Year: 2023

What does it mean to be a chief information officer? More than ever, businesses are leaning on their CIOs to deliver digital transformation on a large scale — and that means understanding a vast and ever-changing landscape of technologies.

That’s the word from Foundry’s 22nd CIO survey, in which a majority of 837 responding executives, 77%, say their roles have been elevated due to the state of the economy, making them one of the most visible proponents of change within their organizations. The top three activities CIOs plan to focus on in next three years are driving business innovation; redesigning business processes; and modernizing infrastructure and applications.

Most CIOs (85%) believe their role is becoming more digital and innovation focused. Another 70% anticipate their involvement in cybersecurity to increase over the next year, and just over half (55%) also anticipate their involvement in data analysis, data privacy/compliance, and AI/machine learning to increase.

The CIO’s role now demands greater immersion, inspiration, and insight — into both technology and the business. “The CIO role is very quickly becoming much more technical hands-on, as well as being the delivery engine of transformation for the business,” says Fletcher Previn, CIO of Cisco, in an interview at the company’s New York offices. “A lot of companies require a less of a CIO generalist and more of an IT practitioner with deep subject matter expertise on how technology can deliver what the business is trying to do.”

That means leading with technical expertise, as well as leading with business expertise. Sixty-eight percent of IT leaders say they currently have revenue-generating responsibilities, up from 65% a year ago. While last year when cybersecurity was the top-cited business and technology priority, this year “it was all about transformation in pursuit of higher efficiencies,” the Foundry survey authors state. Increasing operational efficiency was the top business initiative, cited by 45%. Transforming existing business processes through tactics such as automation and integration was the third-ranked objective, cited by 38% of respondents.

Security and risk management technologies are still expected to drive the most IT investment in 2023, cited by 38% of IT leaders. IT leaders also cited data and business analytics (34%), application and legacy systems modernization (28%), and machine learning or artificial intelligence (26%) as other target areas for investment.

Previn foresees CIOs assuming greater roles in supporting hybrid workplaces, along with design roles to enhance workplace technology as well as corporate enterprise systems. “It’s a very servant kind of role,” he relates. “We serve those who serve others. I’m here to enable everyone to do the best work of their lives. Every minute people spend struggling with something is a distraction from the thing they were hired to do. Our job is to get after those experiences, remove friction from the environment, and enable people to do their best work.”

Design thinking within enterprise technology areas “was a really novel concept for people, thinking about it from the lens of the experience first, and the solution second,” says Previn. “Before, we just accepted the fact that things were difficult to work with — a clunky bad experience. Now people come to work and think, ‘you know who I am, you know what my job is, and people spend billions of dollars on this.’ They should be better than this on experience, it should be the best experience of my life. That’s easy to say and hard to do, but that’s directionally where the CIO job is headed. Surrounding people with the things that they need without them being aware of it, and enabling hybrid work, which is going to be a very significant set of IT challenges which need to be solved right – with security, remote access, ways of working, and culture.”

With the economy in turmoil and mass layoffs in the sector beginning to happen, I think Money 20/20 said it best when framing its predictions for the new year: “Who in the *F* Knows?”

Based on the unpredictable ups and downs of the last few years, I tend to agree with Money 20/20’s statement. Nevertheless, there are some 2023 predictions worth paying attention to.

Big Tech and fintech layoffs could be good for banks and credit unions

A pool of very talented tech workers has recently been laid off. Many of them came from Big Tech, but plenty also came from fintech startups. Stripe laid off 1,120 people (14% of its workforce) in November 2022; Robinhood has had two layoffs, pink-slipping roughly 1,000 employees. Meanwhile, nearly every crypto firm has shrunk like the price of Bitcoin.

These moves have supplied the labor market with lots of talented workers who have specialized knowledge in areas like wealth management, alternative assets, blockchain and so on—and who understand not only the technology but also niche industries and highly regulated spaces. At the same time, banks—notably smaller community banks and credit unions—can benefit from talent with this experience as they work to digitally transform so they can keep up with fintechs and challenger banks.

The larger pool of non-fintech workers recently let go in other sectors could also be a gold mine for financial institutions. Wells Fargo’s CIO and head of enterprise functions technology, Jason Strle, understands the value of the technical knowledge available in the labor market and noted that the bank is looking for expertise in programming languages, development frameworks and data analytics—but banking experience is not a prerequisite.

