Commercial Banking Trends to watch in 2023

Gyan Consulting
5 min readMar 20, 2023

The banking industry is being transformed by the swift progress in blockchain technology and evolving customer preferences, leading to significant changes. Commercial banking is undergoing a remarkable shift as financial institutions endeavor to stay abreast of emerging trends and maintain competitiveness in a rapidly evolving business environment.

In this article, we will examine the primary trends that are anticipated to shape the commercial banking industry in 2023. Our focus will be on the technological breakthroughs driving innovation and revolutionizing customer engagement. Furthermore, we will analyze the regulatory framework and how evolving customer behaviors affect the operations of commercial banking.

Commercial Banking in 2023

The banking industry is currently facing a critical moment, dealing with the challenges of digital transformation and navigating an unpredictable economic environment. Although aware of the essential steps required to compete with digital banking alternatives and meet the needs of an increasingly demanding customer base, the industry is exhibiting hesitation in fully embracing the changes necessary for rapid and widespread advancement.

In many cases, traditional mindsets are impeding the necessary changes for banks to transition into digital organizations. Concerns about risk and a focus on cost reduction are often limiting the potential for digital transformation in banking institutions and credit unions.

Market Segmentation

According to a report by Q2 Holdings, Inc., titled State of Commercial Banking Market Analysis Report for 2023, the commercial banking sector has experienced significant trends over the past year. The report highlights that the changes that occurred in the banking industry in 2023 have resulted in notable shifts in how financial institutions approach the market, particularly concerning their attitudes toward both customer-facing and internal-facing technology. [source: https://www.marketwatch.com/press-release/commercial-banking-market-2023-size-share-future-demand-top-key-players-and-growth-2030-2023-02-01?mod=search_headline]

The report outlines five major findings, which include the following:

  • Economic uncertainty for 2023

Although some economic indicators suggest a possible recession, the strong job market implies that any downturn may differ from previous ones.

  • Banks are preparing for potential downturns

Despite a consistently high level of credit quality, commercial banks are increasing their loan loss provisions.

  • Renewed emphasis on deposits

Due to higher demand for loans than deposit growth, competition is increasing, leading to a rise in deposit betas.

  • Deep penetration of digital transformation in financial institutions

Fintech partnerships and enhancing the small business experience are top priorities.

  • Innovation in payments as an opportunity

Advanced digital payment options, such as real-time payments, integrated payables, and API integration with essential systems like ERP, will aid financial institutions of all sizes in competing more effectively.

Commercial banking Challenges

Commercial banking encounters a range of challenges, but there are also multiple potential solutions to address these challenges.

  1. Regulatory Compliance

Commercial banks confront various regulatory requirements that can be burdensome and costly to comply with, such as anti-money laundering laws, KYC (know your customer) requirements, and data privacy laws. Failure to adhere to these regulations can result in significant fines and damage to reputation.

Solution:

Automating routine tasks like compliance checks and account opening can help commercial banks reduce costs and enhance efficiency. Robotic process automation (RPA) and artificial intelligence (AI) can be utilized to automate many of these tasks.

2. Legacy Systems

Many commercial banks depend on obsolete technology systems that can be sluggish and inefficient, and may not keep pace with the needs of modern customers.

Solution:

By upgrading legacy systems and investing in digital technologies such as cloud computing and mobile apps, commercial banks can improve their ability to meet customer expectations and offer more innovative services.

3. Customer Expectations

Customers increasingly anticipate banks to offer quick, convenient, and personalized services, which can be difficult for banks with legacy systems or other technical limitations.

Solution:

Commercial banks can collaborate with fintech startups and other third-party providers to access new technologies and capabilities, such as blockchain and API-based services. This can help banks remain competitive and provide new services to their customers.

Key Trends in Commercial Banking for 2023

Several major trends are shaping the commercial banking landscape in 2023. Here are the top ones to watch:

  1. Open Banking and APIs

While banks and borrowers have been hesitant to adopt open banking and APIs in the past, the benefits of these technologies are becoming too great to ignore. McKinsey reports that three-quarters of the top 100 global banks now offer APIs, with North American and Asia Pacific banks leading the way.

2. Payment Innovations

Digital payment options like real-time payments, integrated payables, and API integration with ERP systems are becoming more important for banks of all sizes.

3. Regulatory Compliance

Compliance with regulations is a top priority for commercial banks, which are increasingly turning to AI and machine learning to help them stay compliant.

4. ESG Investing

Environmental, social, and governance (ESG) investing is gaining popularity among consumers, and banks are responding by offering more sustainable investment products.

5. Risk Management

With rising unemployment and delinquencies, commercial banks are focusing on developing their risk management functions earlier in the process.

Major Commerical Banking Shifts

In 2023, the commercial banking industry is undergoing several shifts compared to 2022, as outlined below:

Increase in digital product and payment capabilities, which has risen from 26% to 39%. However, there has been a decrease in the use of big data, AI, and advanced analytics, which has dropped from 43% to 39%.

[https://www.businesswire.com/news/home/20230119005124/en/Q2-Announces-2023-State-of-Commercial-Banking-Market-Report]

A decline in the focus on improving integrated multichannel delivery, which has decreased from 32% to 24%.

[ https://www.ir.com/guides/trends-in-commercial-banking]

Future Business Models

To anticipate future business models, commercial banks must understand the new banking ecosystems. One emerging trend is for banks to become platforms, offering evolving business products and services while integrating vertically and horizontally across the value chain. These models are agile, scalable, and open to other service providers and their clients. By leveraging cloud platforms, they can provide a highly relevant, digital-first, customer-centric proposition.

  • Re-imagined digital commercial bank

By re-bundling services, banks can transform into fully connected digital banks that leverage capital and data to generate new revenue streams from hybrid value propositions and banking services.

  • Banking-as-a-Service (BaaS)

Through intermediaries, BaaS providers will develop and license services and products, and manage user interfaces to provide commercial banking services to end-users. Through APIs and a platform-based infrastructure, they will deliver products and services as income streams.

  • Platform provider

Platform providers provide, maintain, or oversee a banking platform or ecosystem with open or closed access, for their own and others’ purposes, to enable the commercial banking ecosystem. As a gateway to a wide range of services and clients, the platform is the main source of income.

For more information, contact Gyan Consulting.

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Gyan Consulting

Consulting and developing blockchain solutions for enterprise-level web and mobile solutions. https://gyan.solutions/