Strategic trends in Finance

Finance is a rapidly evolving industry that is constantly being shaped by a range of strategic trends. These trends are shaping the way financial services are delivered, the products and services that are available, and the regulatory environment in which financial firms operate. Here are a few of the most significant strategic trends currently impacting the finance industry

Finance is a rapidly evolving industry that is constantly being shaped by a range of strategic trends. These trends are shaping the way financial services are delivered, the products and services that are available, and the regulatory environment in which financial firms operate. Here are a few of the most significant strategic trends currently impacting the finance industry: 

1. Sustainability and ESG factors: There is a growing recognition within the finance industry that sustainability and environmental, social, and governance (ESG) factors are important considerations for both investors and companies. This has led to the rise of sustainable Finance, which involves the integration of ESG factors into financial decision-making. This includes the use of green bonds and other financial instruments to fund environmentally friendly projects, as well as the use of ESG data to assess the risk and performance of investments. 

2. Digital and fintech solutions: The finance industry is undergoing a digital transformation, with an increasing number of financial services being delivered online and through mobile apps. This trend has been driven by the rise of fintech firms, which are using technology to disrupt traditional financial services by offering more convenient, user-friendly, and cost-effective solutions. This has led to the emergence of a wide range of digital and fintech solutions, including online banking, mobile payments, and digital wealth management platforms.  

3. Cloud based systems implementation is expected to pace up with big players like HSBC or Deutsche Bank signing deals with cloud service providers such as AWS (Amazon Web Services). Transitioning from legacy systems to cloud improves agility, decreases IT costs, CapEx and provides flexibility to employees as it improves remote working. Hybrid working won’t go away that easy, companies compete in the labour market to attract the best employees and remote / hybrid work quite frequently turns out to be the decisive factor for candidates.  

4. Data analytics and artificial intelligence: The finance industry is also leveraging the power of data analytics and artificial intelligence (AI) to improve decision-making, automate processes, and enhance customer experiences. For example, data analytics can be used to identify trends, predict future outcomes, and detect fraudulent activity, while AI can be used to automate tasks and make personalized recommendations to customers. All 5 largest US banks are investing heavily into machine learning (ML) for algorithmic trading, risk modelling and fraud detection systems. Further automation of cognitive tasks and higher reliance on machine learning based prediction models are an expectation for 2023. A driving factor for further implementation for machine learning will be streamlining processes and cost reduction. 

5. Regulatory landscape: The regulatory landscape for the finance industry is constantly evolving, with new regulations being introduced to address emerging risks and ensure the stability of financial markets. This includes the adoption of international standards such as Basel III, which aims to improve the resilience of the banking sector, and the introduction of regulations such as the General Data Protection Regulation (GDPR), which seeks to protect the privacy of individuals' personal data. 

6. Cybersecurity – the most important asset for financial institution is trust. To win the trust of their existing and potential customers, financial institutions must demonstrate commitment to preserve confidentiality and maintain the availability and integrity of their systems and data. Between the growing numbers of attacks1 and financial institutions transforming to use new digital channels and technologies, maintaining that trust has never been more challenging. In response to those challenges both Regulators and customers expect financial institutions to enhance protections across digitally accessible services. 

7. Open Banking is expected to grow at an average annual rate of nearly 50% between 2020 and 2024, with the European market being the largest2. Open Banking provides a third-party access to financial data using APIs (application programming interfaces) which enables customers to choose from multiple service providers available. They can improve their financial decisions using information about their cash flow across different accounts and receive tailored offer from banks and other funding providers. Open banking PwC forecast assumed that it’d create c£7.2bn revenue opportunity in 20223. It becomes only natural that financial institutions would like to get their piece of the cake. 

8. Passive investing: Passive investing, which involves tracking a market index rather than trying to outperform it, has become increasingly popular in recent years. This trend has been fuelled by the rise of index funds and exchange-traded funds, which offer investors low-cost, diversified exposure to a wide range of assets. 

9. Financial education and literacy: The growing complexity of financial products and services has highlighted the importance of financial education and literacy. This trend has led to the development of initiatives and programs aimed at helping individuals and businesses improve their financial knowledge and make informed financial decisions. 

10. Globalization of financial markets: Financial markets are becoming increasingly interconnected and globalized, with capital flowing more freely across borders. This trend has been fuelled by advances in technology and communication, as well as the liberalization of financial markets and the removal of barriers to trade and investment. 

Overall, these strategic trends in finance are driving significant changes in the industry and shaping the way financial services are delivered. It is important for financial firms to stay up-to-date on these trends in order to remain competitive and deliver value to their customers. 

Author: Tomasz Kopacz

Photo source: Unsplash