With 2022 in the rearview mirror, let’s look at the trends that will shape the banking and payments space in 2023. The current elephant in the room is the looming recession, and it is essential that financial institutions manage risks and prioritize budgets while maintaining a clear route toward long-term growth.

Tech investment will retrench to core capabilities

Budgets are tightening, so financial institutions need to prioritize technology budgets as well as positive customer experiences. Initiatives that don’t improve customer experience or long-term capabilities are likely to be cut.

Automation technologies are one way to improve the overall customer experience, decreasing response times and increasing value. Utilizing automation technology means predicting customer needs while providing them with visibility into their money. This further empowers a customer with more control, while simultaneously creating more meaningful interactions. Being a competitive force, despite tightening budgets, requires modernizing platforms to enable faster change and improving core processes through automation.

What will the recession mean for lending and deposits?

The current economic landscape creates a drastic impact on the way consumers will manage their finances in the upcoming months. While some will opt to place their funds in savings for a safety net, others will not have this choice and will turn to BNPL and credit cards as a solution. In fact, credit card delinquencies ticked up from 1.85% in Q1 2021 to 2.08% in Q3 2022. As lending and deposit rates increase, it is important that financial institutions provide adequate resources to prevent their customers and members from falling into delinquency.

Innovating in a regulated environment

Although the Durbin 2.0 amendment is currently up in the air, it does draw attention to the uncertainty that regulatory changes can bring for financial institutions, which often are fighting the innovation battle with one arm tied behind their back compared to non-banks — though some leveling of the playing field is underway at the CFPB. Despite the current disadvantage, financial institutions have the opportunity to react more quickly to the current regulatory landscape. With proper technology, financial institutions can focus less of their resources on compliance and more on innovation.

Managing risk while capturing Gen Z growth

It is clear that Generation Z is becoming a sizable market. With the young generation growing, it provides financial institutions with a great opportunity to appeal to this audience. Gen Z has grown up surrounded by much more technology than past generations, proving to be truly digitally native. With technology streamlining much of their lives, it is no surprise that they would also expect secure, efficient banking services that appeal to their individualized needs.

This generation is at a pivotal point in their financial journey where habits and preferences will be formed. If a financial institution waits to appeal to this generation, they will ultimately fall behind their competition.

Evolving competition with non-banks

It’s no secret that emerging fintechs often compete with smaller financial institutions, decreasing bank growth and profits. Many people drift toward faster, more innovative solutions that their current financial institutions cannot provide them with, and recessions can often reveal who has a more viable business model. In the new year, resilient fintechs will grow stronger, while fintechs and banks who are not evolving might go out of business.

As we enter this year, we can learn and grow from the trends and innovation of 2022. Customer experience is key, and technology can be utilized as a resource to further enhance these experiences while also prioritizing long-term success. It is necessary to maintain positive customer interactions while also identifying growth opportunities among future generations. Overall, automated, modernized solutions will limit risks without sacrificing growth as we enter another year filled with advancing technology and innovative solutions.

Bhavin Turakhia is co-founder and CEO of Zeta, a banking tech unicorn and provider of next-gen credit card processing.