The Future of Banking and Capital Markets: 4 Trends to Bolster Resiliency

The complexity—and volatility—of the banking and capital markets industries is growing amid shifting regulations, increasing digital assets, a changing deposit landscape, and pressure from fintech competitors. At the same time, consumers expect their banking experiences to be simpler and more personalized than ever before. 

All of which explains why financial services organizations are embarking on digital transformations that provide more streamlined and centralized access to their data while also reducing the total cost of technical debt from legacy systems. 

Here, we dive into four major trends that will drive the financial services sector over the next several years.

1. Awash in Data—Yet Struggling to Unlock it—Banks Modernize Their Tech Foundations

Financial institutions and markets face major upheaval. Leading banks around the world, including The Federal Reserve Bank, have been hiking interest rates after more than a decade of ultra-low rates, which could change the underlying value of an institution’s assets and liabilities and increase exposure to interest rate risk. 

To avoid further industry disruption and to serve customers in a volatile environment, successful financial services industry leaders will be those who enable better risk management and decision-making by uniting operational and financial data. 

“The need for insights and simplified reporting capabilities is top of mind for many financial services organizations,” says Tony Alejo, a partner at KPMG.

While financial executives know how essential unified data is to effectively manage risk and guide strategy, only 38% of them are confident in their ability to make real-time, data-informed decisions, according to a Workday global survey of 1,150 senior business executives. In fact, 4 out of 10 (40%) financial services executives say that data is somewhat or completely siloed, and nearly 2 out of 3 (65%) say they need technology to better integrate data between disparate systems. 

The good news? As the pace of change and the level of business risk continues to accelerate, industry leaders are laser-focused on transitioning to cloud-based solutions that unify data in one system. In fact, an Accenture survey of nearly 100 top banks found that 63% are in the process of moving their core systems to the cloud or preparing to do so.  

“We continue to see global financial institutions accelerate their digital transformations,” notes Indy Bains, Workday’s vice president of industry solutions marketing. “Data management is the key for these organizations—whether it’s financial, operational, or worker data.”

This investment can help banking and capital markets executives run sophisticated scenario planning while allowing more time for strategic analysis. It can also allow them to easily track details from various subledgers—a process that’s nearly impossible when using legacy systems—to quickly analyze critical metrics and create more nuanced risk analyses. 

“It’s about having a platform that’s going to give you the ability to react, to be agile, and to be resilient to all those changes in the industry,” says Viren Patel, strategic industry advisor for financial services at Workday.

2. Facing a Talent Shortage, Financial Services Firms Leverage AI and ML for Upskilling

The Great Resignation forced banks to spend more to snag top talent. Big banks like JPMorgan, Citigroup, and Bank of America all reported markedly higher compensation expenses in 2021 and 2022. While the Great Resignation may be in the rearview mirror, many financial organizations are still facing intense competition for top-tier talent. 

Attractive compensation packages alone won’t be enough to secure the highly agile workforce banks need. Financial institutions also must take a hard look at their company culture and the employee experience. Building and maintaining a top-performing, future-ready workforce requires cultivating and celebrating finance professionals who are strategic thinkers and lifelong learners.

Accordingly, organizations should provide ongoing learning opportunities while ensuring their teams are using the latest tools and technologies that make their jobs easier. 

“Learning is the most exciting part of a job, and if you have the right people, they want to learn new things,” observes Gwen Shaneyfelt, executive vice president and chief accounting officer at Franklin Templeton. 

The entire sector is seeking workers with strong data analytics and technology chops to help them anticipate and respond to change—98% of financial services organizations rank technological proficiency or the ability to adapt to new technologies as the top skill they need to develop over the next five years, according to a Workday and PwC industry perspective. 

To stay competitive and fill their workforce needs, financial organizations must augment outside hiring with intensive upskilling. “Banks must expand their talent pool by tapping into skill adjacencies and proactively help employees develop new skills at speed,” explains Aurelie L’Hostis, a senior analyst at Forrester. 

That’s where AI and machine learning (ML) capabilities will come into play—enabling organizations to focus less on traditional degrees and linear career progression to adopt a more skills-based approach. 

By providing insights and predictions that identify and align skills with jobs, AI and ML transform employee data into a strategic advantage. This combination of data, technology, and automation can help financial leaders allocate resources more effectively, improve productivity, and make better use of their talent.

3. To Attract Customers and Appease Regulators, Banks Go Big on ESG 

Economic volatility and industry turmoil aren’t the only challenges on banking leaders’ radar. They’re also wrestling with urgent environmental, social, and governance (ESG) concerns. Nearly three quarters (72%) of CEOs believe stakeholder scrutiny on ESG will continue to accelerate, according to a global survey by KPMG. 

Not surprisingly, many industry executives are shifting their portfolios to accommodate climate risk, investing in new companies and technologies that are fighting climate change, and are increasingly committing to become carbon-neutral. Not only is that the right thing to do, but it’s what customers increasingly expect. 

“[Customers] are going to want to know how you’re going to get to net zero, or else they’re going to buy the product from someone else, and that’s going to force activity fast,” says Brian Moynihan, CEO of Bank of America.

Regulators and consumers alike are also becoming stricter and savvier about what passes as an ESG initiative. In 2022, the U.S. Securities and Exchange Commission announced an enforcement task force intended to crack down on “greenwashing,” or corporate statements on environmental efforts that intentionally mislead consumers and investors. When it comes to financial institutions’ efforts around ESG practices, just under half of people (47%) said they believe the companies are genuine in their efforts. 

To create an effective and transparent ESG strategy, financial institutions need to leverage technology solutions that update their ESG metrics in real-time. But many banks may not have the systems and data in place. 

Cloud-native systems that centralize financial, human resources, and operational data can give bank executives the ability to understand the wide-reaching impact of their organizations. This will help companies to measure outcomes; source, evaluate, and manage sustainable suppliers; deliver compliance training; and proactively plan and track ESG goals.

4. Resilience Ascends As a Top Priority

Resilience was once measured by how well a financial services organization reacted to unexpected events. Now, that’s all changed. 

“Companies are starting to think of resilience as a preventative strategy rather than a reactive strategy,” says Peter Pollini, banking and capital markets consulting leader at PwC.

For example, while many forecasting models already take into account the historical frequency and severity of climate-specific changes, the real challenge—and opportunity—will be “forecasting the incremental impact of climate change,” Pollini says. Thus financial services organizations would be able to better anticipate, and plan for, climate disruptions. 

With major unknowns on the horizon—the future of rate hikes; resulting stress on bank liquidity; the full extent of the regulatory landscape; the volatile impact of digital assets—it’s no wonder that 82% of senior financial executives see operational resiliency as a top priority, according to Workday’s report.

Preparing for the possible, but still unknown, requires access to real-time, unified data. That’s the key to doing forecasting right, whether financial services leaders are trying to manage risk and automate controls, establish ESG goals, respond to new disruptions and competitors, or hire value-generating employees. “Combining the data and having a data strategy is only increasing in importance,” Pollini says.

To meet these needs and bolster their organizations’ resilience, financial leaders will need to lean on technology. According to PwC, 85% of financial firms are responding to disruptions by employing new technologies within their business.

“With banking, there are constant shifts in regulation. There are new disruptors entering the market all the time. So the ability to bring in new measures, to add new dimensions as the market changes with a flexible data model is key,” Patel says. 

To learn more about how Workday can help your organization grow, visit Workday.com/banking.