These Tech Trends Will Reshape the Global Banking Industry in 2024
Digital transformation and the acceleration of artificial intelligence continue to disrupt all industries, and these forces have heavily impacted the banking sector in recent years. These trends have buoyed fintechs but present a complex puzzle for traditional banks. The fintech ecosystem provides transformational new partnerships and presents stark new competitive dynamics. At the same time, banks are tasked with constantly evolving their cybersecurity posture and responding to new regulations, including regulations around sustainable finance.
Somehow – amid all of these technology and market shifts – banks also need to maintain a laser focus on their end customers. The banks strategically leveraging the following technology trends will be best prepared to strengthen their resilience, emphasize agility, and win market share in 2024.
1. A turning point for AI
The global market for artificial intelligence services in BFSI stood at $22.5 billion in 2022. It is projected to reach $368.6 billion by 2032. AI-powered tools like chatbots have already been driving contact center transformation; the emerging capabilities of GenAI will supercharge that effort this coming year by reducing customer support costs and simultaneously improving customer engagements in ways that banks never thought possible. More broadly, various forms of AI will transform how banks think about data. This is a year for banking leaders – even those who have previously prioritized human decision-making over tech-first solutions – to think deeply about how AI will inevitably change how banks forecast market trends, improve their lending and investment decisions, and interpret valuable customer data to deliver personalized services. The AI paradigm shift can boost bank revenue and lower costs through automation and process efficiency. Many traditional banks must continue evolving clear AI strategies to overcome challenges like weak core technology and suboptimal data ecosystems. And they will need to be vigilant about AI accountability frameworks and regulations.
2. From demographic to psychographic hyper-personalization
Growing digitization and the emergence of fintechs and challenger banks have significantly enhanced customer expectations. Customers are no longer satisfied with offerings targeted at broad demographic categories. They now expect a bank to have a nuanced understanding of their unique needs, preferences, and behaviors. Banks need to respond, but they need to respond efficiently. Recent developments in AI and ML will help banks simultaneously automate and hyper-personalize their messaging, offerings, and services to enhance brand equity and differentiate themselves in the market. Currently, only a limited number of banks can offer meaningful, personalized advice and recommendations due to various challenges (lack of efficient enterprise data management, for example, and an inherent lack of AI/ML expertise). Because banking personalization can drive revenue while reducing customer acquisition costs and marketing spending, a wider range of banks should consider significant investments in technology-driven hyper-personalization in 2024.
3. A neo-banking acceleration
Neo-banking is transforming the financial industry, offering customers convenient, cost-effective, and innovative banking solutions. As they expand their services and geographic reach, neo-banks are positioned to be critical players in shaping the future of financial services, enhancing accessibility and personalization for individuals and businesses. In 2024, we can expect the emergence of more digital-only banks focused on providing seamless digital experiences to customers across onboarding and lending.
Amid the emergence of neo-banks, traditional banks can retain market share by leaning on their legacy of trust and offering competitive, digital-only services. To compete with neo-banks, traditional banks should accelerate their digital transformation, consider moving to coreless banking, and provide innovative products and services by partnering with niche fintechs.
4. A banner year for open banking
The industry has been discussing open banking for years, but this broad and deep transformation continues to evolve. Already, the conversation has moved from the more straightforward concept of open banking to the more complicated models of ecosystem banking and open finance. This coming year will be an inflection point as open banking matures across geographies and customer segments. Regulatory changes will drive some of this. The JROC continues to refine the next phase of British open banking, while the EU’s Financial Data Access Regulation (FiDA) is maturing the open banking ecosystem on the continent. The market-led open finance transformation in the US will swerve dramatically toward competition if the proposed Personal Financial Data Rights rule comes into effect. Meanwhile, fast-paced adoption will continue in the APAC region (Singapore, Australia, Hong Kong, China, India, etc.).
Regardless of the exact regulatory environment, API performance continues to improve, and new approaches to digital identity continue to gain traction. Meanwhile, the fusion of AI and open finance will open up new use cases, such as hyper-personalization, where AI algorithms can analyze account transactions to issue personalized offers based on customer spending patterns. This data-rich landscape will also better serve consumers with poor or no credit history, who often get rejected by banks’ traditional underwriting models. In such instances, AI models could analyze open banking transactions to assess a consumer’s creditworthiness.
5. Security everywhere (especially in real-time payments)
According to an AAG report, cybercrime costs the global economy around $7 trillion in 2022, which is expected to rise to $10.5 trillion by 2025. Given the speed and frequency of digital transactions, security is a perennial top priority for banks. Payments, in particular, are accelerating. In the US, the highly anticipated FedNow real-time payments rail launched last year, and real-time payments continue to gain traction worldwide. Fortunately, AI can play a role in smoothing over the transition to real-time payments, particularly by automating and accelerating fraud prevention efforts. Advanced authentication methods like biometrics (face recognition, fingerprint scanning, behavioral analytics), anti-hacking software, and other new fraud detection mechanisms will increase customer trust and bank credibility. Customers will increasingly pay close attention to their bank’s security posture, and advanced security features will become monetizable differentiators. Cybersecurity is indeed an enabler for banking businesses, with implications that will increasingly extend far beyond simple compliance.
Banks must recognize and adapt to the latest technological advancements as they seek to attract and retain customers in a fast-changing market. Identifying novel emerging technologies that integrate with a larger business strategy is pivotal in gaining a competitive advantage. The strongest banks will build experiences that are highly automated and data-driven yet feel deeply personalized, leveraging a broad partner network defined by unshakeable security and trust.
