How to optimize your credit card and wealth management businesses

So far, we've revealed six trends that will help your financial institution sail ahead of the competition this year. (If you missed them, you can check them out here, here, and here.)

Why not add two more?

A slowing economy and an anticipated increase in credit card defaults will lead underwriters to make more use of alternative data to better evaluate borrowers this year. In the first half of 2021, consumers were not spending as much due to lockdowns, and they were flush with cash. So, default rates, which usually hover around 4%, plummeted to 1.8%. And happy banks focused on growth for their unsecured lending products.

This year, credit card default rates will likely head back toward a more normalized 2–3%. Along with that normalization, banks will make fewer promotional offers, such as big bonus points, longer introductory periods, and temporary zero-interest periods, to encourage new customers to sign up for their credit card products. Instead, bank executives will focus on lowering the average cost of acquisition by up to 20%, which means getting the right credit card product to the right person at the right time. To do that, they'll need to analyze a full range of metrics – some traditional ones based on their own internal data, such as credit card transactions, and some new ones from alternative data sources, such as a customer's social media commentary or product reviews. And they'll need to make use of advanced digital technologies, such as artificial intelligence.

A tumultuous stock market and soaring inflation will drive more people to seek financial advice to protect capital. Historically, that would have meant more opportunities for financial advisors. But in the past few years, a rise in passive investing and fee compression has led to the growth of robo-advisors, such as Citi's Wealth Builder and JP Morgan's Automated Investing, which automatically create, monitor, and rebalance a diversified portfolio based on an investor's goals and risk appetite. Robo-advisors have met with mixed reviews, however. A recent report from wealth-management analytics firm ParameterInsights found that US investors' use of robo-advisory services dropped by nearly one-quarter to 20.9% in 2022 from 27.7% in 2021.

This year, we expect to see the emergence of hybrid models by which a combination of human and robo advice manages clients' investment portfolios. This will both balance costs and, after a rocky 2022 investment year, enable financial advisors to use human judgment to help get investors back on track.

Stay tuned for our final two predictions in this series.