“Non-traditional technology verticals like banking offer similar but unique opportunities to work with the foremost innovators to redefine future customer experiences,” Strle said. “The benefit is that a longstanding institution like Wells Fargo comes with an added layer of stability, consistency and scale.”

Savvy leaders at financial institutions—from your local credit union on up to giants like Wells Fargo—understand that recent layoffs have made for ripe pickings in the market for technical talent, and they are definitely taking advantage of the opportunity to hire great people.

Consumers will be presented with more ways to save and invest than ever

This prediction comes from Dani Fava, group head of product innovation at Envestnet. Fava is charged with identifying and prioritizing opportunities for financial advisors to provide transformative advice in a rapidly evolving market. She calls this “impulse investing” or “impulse saving.” She explained it like this: “Whether through a consumer banking app, mobile wallet, gig work or credit card, consumers will experience an onslaught of ways to save and invest without much planning, mirroring impulse [shopping] behavior.”

As in so many of our interactions with products and services we already use, there is an opportunity when brands have consumers’ attention and can offer them something of true value. Brands can look at this transaction as not merely a purchase but something that could generate savings and wealth for future purchases, investments or other financial services. For example, the Cash App Card and Acorn App both do this with “round-ups.” Small remnants from purchases and transactions can be designated for micro-investments, which can really add up over time.

“This marks a tipping point in the market,” Fava says. “We’re on the cusp of experiencing truly democratized infrastructure for wealth accumulation.”

Leap Global Partners, a VC firm focused on talented LatinX founders and startups, agrees. Its recently issued 2023 Leap Outlook report, “Top 10 Investment Themes Worth LEAPing Into” included a section on “contextual financial services.” The thesis is that “trusted brands will offer timely, relevant and often customized financial services directly to their customers.” Importantly, these services may not come from traditional financial institutions like banks and brokerages, but from fintechs and other companies that position themselves to offer exactly the right service or product at just the right time to consumers and even merchants.

Open banking will become a reality

I tuned in to watch Plaid’s 2023 Fintech Predictions webinar, which was thoughtful and entertaining. CEO Zach Perret and a panel of executives riffed about various topics, giving different perspectives on technology, consumer behavior, financial inclusion, regulation and compliance. One stand-out prediction from the webinar matches one that Patrick Moorhead, CEO and chief analyst of Moor Insights & Strategy, and I have talked about on our podcast for more than a year: open banking.

Open banking is a practice that grants third-party financial service providers access to customer banking, transaction and other financial data from banks and other financial institutions. Achieved by using APIs, open banking facilitates the networking of accounts and data across institutions for customers, financial institutions and third-party service providers. Banks control consumers’ financial data and, unlike in the U.K. and the rest of Europe, there are currently no regulatory guidelines in the U.S. for open banking. However, there is consumer demand for control of personal data, and for regulatory moves to enforce open banking standards. While open banking currently exists in the US without a formalized regulation framework, I believe that open banking will take hold in the U.S. in 2023, provided that all parties—fintechs, banks and regulators—can come to an agreement on how it should be governed. When that happens, there will be a marked difference in the open banking experience. Plaid’s head of policy, John Pitt, likened it to “going from a dirt road to a superhighway.”

2023 will be the beginning of the age of centaurs

Huh? What’s a centaur? This prediction comes from Money 20/20 managing editor Sanjib Kalita. He explains it like this: “Unicorns will become history as we’ll see the creation of centaurs …a combination of man and beast … or of Fintech and ? The expected ones are banks, but we could see retailers, telecoms and tech companies get into the action as well. The driver behind this trend will be the funding environment coupled with greater ability of acquirers to see or anticipate value creation.”

Thanks to the power of APIs, value can be created at the place of engagement, meeting the consumer with customized products precisely at their time of need, regardless of the channel. This can also be referred to as embedded finance or embedded fintech. All kinds of financial services—not only banking—are already embedded into software, a trend that is on the rise and will continue in 2023 at an even faster pace. As banks face a slowdown in loan volume, they will need offerings that cater to customers’ needs at the right time and place.

