Dive Brief:
- With the Federal Reserve expected to raise interest rates above 5% in 2023, a majority (90%) of finance leaders at banks, credit unions, and other financial services institutions expect interest rate fluctuations to be the biggest driver of business model changes this year, according to the findings from Syntellis’ 2023 CFO Outlook for Financial Institutions survey.
- While bracing for rate volatility, most respondents — comprised of over 100 finance executives at financial institutions in the U.S. and Canada — said that more needs to be done when it comes to leveraging financial data to make informed decisions, with few institutions having plans to implement data analysis tools to streamline manual tasks and improve productivity and quality of work, the report said.
- Federal Reserve Chair Jerome Powell said Tuesday that policymakers may need to raise borrowing costs higher than they forecast in December to combat persistent price pressures, especially in services excluding housing, CFO Dive previously reported. In a median estimate in December, Fed officials forecast that their rate hikes would peak this year at 5.1%.
Dive Insight:
Other factors that respondents expect to prompt business model shifts include overall portfolio growth (54%), changes in competitive landscape (34%), and staffing and labor fluctuations (27%), according to the report.
Despite the pressures from rising rates and inflation, respondents were optimistic about expected growth this year, with 88% saying they expect to see growth in commercial loans in 2023, while 73% predict growth the consumer loan space, the report said.
Many (60%) of leaders in the financial services sector anticipate wealth management income to increase. Card fees, including debit and credit card servicing, fees from the administration of trust funds, and gains and losses on venture capital investments were all cited as areas for growth in “non-interest income sources,” the report said.
Like many other industries, the financial services sector is facing elevated competition for labor, with a crunch for talent as a cited concern for shifting landscapes as well.
In order to alleviate the labor shortages, 89% of respondents said they plan to cross-train their employees in order to augment their staff. Thirty-eight percent said they plan to obtain software vendor services and 22% said they plan to bring in temporary resources, as a means to mitigate the labor shortage.
Meanwhile, despite a push to increase tech spending in the financial services sector, most respondents have no plans to use AI in areas such as optimizing trading strategies (74%), market analysis (59%), regulatory compliance (57%), or to streamline underwriting (52%), the report found.
These technologies are prevalent, however, in fraud prevention, with 53% using AI to mitigate these risks and 17% having plans to implement it within the next 12-18 months, the report said.
