Deloitte has published its 2023 Financial Services Industry Predictions report
There are many deep-rooted and long-held elements of the financial services industry that have been around for generations, but we are also in a fast-moving period of change.
With that in mind, how will the industry evolve in the years ahead given the adoption of technology, the demands of today’s clients, and the impetus to address climate change and other societal challenges?
That’s what Deloitte’s newly released 2023 Financial Services Industry Predictions report considers, looking at emerging trends across the banking & capital markets, insurance, real estate, and investment management sectors.
Generative AI and robo-advisors
It’s almost impossible to talk about emerging trends without mentioning artificial intelligence, especially generative AI, which has a significant role to play in investment banking and the wider financial services industry.
Being able to respond to client queries effectively without always relying on human input has the potential to massively boost productivity, the report suggests.
Deloitte predicts the top 14 global investment banks could boost their front-office productivity by an average of 25% by using Generative AI, which could result in additional revenue of US$3 million per front-office employee in 2026, from an average of $11.3 million during 2020-22.
The report also says that the use of technology to ‘democratize’ financial advice is set to escalate.
With Deloitte predicting a doubling of the net worth of the mass retail population to $22 trillion globally by 2030, the report highlights the opportunity for financial services firms to use technology such as robo-advisors to provide much-needed financial advice to the mass market and make it profitable.
Faster processing thanks to investment in quantum computing is another tech-driven emerging trend, along with a growth of alternative data in investment management which will provide new sources for reliable, and fast, data to help generate alpha. This has been a trend in hedge funds for a decade or more and will become more prolific across the investment management ecosystem.
Challenges ahead
Opportunities are often coupled with challenges and the emerging trends that Deloitte sees in the near-term include potential risks.
Firstly, a growth in synthetic identity fraud which is challenging banks and other financial services firms to identity and stop criminals using stolen or fabricated data.
Higher deposit costs will be a challenge for banks and may impact profitability in the longer term, while embedded finances will begin to proliferate but firms, especially insurers may not find this easy and it could be the end of the decade before embedded finance is widespread.
"The reality is that emerging technological changes could be more pervasive and impactful going forward in ways that can be scarcely imagined today," said Jim Eckenrode, managing director, Deloitte Center for Financial Services. Deloitte Services LP. "Financial services will likely play an important role in helping these breakthroughs emerge to the benefit of us all, while simultaneously opening up new avenues of revenue and profit."
