SAS finds 10 trends regarding the challenges in the banking sector in 2023

As recession fears and geopolitical tensions roil the global economic horizon, the financial services sector is bracing for a difficult 2023. Industry leaders will have work to do in the coming months, and several experts from SAS, the global leader in analytics, have prepared a series of predictions about what may come next for end customers, financial institutions, and the entities that protect their these.

Returning to predictability and developing a new relationship with customers
Anthony Mancuso, Director of Risk Solutions Consulting at SAS, predicts that 2023 will not be a year of chaos, but one in which predictability will return, to some extent. “The economic impact of the pandemic was expected to come in various forms: increased demand in the economy, difficulties in the labor market and obstacles in supply chains. These factors, occurring at the same time, affected inflation, so that several central banks were forced to raise key interest rates as an obvious response to this threat. We expect to continue to see high market volatility as economies around the world try to return to normal after the pandemic. The things that will make the difference in 2023 will be robust analytics scenarios, real-time or near-real-time monitoring of markets and organizational agility in general.”

In parallel, Stu Bradley, Senior Vice President of the Fraud and Security Intelligence department at SAS, believes that the ability of companies to make decisions regarding the entire life cycle of the customer relationship will become a decisive factor in the competition for the accumulation and retention of consumers of products and services. “Think holistic decisions about risk, fraud and marketing, all in one architecture that creates an exclusive customer experience, one that can differentiate a company from its competitors. I estimate that an increase in losses due to fraud, but also the trend towards automation will motivate the emergence of a centralized governance at the expense of disparate solutions. At the same time, I expect decision-making skills to be strengthened throughout a customer’s journey with a company.”

From ‘zombie companies’ to continuous progress in the ESG area
“The increase in interest rates and the appreciation of the US dollar signal difficulties regarding the sovereign debt that has reached maximum levels, but also regarding the ongoing instability in the geopolitical area. 2023 could be the year when several countries reach the point where they can no longer pay their sovereign debts, while liquidity challenges in treasury markets could lead to rapid collapses, thus exacerbating market fragility,” believes Stas Melnikov , Head of Risk Portfolio within SAS. He also says that “these simultaneous factors will lead to an economic recalculation, especially in the case of the so-called ‘zombie companies’, which do not produce enough profit to cover their debts. Such companies will have great difficulties, as loans become more expensive, but also more difficult to obtain. Firms that cannot ensure a turnover of capital will risk bankruptcy; those that will survive will be those that can prioritize revenue quality and financial flow sustainability over continued growth.”

Although in a scenario of economic turmoil, it would be expected that financial institutions would abandon the ESG (environmental, social and governance) initiatives they have undertaken, “signals show that most banks are at least keeping the direction , and others emphasize these efforts. Clearly, the leaders of these institutions are aware of the opportunities for building long-term resilience that these investments bring. ESG is becoming a ‘North Star’, and the banks that are guided by it and make the greatest progress in this chapter will subsequently also benefit from increased trust and loyalty from customers”, explains Alex Kwiatkowski, Director of Global Financial Services within SAS.

Refuge of criminals in cryptocurrencies and acceleration of deployment of cloud solutions
Dan Barta, Principal Enterprise Fraud and Financial Crimes Consultant for SAS, believes that virtual currencies will continue to be popular, even though they may be increasingly monitored by the authorities. “Criminals will continue to rely on crypto to hide their illicit activities and launder money, so competent institutions and legislators will need to improve their skills in understanding the field of virtual currencies in order to have a stronger fighting power greater, faster and more accurate detection of human trafficking, drug, money laundering and other crimes.”

The complex and ever-changing linkages of risk factors push classical financial institutions’ management systems to their limits.

“Banks will have to improve their systems to be able to replace any weak link. Cloud and solution implementation time will become increasingly important, as financial institutions try to cover the ‘cracks’ that appear in systems, before undertaking major changes to them”, says Martin Zorn, Managing Director of the Risk Research and Quantitative Solutions department of SAS.

Risks associated with climate change, taken on by customers. The wave of modernization in the fight against money laundering
“As the financial risks associated with climate change become better understood, banks will begin to factor these costs into mortgages and other commercial loans. Thus, people living in areas at risk for natural calamities could find themselves having to pay more for accessing banking services”, estimates Naeem Siddiqi, Senior Advisor for the Risk Research and Quantitative Solutions department, SAS.

Financial intelligence units (FIUs) will have a year full of challenges, according to Shaun Barry, Global Director of the Fraud and Security Intelligence department of SAS: “Criminals have become among the great ‘innovators’ of the cryptocurrency boom. As global conflicts result in the imposition of sanctions against certain actors, these intelligence units will need to rethink how they operate – from the legal authority they have to the IT systems that support their missions. I expect Singapore, Germany and Canada to start this wave of modernization that will innovate anti-money laundering capabilities with artificial intelligence and real-time monitoring and response capabilities.”

Fintech opportunities and changing scenario analysis
Beyond global supply chain contractions, but also increased political and social pressure, some reversal of the globalization that has driven progress over the past 30 years is expected, according to Norman Black, director of EMEA Insurance Solutions at SAS. “Companies’ ecosystems are reorienting towards more regional activities, so global financial services will adjust strategically and operationally quickly and pragmatically. Thus, new opportunities could arise for geographically aligned fintechs and insurtechs, which will be able to coexist with the classic players in the industry, together increasing their agility and innovation capacity. The business climate is becoming less hospitable, so partnerships of this nature will be very beneficial for the tech sector. Those who choose to remain solitary will have great difficulties.”

Uncertainties caused by climate change, geopolitical instability, energy crises and other factors are factored into a revival of management and scenario analysis. “Scenarios will become dynamic results of dedicated risk models. Topics such as the creation or disruption of scenarios, the risk analysis associated with a certain scenario and the reverse engineering of one will be able to answer questions that so far could not be answered by traditional approaches”, says Christian Macaro, Principal Risk Solutions Advisor for SAS .

For a better perspective on the next decade, SAS prepared together with Economist Impact the Banking in 2035 study, which analyzes the radical changes that will redefine the banking sector by 2035. It can be accessed here.

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