The cost-of-living crisis has left many people in precarious financial situations, with some unable to afford their essential monthly outgoings, such as mortgage repayments and fuel bills. As interest rates increase to tackle high inflation and further tax rises are announced, the outlook is set to be challenging for some time to come.

For the most financially vulnerable, the industry needs to be taking decisive action to support them throughout 2023, as well as tackling issues such as fraud and financial crime and adapting to meet new regulations.

Making better and faster decisions

As we head into a new year, the global economic outlook is murky at best and this is forcing more people to turn to credit cards, loans and short-term credit providers, such as Klarna, to cover bills and food. Banks must quickly identify the customers in need of rapid assistance, proactively supporting them and agreeing a robust plan to ensure they can meet essential payments.

Traditional lending platforms have historically relied on human intervention and interactions at each step of the process, which results in increased processing times, potential bias in application review, and human-driven errors. In contrast, digital lending platforms can use near real-time data to enable banks to improve their decision-making when faced with an application for credit - something that must be a key focus through 2023 to prevent a tidal wave of unmanageable debt.

Fighting fraud and financial crime will continue in earnest

With the explosion of digitisation, opportunities for fraud, financial crime and scams have grown exponentially over the past few years - highlighting the need for a cross-channel view of fraud.

Financial crimes are estimated to cost the global economy more than $2.4 trillion, with the cost of compliance rising to over $180 billion. IDC predicts that ransomware and other cyber security attacks will increase by 20% from 2022 through 2024.

Gartner predicts that 30% of large organisations will have publicly shared ESG goals that are specifically focused on cybersecurity, and that's up from just 2% in 2021. Leading banks are continually increasing their focus and spending on fraud and financial crime efforts and need to be leveraging solutions that help them improve detection, prevention and mitigation. At the same time they need to ensure security checks do not negatively impact customer experience.

The positive impact of new regulation

Towards the end of last year, we saw the “Edinburgh Reforms” making headlines. The package of more than 30 reforms have been designed to “cut red tape” and “turbocharge growth”. However, they have attracted criticism from some, being described as another “Big Bang” - a reference to the deregulation of financial services by Margaret Thatcher’s government in 1986.

While opinion is certainly divided around these plans to water down the ‘ring fencing’ regulations put in
place after the financial crisis of 2008, better managing risk remains a key focus for the UK banking
Industry as we head into a new year. In fact, it was only last month that the consultation period ended for the PRA’s new Model Risk Management (MRM) Principles, designed to ensure robust business decision making, strong risk management and improved customer outcomes.

While it’s easy to draw parallels between today’s economic downturn and the financial crash of 2008, the technology being deployed is far more advanced than it was then. Now, the sector is able to rely on artificial intelligence (AI) and machine learning (ML) models - allowing them to take a more strategic approach to controlling risk and fuelling growth. SAS is currently working with a number of organisations, enabling them to use advanced analytics to inform the riskier investment decisions that look set to become more frequent following these Edinburgh Reforms.

As we head into 2023, it’s clear that banks will need to deploy a range of new technologies, designed to speed up customer processing and improve the accuracy of the decision-making process. Alongside this, more attention will be given to the impact of new regulation and understanding the growing complexity of financial crime.