Leaders in the financial-services industry will have a lot on their plates in 2023 as they navigate a fragile global economy, rising (and maybe falling) interest rates and scrutiny from regulators.
As a result, Curinos presents this high-level view of the industry as we approach the new year.
Deposits Take Center Stage As Rates Rise
- Banks are benefiting from loan growth and loan yields, with future performance heavily driven by deposit betas.
- Credit is the largest unknown for future earnings performance, but prospects are good for a “soft” landing.
- Fees are less of a factor in affecting performance.
- Banks with outsized capital markets, M&A advisory, real estate or wealth businesses have been the most affected by the economy.
- The most significant pandemic hangover is the embedded losses in the securities book (where excess deposits were parked).
- The industry is challenged by new digital-transformation issues:
- Digital marketing and experience investments have fallen short of anticipated benefits.
- Banks need to rethink digital relationship primacy and personalization.
- Branches need a “third wave” of reconfiguration.
- Regionals and community banks find it difficult to keep up with the costs and capabilities.
Banks need to navigate deposit costs and improve the effectiveness of digital investment.
For 2023, a three-part agenda: manage deposit costs, monitor credit risk and make improvements in digital effectiveness.
- Manage funding composition and cost:
- Back book rate-sensitive money
- Wealth and commercial deposits
- Revisit TM pricing
- Expand lending selectively:
- Target relationship customers (in particular, for home equity and commercial)
- Develop a liquidity strategy and manage unrealized losses in the securities portfolio
- Hints of credit issues (auto)
- Overconcentration in capital markets, real estate or large-dollar (wealth) depositors.
Anticipate The Future
- Improve the quality/effectiveness of digital acquisition and onboarding.
- Deepen the support for digital customer management:
- MarTech stack partnering strategy (build vs. buy)
- Seamless integration of online and digital
- Metrics and incentives for primacy and relationship
- Focus on relationship primacy and personalized/tailored products.
- Rethink “third wave” of branch reductions and branch personnel roles.
- Consider M&A to gain core deposits and scale.
- Expense/effectiveness of digitalization and partners
- Cost of talent and role of branch personnel