The financial landscape is evolving rapidly, driven by digital currency and new asset types. This transformation is challenging traditional financial services like banks, insurance, and money management. These changes are fueled by technology advancements and a customer-centric approach. Here, we'll explore several finance trends poised for substantial growth in the coming 12-24 months.
In 2023, we're witnessing a significant shift towards alternative investments becoming a key part of everyday investor portfolios. Regardless of your wealth, risk appetite, or investment horizon, the 2023 portfolio should incorporate a larger slice of alternative investments. These assets, with their minimal connection to traditional options such as stocks and bonds, can help cushion against inflation and recession-induced market swings and potentially deliver better returns than relying solely on dividend stocks.
Traditionally, alternative investments were the domain of accredited investors and seasoned traders. However, everyday investors can now conveniently access alternative assets, including commodities and managed futures, through a diverse range of cost-effective exchange-traded funds (ETFs) and mutual funds. While these funds might have slightly higher expense ratios than average, the performance of alternative assets often compensates for the additional costs.
According to the IMF, global headline inflation is expected to decrease from 8.7% in 2022 to 6.8% in 2023 and further down to 5.2% in 2024. However, it warns that inflation is likely to surpass central bank targets until 2025 in most countries.
UK Inflation Predictions
The Bank of England anticipates a drop in UK inflation, reaching around 5% by the end of 2023 and achieving their 2% target in the first half of 2025.
Market Stability and New Credit Card Fee
While global inflation is set to decline over the next two years, it's expected to remain above central bank targets until 2025 in most countries. However, there's hope for stability in the housing and stock markets. Moreover, a new credit card fee is expected to be introduced in Canada.
NerdWallet Canada forecasts a mild recession in 2023 with persistent inflation. Nonetheless, they also anticipate the stabilization of housing and stock markets.
The monumental $1.2 trillion infrastructure bill in 2021 and the Inflation Reduction Act of 2022 have unlocked trillions in federal investments for renewable energy projects.
Promising Outlook for 2023
Despite supply chain challenges that hindered clean energy growth, 2023 appears promising for renewables. Battery storage and electric vehicle (EV) adoption are tightly connected, and BDO Global foresees a robust year for renewable energy storage systems. New entrants like Rivian, Lucid, Ford, and Chevy are intensifying competition in the EV market, potentially shaking up established players like Toyota and Tesla.
Clean Energy Gains Momentum
Additionally, natural gas shortages related to European Union conflicts are amplifying the drive towards clean and renewable energy sources.
Amid the pandemic, personal finance app downloads surged by approximately 90%. User-favorite apps like Mint, Prism, and EveryDollar perfectly catered to people's needs, sparking a surge in their popularity.
More Than Money Management
These apps aren't just for money management; they also provide opportunities to invest in stocks and cryptocurrency. Beyond remote financial management, users appreciate having their financial world right at their fingertips.
Safer Financial Apps
As the US embraces open banking, enhancing the safety of financial apps, the number of users is likely to increase. Even skeptics with security concerns may reconsider their stance. Square's Cash App is the most popular personal finance app, offering a rewards system that complements customer loyalty programs.
Banks were already moving towards cloud technology before the pandemic, but COVID-19 significantly accelerated this trend. With growing concerns about physical contact, the demand for digital services surged, compelling banks to scale up swiftly, and cloud technology offered a solution.
Cloud Services Growth
Global cloud service spending is projected to exceed $1.3 trillion by 2025, according to IDC, and banks and credit unions are poised to be a significant part of this growth. Major players like JPMorgan Chase and Arvest Bank have already begun transitioning core systems to cloud-native platforms.
The Future of Banking
Jim Marous from The Financial Brand believes that "cloud banking" is the future, emphasizing the development of cloud solutions tailored for the financial industry, such as IBM and Microsoft Cloud for Financial Services.
AI's Vital Role
Artificial intelligence (AI) is a driving force behind the adoption of cloud services. AI offers chatbots, transaction analysis, suspicious activity monitoring, and other functions that are as effective, if not more so, than human counterparts. The cost of investing in AI might deter banks, but when bundled with cloud services, it becomes an attractive proposition.
The financial world is currently undergoing a seismic transformation. This shift is steering us away from conventional financial practices, as the digitization of finance becomes the new norm. These trends epitomize the dynamic nature of the financial sector, underscoring the paramount importance of adaptability and innovation. As we traverse this changing landscape, staying well-informed and making strategic financial decisions will be essential for individuals and institutions alike.