As we enter 2023, the banking industry’s focus remains on delivering an improved digital banking experience with the latest financial technologies. Last year, the financial services industry saw continued innovation and disruption, including the rise of open banking, cloud services, enhanced cybersecurity and new regulatory concerns. While the industry seems to understand what is required to maintain a competitive edge and meet the needs of an increasingly demanding consumer, a hesitation remains to fully embrace the change needed to drive them forward at speed and scale.

Results from our annual Banking Priorities Survey—where CSI asked banking executives from across the nation about their strategies and priorities for 2023—show an urgency for change. However, their responses indicate the banking industry is at the crossroads of digital transformation opportunities and the challenges of embracing the “new normal” post-pandemic.

In this blog, we explore the top three issues bankers selected as most likely to affect the industry and what they will prioritize in 2023. Check out the complete and interactive executive report to discover how bankers will tackle challenges and emerging opportunities associated with a changing technology landscape, digital acceleration, cybersecurity, regulatory changes and more.

What Did Bankers Identify as Top Issues?

CSI’s survey explored bankers’ challenges this year, asking respondents to identify which issue will significantly influence the industry in 2023. Executive respondents generally agreed on the industry’s biggest concerns in the coming year. Beyond sharing their perspectives, we offer insight and strategies to combat these ongoing concerns.

1. Retaining and Recruiting Employees

Rising to number one from the second-most pressing issue at 21% going into 2022, more than one-third (34%) of bankers described retaining and recruiting employees as the biggest concern going into this year. And with the effects of the Great Resignation still rippling through the employment market, it’s no surprise that the banking industry is no exception.

Primarily instigated by the COVID-19 pandemic, the banking industry continues to rapidly change. One of the most significant changes is the rise of remote work, which brings financial institutions a new set of unique challenges, including talent acquisition and retention. Banking’s ability to recruit the best and the brightest has never been more challenging. Candidates are seeking opportunities everywhere since larger companies in bigger cities can hire from anywhere and offer salaries far exceeding living costs in smaller communities. Not only that, many current employees would rather quit than not have the ability to work remotely. So now, community financial institutions must compete more directly against all financial institutions and fintech companies.

The challenge is wider than the financial sector. The U.S. Bureau of Labor Statistics estimated that four million voluntary resignations occurred in October 2022 alone. As turnover leads to a loss of skillfulness and untrained staff represents risk, maintaining expertise in emerging channels and scaling operations will only continue to be challenging for banks.

Tackling the #1 Issue:

Despite such challenges, there is a need for a new wave of digitally aware and technology-adept employees. The outflow of workers from the service and tech industries, paired with growing interest from young applicants, creates an opening to attract customer-oriented and tech-savvy talent. Competitive talent desires to work with innovative companies. To succeed in the talent wars, many financial institutions are focusing on improving the employee experience, upping their compensation package game and even offering remote or hybrid work.

2. Regulatory Change

Regulatory obligations are another perennial issue for financial institutions. Regulatory change is heating up at the start of 2023 and ranks second, with 27% of bankers selecting this as their top issue. Risks associated with regulatory compliance pose reputational and financial problems—often in the form of monetary penalties—for some institutions.

While there are a host of regulatory issues to consider—several of which are outlined in the executive report—bankers expressed the most concern about overdraft fees and potential UDAAP violations (74%), followed by cybersecurity compliance (68%).

In addition to existing rules and regulations, the Current Expected Credit Losses (CECL) methodology goes into effect for the final group of financial institutions this year. Additionally, everyone is anxiously awaiting the final rule on Section 1071 of the Dodd-Frank Act and the Financial Crimes Enforcement Network’s (FinCEN) beneficial owner database.

Tackling the #2 Issue:

Regulatory compliance requirements change rapidly, and some bankers struggle to keep pace. Recently, the topic has been further complicated by the struggle to recruit and retain employees, specifically those with the expertise to fill various compliance roles.

In the past, many organizations have operated reactively regarding regulations and compliance, changing only in response to regulatory orders, examinations or other types of pressure. However, many organizations have begun a shift toward a more proactive approach to regulatory strategy. Amid such flux, nearly four of five bankers continue expressing high confidence in their compliance readiness. However, that number continues to trend downward from 2022 (4.0/5) to 2021 (4.1/5).

Financial institutions should protect themselves from risks associated with overdraft fees, UDAAP violations and cybersecurity compliance by:

• Strictly following applicable state laws and usury limits, if any, regarding overdraft fees.
• Confirming Reg E, Reg D.D. and Reg CC disclosures match actual institutional policies, procedures and practices.

3. APIs/Open Banking

The rise of open banking APIs is on the minds of financial institutions everywhere, evidenced by this issue rounding out the top three at 17%. It should also be noted that just 7% of bankers selected Banking as a Service (BaaS), but the low response can be misleading, as this model overlaps with APIs and open banking.

Bankers have lingering questions about critical aspects of modern technology, including APIs, BaaS and platform banking. This year’s data suggests a need to better understand these concepts to benefit from the digital age fully.

In practice, APIs allow separate systems to communicate with one another and share specified information between them. As such, APIs form the backbone of an open banking ecosystem where information moves seamlessly between various financial services providers and/or other businesses. Open APIs enable third-party developers to build applications and services around an institution.

In this year’s report, 39% of respondents selected None of the Above when asked to reveal all applicable aspects of their institutions’ open API ecosystem strategies. Those results indicate that these banks do not have open banking plans. While this selection may point to confusion around such industry jargon, it is noteworthy that this option garnered a larger proportion of responses from institutions with the fewest assets. Therefore, this could suggest a need for more resources to pursue sophisticated open banking models.

