Repercussions of a recession: financial sector predictions for 2023 (David Ritter)

As we enter a new year, we often look forward to a period of respite, in which we can think positively and prepare for a healthier, happier future. However, today’s imminently tougher economic conditions may not align with such an optimistic outlook.

The Bank of England has already warned that the UK faces its
longest recession on record, with a potential two-year slump doubling unemployment rates. Meanwhile, food and energy prices continue to soar, leaving households struggling to pay bills and businesses facing a tough future as consumers rein in their spending.

However, volatility also often brings opportunity—with new ideas and technologies waiting to transform how we interact with customers and capital. Whether we like it or not, we’re set for a period of change. So, buckle up, banking and finance professionals:
if 2022 was a bumpy ride, 2023 is set to be a stormy, pothole-filled marathon. Here are my top three predictions for the year ahead.

More BNPL lenders will turn people away  

As the cost-of-living crisis bites, we’ll likely see buy now, pay later options reigned in. 

The very nature of this type of payment option can cause people to overextend themselves leading to late payment penalties and growing debt. 

To protect against the threat of increased credit risk, we’ll see buy now, pay later providers undertaking greater due diligence and becoming much stricter when it comes to eligibility criteria, credit checks, and the size of loans on offer. 

There needs to be much greater communication between this group of lenders. There’s a black hole in consumers’ credit histories as providers have no insights into how many different buy now, pay later debts a consumer is carrying, and this creates enormous
risk to both the provider and the consumer. 

The integration of
open banking may help here but it is reliant on consumers agreeing to share their data. And while responsible borrowers are likely to do so, those who struggle to repay may refuse consent in order to protect their future borrowing prospects. 

Slow progress in crypto regulation  

Recent regulatory advancements, such as the EU’s
markets in crypto-assets (MiCA) proposal and the UK’s
recently concluded consultation into the regulatory approach to crypto-assets and stablecoins, indicate that there is a desire for more control. 

However, there is currently little international cooperation, and this country-by-country approach is all we’re likely to see for now. 

Ultimately, we need a worldwide approach, which is coordinated, consistent, and compressive. It’s up to the early pioneers to set the rules and standards – if a pre-defined, universal policy emerges, we’ll see wider opportunities for global commerce.  

Metaverse move to the masses  

I’m already seeing a number of banks using augmented and virtual reality (AR and VR) to train customer-facing employees. But, as the internet evolves, we can’t rule out big banks utilising the metaverse to improve the customer experience. In light of extensive
branch closures, it will help to provide a more personalised approach with a human touch. 

A major hurdle to widescale adoption of the metaverse in the banking sector is consumer access to the technology required. Headset prices make them inaccessible for many and whilst technological advancements may drive down the cost of headsets there is still
some way to go. Only once there is a solid user base in place will our banks start to take this brave new metaverse world more seriously.