2024 banking trends

February 2024 will mark the beginning of the Year of the Dragon. In Chinese culture, the dragon is a symbol of power, nobility, and good fortune. Will the banking industry face development worthy of this powerful being?

The year 2023 has been technologically exceptional for banking. During the past 12 months, the BFSI industry has undergone major changes. March 2023 saw the launch of ISO 20022-compliant payment messaging, and throughout the year there was a revival in technological solutions supported by artificial intelligence-based algorithms.

The industry had been preparing for the introduction of ISO for several, if not more than a dozen years. The latter, although developed over the years, entered the market by leaps and bounds and immediately captured the attention of professionals in many areas due to the unprecedented opportunities it offers – including in the financial industry. Read about key trends we think it’s worth paying attention to in 2024.

Development of cross-border payments

More and more companies are buying goods and services from overseas markets, but cross-border payments have not kept up with market developments. Transfers are too slow and costly, and the whole process lacks transparency. Moreover, no non-bank player has more than 1% of the market, despite the fact that the largest players have significant flows and global reach.

The discussion on how to improve B2B cross-border banking is bound to become even more intense in 2024. Two key technologies are emerging on the financial scene, and their progress is worth watching in the coming months. These are CBDCs (central bank digital currencies) and stablecoins (a type of cryptocurrency tied to fiat currency). The fundamental question then is not which system is better, but which will scale better in different geographies and sectors. As Forbes notes, cross-border payments are an area that is waking up to a new era of development thanks to unprecedented data transparency.

ESG ushers in “green banking”

Banks, as institutions of public trust, have been leaders in promoting the idea of environmental protection for years. After all, how better to prove that one is a public trust institution if not through practical actions, such as supporting the local community? However, with changing regulations, such as the CSRD, adopted in late 2023, sustainability issues will have an unprecedented impact on banking.

The Brytfmonline portal notes that in the coming decade banking needs to be “target conscious” – including environmental targets. Therefore, tools and platforms can be expected to emerge on the market to help investors make informed ESG investment decisions. Using data in combination with the possibilities offered by AI, financial institutions will be able to identify promising sustainability ventures. Both banks and fintechs will invest in sustainable technologies and develop financial products and services that support the transition to a low-carbon economy.

New banking models as means to build customer experience

In the coming quarters, traditional banks will increasingly use advanced data analytics to better understand customer preferences. In this context, experts even talk about hyper-personalization – its goal will be to offer services that are highly personalized and tailored to individual customers’ needs. However, the move toward hyper-personalization and offering tailored services to customers will entail changes in the operating model of the entire bank.

Open banking, a collaborative model in which third-party providers use access to financial data through APIs to develop innovative products and services, has been on an upward trend for several years. In 2023, the industry has started talking about two other operating models that are revolutionizing even more strongly what we call “traditional banking.” These are the Banking-as-a-Service model and Embedded Banking. In short, it is about how banking IT processes will be implemented, especially the development of new digital banking products and solutions in response to customer demand. The industry is currently debating which of these models is better (and more financially advantageous!). Our suggestion is a skillful combination of these two options, which you will read more about in the article: “Baas vs. Embedded Banking: who should control banking IT?”.

Banks and credit unions will also continue to strive to expand their digital financial services. There will also be an increasing number of digital-only banks. These institutions will provide digital services, from account opening to lending, completely online. In 2024, we can also expect financial institutions to offer a wider range of financial services to their customers, including investments, insurance, and wealth management. The digital payment methods and integration of financial services with others, even within retail or consumer apps, will also gain importance. In the coming months, we can expect that consumers will be able to find a new primary bank. So, banks must increasingly push for even deeper and smoother integration of financial services with nonfinancial platforms. Who knows, maybe you will soon pay for an Uber via a bank app and manage your investments via your favorite social platform?

Artificial intelligence is no substitute for empathy in banking

In recent months, AI has become the number one topic and has moved from the category of science fiction to that of solutions “to be implemented as soon as possible.” Banks are counting on artificial intelligence to play a bigger role in corporate banking. This is because it offers a significant competitive advantage to those who can use it effectively to improve customer service, risk management, and fraud detection.

In 2024, artificial intelligence algorithms will certainly be used to automate and support the bank’s back-office processes, such as credit scoring, fraud detection, and risk assessment. If this happens, we can expect faster and more accurate decisions from the bank. With data at their disposal, banks and credit unions can use algorithms for advanced analytics that will allow them to provide tailored financial advice to customers, including investment recommendations and budgeting support (even 24/7!). This will reduce costs and improve efficiency, freeing human resources to focus on value-added activities such as customer service and strategic planning.

However, in the context of the aforementioned hyperpersonalization, it is worth noting that while algorithms provide analytical results faster, more efficiently, with less error, they are also… more ruthless. Ignoring a customer’s emotions can affect the customer experience, so it will be extremely important for algorithms to act as an advisor rather than the main decision maker. In 2024, empathy will also be on the rise!

2024 banking under the sign of technology synergy

The economic outlook remains uncertain and traditional financial institutions such as banks and credit unions must develop strategies that allow them to remain competitive. The key elements are process automation and building trust among account holders. All this should go hand in hand with cost control, including costs related to information technology.

Expectations toward banks are growing. Customer data should be safe and service should be a priority. This approach will have a positive impact on building a lasting brand reputation and drive revenue growth.

The year 2024 will certainly bring further steps in the evolution of technologies that debuted in 2023. The combination of various disruptive innovations will usher in a new era of immersive customer experience, which will be the spiritus movens of the banking and fintech industry in 2024.