Tackling the #3 Issue:

Open banking APIs offer various benefits, including optimizing existing systems and integrating new technologies. Additionally, this technology enables the secure sharing of data in real time to create a seamless customer experience and opens new revenue streams through platform banking.

Industry experts agree that APIs demand more attention from bankers. Based on their responses, bankers are still in the early stages of leveraging the open banking ecosystem to their advantage. Still, it is only a matter of time before they fully realize how much it can do for them.

Notably, the way this advanced technology integrates systems and aggregates information can streamline front- and back-end operations.

Bankers selected platform banking (39%) as the most popular open API strategy for 2023. This selection is unsurprising, given the potential for new revenue streams and the fact that most banks rely on third parties to provide digital technologies like digital account opening, digital loan origination and payments technologies.

Additionally, there is an opportunity to leverage the BaaS model, enabling financial institutions to introduce new digital products and services to access new markets or revenue streams.

Bankers’ Top Technology Priorities for 2023

The number of strategic challenges facing the banking industry could seem overwhelming, so prioritizing what needs focusing is an important exercise. Financial institutions must strategically choose where to use their limited technology resources to ensure they meet the demands of a tech-savvy population.

To find out the most important priorities in 2023, we asked surveyed bankers to reveal where they plan to deploy their valuable dollars and the strategies community institutions are implementing to stay competitive. While those strategies vary as much as each organization’s unique business needs, they also indicate a common theme. Institutions see an obligation to continue digital evolution and strengthen their most distinct competitive advantage—customer relationships.

Overall, bankers will prioritize these top three technologies in 2023:

• Digital account opening: Like the results from 2021 and 2022, digital account opening topped the list of bankers’ technology priorities at 55%. The continued push for improved digital account opening and digital lending reflects an environment in which many non-traditional institutions have created a seamless digital experience for customers. Bankers in our survey are acutely aware of the need to be at the top of their game at these critical gateways. In today’s digital-first world, customers expect a seamless experience when opening a new account—making digital account opening a priority for all institutions.
• Data analytics and reporting: Customer insight and data analytics lie at the root of virtually every banking trend, and data powers many initiatives. Institutions have access to more banking data than ever before, and if used correctly, banks can maximize customer interactions and their bottom line. Bankers are also aware of the capability of data and analytics to inform their strategic investments, with 47% prioritizing this technology. Only 29% of bankers selected reporting as a priority in 2022, suggesting respondents will increasingly leverage data for decision-making in the coming year. In addition, 57% of bankers mention utilizing customer data as their top strategy to increase market share in 2023.
• Digital lending: Ranking number three for the third year, 41% of bankers favor digital lending as the technology they will prioritize in 2023. In addition to improving the overall user experience and enabling quick loan origination, digital lending services improve efficiency, ease compliance and support efforts to use business intelligence and analytics.

Assessing Leading Technology Initiatives

Technology advancements made the digital banking revolution possible. Bankers listed digital account opening, lending and data analytics as high priorities. These investments further reflect the need to expand digital footprints and expand market share, even beyond regions that institutions traditionally serve. Though it didn’t rank in the top three, 34% of respondents chose CRM as a technology priority.

Noticing the common theme between the highest priorities, banks shouldn’t overlook how an effective CRM empowers them to meet customer needs. As institutions expand their digital presence, they must maintain their sense of community and customer familiarity. An integrated CRM provides the means to build and maintain a strong connection with individual customers who previously relied on face-to-face interaction. Add account opening and lending to the mix, and banks can meet customer expectations.

Revealing the Greatest Cybersecurity Concerns

Although cybersecurity is an ever-present issue for financial institutions, the dominant threat types change over time, as do cybersecurity measures. As a prime component of our country’s critical infrastructure, financial institutions are targets of cyberattacks perpetrated by criminal and state-sponsored hacking organizations. Because of this, cybersecurity concerns continue to loom large for bankers.

Heading into 2023, bankers selected the following threats as top cybersecurity concerns:

• At 29%, over one-quarter chose P2P or other digital fraud
• Receiving 23% of the vote, just under one-quarter selected data breach/disclosure
• One-fifth picked ransomware at 20%

Defending Against Persistent Cybersecurity Threats

Financial institutions also play a significant role in helping their customers learn how to avoid financial fraud that indirectly harms institutions. A recent investigation showed that four of the biggest U.S. banks had collectively received $90 million in fraudulent claims associated with a P2P platform in 2020. That investigation, paired with reported increases in P2P fraud across the industry, explains why bankers in our survey voted it their biggest cybersecurity concern. Even so, as the risk of P2P or other digital fraud grows, fraud detection systems built with artificial intelligence (AI) represent a significant opportunity for banks. Using fraud systems with AI allows banks to identify incidents of fraud in real time and expedite investigation.

While the financial services industry has made great strides in shoring up security measures to combat cybercriminals, security-minded consumers who follow best practices help mitigate risk and strengthen protection. Cybersecurity training is another prioritized strategy, as banks benefit significantly from an informed customer base.

Want the Full Results of the 2023 Banking Priorities Survey?

These are just a few concerns, priorities and challenges covered in the executive report. Bankers provided far more insight into their performance, technological investments, latest strategies and trends relating to modern banking, cybersecurity, compliance and more. Unpack the complete survey results of the 2023 Banking Priorities Survey today.

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Tara Schultz leads CSI’s Open Banking and BaaS initiatives at CSI and has over 15 years of experience in the fintech and financial services industry through her time at Wells Fargo and CSI. With a proven track record of driving revenue growth and executing strategic partnerships, Tara is a results-driven leader who is passionate about customer choice, user experience and helping financial institutions differentiate, diversify and compete utilizing fintech.