I think that soon this will extend to automobiles as well—your car will be your new electronic wallet. Think about it: For years now your car has been able to pay for tolls using either a bulky transponder or a simple RFID tag, so why can’t it store payment information to pay automatically for gas, drive-through ordering and pick-up, parking and so on? I wrote about this during the United States Grand Prix in Austin last year. This approach will provide automobile companies and OEMs (original equipment manufacturers) with a unique differentiating feature, and I think it’s inevitable.

Social Features Will Aid Younger Retail Investors

Benjamin Chemla, cofounder and CEO of investment-app, Shares, told Verdict, “Over the last year, we’ve seen many banking and investment apps look to social media for inspiration—many have made a conscious effort to add social-first features to their platforms to attract a younger audience. We’re confident that this trend is not only set to grow in 2023 but become an incredibly important component of any tech company within the financial space.”

Public, which offers thematic investments and social features, has done this as well. My twentysomething daughters enjoy the social features of connecting on investments with like-minded environmentalists and conservationists on the app. Reddit essentially does the same thing with StockTwits for all ages. Meme stock mania aside, retail investors now account for nearly 25% of total equities trading volume. While many of these people are sophisticated investors, they don’t have the same technology and trading power that’s enjoyed by institutional investors. Sharing information can help retail investors execute more sophisticated strategies and gain access to information beyond their personal research. Power to the people!

CB Insights says: Challenger banks are back

Noting that five of the top fintech funding rounds in the last quarter of 2022 went to challenger banks—or fintechs with banking offerings—CB Insights says this trend is “signaling that this category might be making a comeback after seeing sharp drops in funding in 2022.”

While it didn’t crack the top five, Neo Financial, a Canadian challenger bank, raised a hefty $146 million (CAN $185 million) Series C round in May 2022, bringing its total funding to $234.7 million (CAN $299 million) since its inception. The digital bank has also surpassed one million customers and then some.

Andrew Chau, CEO and cofounder of Neo Financial, agreed with CB Insight’s assessment and gave it some context. “Rising rates and increasing inflation have impacted the economy. However, challenger banks with banking offerings, particularly those with a diverse set of products, have been able to weather that storm,” he said. “They did this either by having variable-rate lending products or, for those with bank charters, by benefiting from rising interest rates in the form of higher deposit float revenues.”

Chau also told me that 2023 will be a year of focus for his own company and other challenger banks—focusing on core products, improving margins by increasing revenues and reducing costs per customer. The challengers that have established distribution channels or efficient growth loops will continue to be able to grow at the same time. Chau’s outlook is that coming out of 2023 and into 2024, challenger banks will be stronger than ever, with improved economics, and will be ready to deploy their next investments into new products and features for growth.

Money movement will become a customizable, personalized experience

Consumers using online services are accustomed to instant, simple transactions, and they want their money-handling tools—whether for business or personal finances—to mirror the convenience of the other apps they use in their daily lives.

One example of this comes from Alacriti’s Orbipay Unified Money Movement Services, a cloud-based platform that enables banks and credit unions to deliver money movement “experiences” quickly and seamlessly. This encompasses modern, intuitive digital payments, including bill pay, disbursements, transfers and more for both consumers and businesses.

In a conversation I had with Mark G. Majeske, senior vice president of faster payments at Alacriti, he explained, “No one cares about the payment rail [a payment platform or network that digitally moves money from payor to payee]; they care about efficiency and the experience.” He then offered the analogy of making a money transfer the same way you would send a package. When you take a package to a shipping location or print a shipping label online, you’re given choices about how and when you’d like the package to arrive—with corresponding costs. This empowers you to make whatever tradeoff makes sense for you in terms of speed and expense.

Some choices simply aren’t available for sending money in a bank branch—for instance, on a weekend or a holiday—just like you can’t ship a package from New York to Australia in four hours. What people do care about is the experience of handling the transaction. So, whether it’s a holiday or an ordinary Tuesday, the customer can be presented with options for securely transferring money at different speeds for corresponding prices; the power is in their hands, and the experience is tailored to their needs. I think that this way of addressing the payment experience will be transformational for the industry.

This will be especially valuable for the B2B payment space, which is still bogged down by inefficiencies. In a world where the entire money ecosystem is being digitally transformed, the B2B payments market is drastically behind. Sure, B2B payments are more complicated because they need to be tied into more processes, such as invoicing and approvals. Nevertheless, many inefficiencies and pain points remain.

