Forrester’s annual predictions report forecasts an array of new digital offerings next year and that regulators will get tough on ESG classifications.
As the post-pandemic recovery gathers pace, banks will significantly ramp up their spending on technology, talent and fintech to launch new digital and sustainable products, according to research group Forrester’s annual predictions report on the sector, which anticipates that a quarter of the world’s banks will increase their tech spending by 10% in 2022, with the US and China leading the charge.
“The banking sector enters 2022 in relatively good shape, considering that a year ago there were widespread concerns about cost management and huge sums were set aside as loan loss provisions,” says Aurelie L’Hostis, a senior analyst at Forrester. “Banks can now loosen the purse strings, with a focus on accelerating end-to-end digital transformation and fending off competition.”
The report predicts an aggressive war for talent amid widespread demand for skilled software engineers and data scientists, and it anticipates more banks will follow Bank of America’s lead and retrain existing staff to address the shortages in technology workers.
New products
This year saw a raft of new sustainable product launches, from green mortgages to chequing accounts with sustainability features, and the report anticipates the number of sustainable finance products could triple next year. However, as banks try to outcompete each other on sustainability, seeking to tap into government rebates and fiscal incentives, Forrester anticipates a rise in accusations of greenwashing.
There will be a shift towards more data sharing between financial and non-financial organisations
Concerns about a lack of transparency in the sector has led regulators in China and the EU to provide standardised taxonomies, while Hong Kong and Singapore are incentivising banks to create frameworks of their own.
“As banks try to accelerate the market for environmental, social and governance (ESG) products, we are likely to see a backlash because regulators want to reduce greenwashing,” Ms L’Hostis says. “However, this could create opportunities for more innovative providers and more genuine products.”
Emerging technologies — such as the Internet of Things, decentralised ledgers and artificial intelligence — will play an increasing role in validating borrowers’ ESG claims, according to the report, driving a new surge of fintech innovation linked to sustainability.
Embedded finance
Many more banks will explore delivering select capabilities ‘as a service’ to capitalise on open banking opportunities, as well as increasing embedded finance offerings, according to the report.
“We’ve been talking about open banking for quite some time and the focus is now shifting towards open finance and the rails that enable it,” Ms L’Hostis says.
The EU and UK have already consulted on open finance, a push that will yield more data sharing between financial and non-financial firms, and the US is on a similar trajectory.
“We’re not just talking about banks sharing financial data; there will be a shift towards more data sharing between financial and non-financial organisations,” she says.
“More banks will reconfigure and repackage products, and embed them in other marketplaces and channels,” Ms L’Hostis adds. The report cites Société Générale’s ALD Automotive, which sells vehicles via Amazon and has a stake in a mobility-as-a-service platform, as an example.
The number of bank-led lifestyle apps will also increase significantly, according to the report, as banks respond to open finance and focus on the “data mashups and co-created journeys they can [produce] with third parties”, with more banks offering ‘super apps’ similar to Indonesia’s SEA, India’s Paytm, and Alipay and WeChat in China.
