI tools for personalizing investment portfolios and retirement income tools. For example, “we can implement nudges or next-best actions.” 
• Banks will stop overlooking state-of-the-art developer tools in 2023, Goldman Sach’s CIO Marco Argenti predicted. “The real big results are an increased developer productivity,” Argenti said. “That’s the new way companies are looking at their cloud spend, where the return of investment is mostly measured with regards to velocity and developer productivity, rather than capital expenditures versus operating expenditures.” 

For much more strategies and trends, read the rest of the report from Insider.