All in all, we should expect a big change in the payments space. “We have a set of tools … that are competent in doing any transaction,” Majeske said. “What we have to do as an industry is identify the needs and then look for the tools to solve for this business gap.”

BNPL will finally give credit where credit is due

Sometime soon, BNPL will face a reckoning around its biggest issue: credit reporting. There are two main drivers for this. The first is consumer protection—making sure that consumers aren’t overextending themselves. The second is financial wellness—helping credit-invisible, credit-thin or sub-prime consumers to build their credit. BNPL was built to serve those customers, and the goal should be to help people beyond the convenience of splitting up their payments.

The credit bureaus and BNPL companies have yet to figure out how to report these transactions in a way that gives credit where it is due. Different trade lines and timelines of transactions—for example if someone opens too many new lines of credit in a short time span—can temporarily lower a credit score, even if everything is paid on time. Meanwhile, unreported payments don’t help a consumer’s credit score at all. Most BNPL companies report only delinquent payments, which leaves consumers with no credit-building upside. The big four bureaus and the BNPL players are discussing this, and I’m hopeful that a consumer-friendly solution will arise this year.

RegTech will have its debutant moment

This year we will see more compliance-driven technologies that will help financial services businesses optimize their risk management procedures by providing automated and accurate risk analysis. These technologies, which span data management, cloud computing and machine learning, aim to ensure that companies remain compliant with relevant regulations—without impeding the speed or scale of their operations. Such advanced technologies should make compliance in financial services both more robust and secure.

I asked my Moor Insights & Strategy colleague Will Townsend, a security expert, what he thought of this prediction. This is what he said: “The financial services industry is highly regulated, driving the need for hardened security. Cloudification presents an opportunity to scale new services and back-office capabilities for fintech players, but it also expands the threat surface for bad actors. Regtech is poised to help in closing security gaps and ensuring compliance.”

Tokenization will make private equity funds available to the masses

Private equity is one of the most opaque and difficult markets in which to participate, yet it has outperformed the S&P 500 by more than 70%, and with less volatility, since 2001. Naturally, in this age of the democratization of finance, you’d think that funds would find a way to provide access to this asset class for retail investors.

According to Jamie Finn, cofounder and president of Securitize, this is happening. “Access to some of the most important private equity funds is now happening at scale thanks to tokenization. Firms like KKR, Hamilton Lane and many others are quickly adopting this new format to reach the masses. “Using blockchain technology for automation and increased efficiency creates the opportunity for lower investment minimums—which means more inclusive access—and greater potential for liquidity via secondary exchanges like Securitize Markets.

While the phrase “democratization of…” may be getting old, “inclusive access to…” isn’t.

Wrapping up

While fintech has been somewhat unpredictable over the last few years, watching the trends across the industry provides valuable insights into the current state of the economy, consumer behavior and preferences—revealing emerging opportunities. Years of innovation were consolidated into a very narrow timeframe during the pandemic. Fintechs and financial institutions now have the luxury of breathing room to iterate and innovate to offer efficient and cost-effective methods for managing finances, making payments and more, ultimately capitalizing on the trends that are changing how money is handled. I look forward to writing a 2023 year-end review where we’ll see where everything nets out.

I am told I have a knack for identifying companies making waves in specific technology areas. One such company is Kyndryl, marking its second anniversary of separation from IBM. I believe it could be a compelling turnaround story about the growth that was not possible when it was a part of IBM. And quite frankly, who doesn’t like a turnaround story?

Recently I was fortunate to speak with Martin Schroeter, Kyndryl’s Chairman and CEO, about his scorecard a little over a year after the spinoff from IBM.

Dealt a challenging hand out of the gate

When officially separated from IBM on November 4, 2021, Kyndryl started life with $2B in cash on its books, 4,000+ enterprise customers in 60+ countries, and annual revenues of nearly $19B. Hardly a small startup!

That may sound fine, but under the covers, the business was experiencing declining revenues due to a lack of investment and a limiting charter of supporting the product-oriented business. Although the organization was critical to how IBM engaged with its customer base, it did not attract the investment it perhaps deserved and became a drag on IBM’s overall business. No one I discuss this with at IBM or Kyndryl disputes this with me.

