Wholesale Banking Trends in 2023

The 2020’s have been characterized by massive upheaval. Wholesale banking has had to navigate the effects of Covid, supply chain disruptions, rising inflation and interest rates, and the geopolitical climate. At the same time, rapid technological developments threaten changes inside and out. AI and ML pose massive opportunities for the sector, while Decentralized Finance (DeFi) is thought by some to pose a legitimate threat to traditional banking.

Wholesale banking now faces the twin crises of global disruptions and internal technology shifts. Successful firms will be able to use the latter to navigate the former.

Currently, the wholesale banking industry is in a state of change.

The most important whole banking trends include:

• AI & ML
• ESG factors
• DeFi
• Staff augmentation
• Changing market structures

AI & ML

Almost every industry is predicted to be affected by AI these days.

Wholesale banking is certainly no exception, as the financial world has a long history of adopting new technology before others do. In fact, fintech companies were embracing AI programs (called “expert systems”) as far back as the 1980’s.

It remains to be seen exactly how the new wave of AI tools will affect the wholesale banking industry. Generative AI, for all its power, does bring potential risks. Some companies have already banned or restricted its use out of security concerns.

There is also the concern of employee distraction caused by generative AI. By comparison, the rise of smartphones might have increased productivity in some ways, but it also increased distractedness at work.

Other existing AI tools will likely increase in value and in use. These include tools like robotic process automation and customer service chatbots.

In particular, the following tasks are already routinely done by machines:

• Customer support
• Loan application processing
• Fraud detection
• Investment recommendations.

Technology is increasingly being built around AI and ML, rather than the other way around. Consequently, AI and ML for banking may begin to form the centerpiece of a bank’s digital transformation plan.

Banks could anticipate a future where most tedious tasks currently done today are taken care of by AI. They may also anticipate that some higher value-added tasks, like thinking and planning, could also be carried out by AI programs.

ESG FACTORS

In a world increasingly fraught with extreme weather, the market for sustainable investments is becoming more and more important. Environment, social, and governance (ESG) investing is a key wholesale banking trend 2023.

According to PWC, eight in ten investors are planning to increase their investment in ESG over the next two years. ESG is a sector that is highly affected by regulation. Many clients have climate obligations, and banks have an important role to play in helping them meet those obligations.

It is also likely that future regulations will complicate things- for example, the SEC has proposed new climate disclosure requirements. Banks should view current and approaching climate disasters as sources of increased risk throughout the world. But they should also anticipate investing to shift towards mitigating and preventing such disasters.

Part of Exadel’s mission is to help incorporate ESG into our clients’ operating framework. We believe this is crucial for our commitment to clients, partners, investors, employees, and the broader global community, and are proud to play a role in helping implement these important strategies.

DeFi

Despite a year of dramatic collapses for the crypto world, Decentralized Finance (DeFi) is being considered by some as a force to be reckoned with. DeFi is a possible challenge for traditional banks, as it offers the possibility of finance without institutional financial intermediaries.

Now is the time for wholesale banking industry to gain the upper hand. At a time when much of the crypto world has fallen into disrepute, traditional banking can emphasize its adherence to regulations to build up trust.

For many banks, it will make sense to consider their stand on DeFi technologies, but whether that consideration should extend beyond retail into wholesale is yet to be seen. Whatever traditional banks decide, the key is to incorporate any changes, with full regulatory compliance. This will provide a competitive advantage over new DeFi firms.

Managed Services

The financial markets are changing rapidly, and it is often difficult to train or upskill workers to meet shifting demands. Many firms turn to managed services as a solution.

Managed services are a type of service where specialists provide their expertise to banking clients. Some areas of expertise frequently aided by managed services include:

• Cybersecurity
• AI & ML
• Software development
• Risk management
• Data science & analytics

Managed services are invaluable for firms that need niche expertise for a particular problem, but don’t have the talent or resources to hire such full-time talent. This makes it a particularly good fit for startups and smaller institutions.

The firms that will prove most agile in mastering new trends and adopting new technologies will not necessarily be the biggest. The most agile firms will likely be the ones that know exactly when to call for specialist expertise. Managed services are an industry-wide opportunity. It is an opportunity for firms who have the expertise, as well as for those that don’t. Exadel provides managed services for financial institutions.

How Banks Can Adapt for Wholesale Banking Trends 2023

All moments of transition are chances to adapt. The wholesale banking industry has, at present, a generational opportunity to remake things into higher functionality.

1. Enhance Data & Analytics
2. Continuously Upskill Employees
3. Make and Remake your Transformation Agenda
4. Strengthen and Emphasize Regulatory Compliance
5. Enhance Data & Analytics

Data is the lifeblood of the emerging 21st-century economy. Firms with more data, and better capability for analyzing their data, will be better positioned to make smart decisions. Relevant data can provide better decision making in several domains, including:

• Risk modeling
• Fraud detection
• Credit risk
• Operational & liquidity risk
• Continuously Upskill Employees

At the current rate of technological change, upskilling should not be considered a sporadic or even seasonal activity. Rather, it is a continuous process, like payroll. Employee training is another domain where cutting-edge AI and ML technology can make a difference. Personalized and adaptive learning systems are replacing old, outdated training programs.

The main benefit of these new training systems is that they use data to target precisely what each employee needs to learn. They adapt the curriculum to support each employee’s strengths and weaknesses, and in so doing, waste no time serving up redundant information.

In cases where it is not possible or efficient to upskill employees for a certain skill, staff augmentation may provide a useful alternative.

Make and Remake your Transformation Agenda

Every bank needs a plan for how they will carry out their digital transformation. Be prepared to reevaluate and remake your transformation agenda, based on the results you achieve and on feedback from the market.

Strengthen and Emphasize Regulatory Compliance

This is another area that can be made part of your digital transformation. RegTech technology, made specifically for banks, helps ensure compliance across multiple domains.

Building Transformative Solutions with Exadel

Exadel is a digital transformation services company. We help our clients move from ideas to reality. Many of our clients seek our help in leveraging tools like AI and ML to improve their operations. We examine their goals and current processes in order to design a custom plan for the future.

Understanding and predicting the future wholesale banking trends is a key part of what we do. We strive always to know where the market is moving, so we can help our clients make the most of it.

Contact our team today to learn more about how we can help you adapt to the changes in wholesale banking.