Invigorated and innovative client-first approaches are expected from financial institutions as 2023 uncertainties threaten

By Gareth Wilson, Executive Vice President, Head of UK Banking & Capital Markets Capgemini

Ambiguity is a given in today’s business world. But unfortunately, neither stability nor vigorous growth can be guaranteed, particularly in the financial sector. Mounting inflation, tightening central bank interest rates, tepid GDP growth, turbulent geopolitics, and the specter of COVID-19 variants keep bankers and wealth managers on their toes. In a New Year’s interview, the head of the International Money Fund predicted that one-third of the world economy might be in recession in 2023.

Capgemini’s Top Trends in Wealth Management 2023 anticipates that transparency and customer-first shifts will help financial services (FS) firms navigate this challenging environment. Retail banking and wealth management have become noticeably fluid, powered by rapid post-pandemic digitalization, generational wealth transfer, operational optimization, and a growing commitment to sustainability and Environmental, Social, and Governance (ESG) investments.

And now, the impact of inflation and cost-of-living hikes is opening doors for banks and wealth management firms to put their customer-first strategies into action, prioritize data and digital competencies, and offer well-timed financial wellness support and personalization.

The swift pandemic-triggered transition from physical to digital channels prompted various initiatives ─ such as automated Know Your Customer projects ─ to mitigate increasing online and mobile fraud. Amid rising cybersecurity attacks and identity theft, banks implemented stopgap multi-factor processes to verify customer identity. However, it quickly became apparent that efficacy and user convenience depend on a robust digital ID infrastructure.

So, I’m not surprised that digital IDs are becoming a new way for financial firms to provide a seamless interface while maintaining security. In fact, digital identification, run by the FS industry, may turn out to be a source of competitive relevance and potential profit in the not-so-distant future.

More banks will boost their relevance in the months ahead by offering customers financial wellness advice and training. For example, banks can leverage widely available customer data to generate hyper-personalized insights. In addition, individualized customer journeys that prioritize budgeting and monetary balance will foster meaningful connections, loyalty, and cross-sell and up-sell possibilities. As a result, banks can make financial wellness advice a significant 2023 differentiator.

Additionally, wealth management (WM) firms that target and welcome next-generation investors will stand out positively as client segments morph in alignment with today’s socioeconomics. WM trendsetters will prioritize bespoke investment solutions, advanced front- and back-office technology, and sustainable investing.

I anticipate more sustainable investment frameworks and clarity throughout the months ahead, particularly around social and environmental disclosure gaps, as regulators demand protective safeguards for investors. Moreover, beefed-up standards will provide needed guidelines to firms scrambling to offer verifiable ESG-aligned products that meet the criteria of socially-conscious HNWIs alert to greenwashing (deceptive marketing).

Following the United Nations 2022 climate-change conference COP27, regulators will likely accelerate requirements for evidence-based ESG investment information. For example, disclosure requirements may eventually include details about the carbon footprint of a company’s production processes, the materials inside each product part, and how the product may harm or help the environment when it is out of use.

As major global markets introduce and enforce more ESG regulations in 2023, Europe’s Sustainable Finance Disclosure (SFDR) and Taxonomy Regulation (SFTR) is already in effect (Q1 2021). It offers EU investment managers parameters about disclosing ESG risks in their products and how to incorporate risk assessment within investment processes. As a result, SI disclosure will become more consistent, comparable, and informative.

After peaking in late 2021, crypto investments will continue to stir market demand throughout the coming months for more comprehensive, diverse portfolios (including EFTs, NFTs, and metaverse products). However, a lack of familiarity with these emerging fields may hold back some high-net-worth individuals (HNWIs). And that’s where relationship managers can step up and act as guides to established, large-cap cryptocurrencies and allocations to newly launched projects with a smaller market capitalization that may offer higher gains.

Capgemini’s World Wealth Report 2022 revealed that 70% of HNWIs globally invested in digital assets (including more than nine out of 10 HNWIs younger than age 40), with cryptocurrencies being the favored digital asset.

The most strategic WM firms will continue to educate their relationship managers and clients about digital assets and ecosystems in 2023 ─ and the foreseeable future ─ as alternative investments and new portfolio strategies become increasingly popular.

Uncertainty will encourage financial institutions to work to understand customer needs and motivations more authentically. As a result, digital-first engagement and seamless customer experiences will rise to the top of business priority lists. And as they do, firms and relationship managers will solidify their positions as trusted partners and advisors.

Market volatility allows financial organizations to flex their experience muscles and leverage their scale, assets, broad customer base, and regulatory knowledge. So, expect the unexpected throughout 2023. It’s never been a better time to innovate.