What to do with the autonomy

Now a separate company, Kyndryl has taken the opportunity to invest in the offerings and practices that customers want from the company. The Kyndryl story is about growth and creating value for customers.

The company now has the autonomy to pursue opportunities, build capabilities, and join the ecosystems that matter to customers. Investing and the independence to act have set Kyndryl on the path to turning the business around.

Business offerings informed by customers

As a first step, Martin created a new business strategy shaped by the customer base. A Venn diagram of the following three questions; “What does the company do today that has real value?”, “Where are you investing for the future? “and “where do you give us brand permission to operate?” defined the company offerings – in fact, six new practices.

In the category of what “can we do for you today that has real value,” Kyndryl offers a Core Enterprise and zCloud practice. A firm offering, as today, Kyndryl manages about half of the mainframes in the world. The second practice in this category is the digital workplace, an open platform to foster employee collaboration and productivity.

Even in the core business, Kyndryl had struck some deals that would have been difficult to imagine when the company was part of IBM. The new Mainframe Data Pipe to Azure lets customers connect mainframe and midrange data with the Azure cloud. Similarly, Kyndryl supports Google Cloud’s Dual Run, which enables parallel processing to create digital copies of mainframe systems that run simultaneously on Google Cloud without negatively impacting core business processes or end-user experience.

In the “investing for the future” category, Kyndryl invests in four new practices. The first is Network and Edge, providing the expertise and technologies for the next wave of cloud with 5G-enabled edge and software-defined networking technologies such as SDN and SD-WAN. This practice is very different from previous networking practices under IBM, which were about reselling network gear.

The Kyndryl Cloud practice is also much broader in scope. In IBM, the business had to lead with the IBM Cloud precluding any engagement with Google, Microsoft, or AWS. The new cloud practice focuses on the large hyperscalers in the cloud space. Kyndryl has wasted no time forming cloud-focused partnerships with Microsoft, AWS, Google Cloud, and Oracle.

The Data Management and AI services and Security and Resilience practices round out the four new practices that form the set of capabilities that customers value.

Joining the ecosystem that customers value

Customers have said, “to be part of the future, not just part of my past, you need to build capabilities that I need, and you need to work with the partners with whom I work.”

Kyndryl has wasted no time by moving into and joining the ecosystem that the customer base uses to meet digital transformation needs. Kyndryl has formed agreements with 20+ partners, including the cloud-focused partnerships mentioned above, enterprise-oriented alliances with Red Hat, Cloudera, NetApp, and Nokia, and expanded partnerships with Dell and SAP.

New solutions for emerging business needs

Kyndryl has launched three new, homegrown solutions and services attuned to modern and emerging business needs. Kyndryl Bridge is an open integration platform that helps customers deal with the complexity of mission-critical systems with greater oversight, interoperability, and AI-powered analytics. You can think of Kyndryl Bridge as IPaaS or an integration platform as a service designed to streamline IT operations.

The company sees strong interest in the platform. In fact, Stellantis, a global automotive manufacturer, has just signed an agreement to use Kyndryl Bridge. The platform will support IT infrastructure management and real-time insights across Stellantis’ technology environment. The project is designed to give them smoother and more efficient IT operations across manufacturing facilities spanning the U.S., Latin America, Italy, France, Poland, and India.

Kyndryl Vital is a collaborative co-creation effort that helps customers better understand and fully envision the future states of the business and understand the challenges to get there. Vital spans problem definition to a deliverable solution to solve complex real-world business problems. Kyndryl Consult works with Kyndryl Bridge, Kyndryl Vital, and other solutions to help customers advance digital transformation initiatives.

Wrapping up

Kyndryl has been making solid moves in forming new alliances and investing in new offerings. The proof is in recent customer engagements. According to the company, there have been new contracts with global enterprise customers, including Michelin, CaixaBank, BMW, Raytheon, Bangalore International Airport, CarreFour Belgium, Spain Ministry of Defense, Ricoh, Honda, Yamaha, and Singapore Airlines.

Now that Kyndryl is an independent company, there are exciting opportunities for future growth, such as the need for digital transformation services and managing and modernizing mission-critical information systems.

I look forward to following the next chapter of Kyndryl’s turnaround and hearing from customers who have benefited from Kyndryl’s expertise.