The banking industry is quickly becoming a hub for digital innovation.
With a wave of new technological developments, regulatory changes, and shifting consumer sentiments over the course of 2023, the banking industry is poised for a challenging year in 2024.
Despite the hurdles that undoubtedly lie ahead, the potential rewards are just as impressive for financial organizations that take the initiative to embrace innovation and make well-informed decisions.
As we head into the final quarter of 2023, it is time once again to examine the top banking industry trends to watch out for in 2024. From the rise of new technologies like generative AI and stablecoins, to increasing regulatory pressures and climate risks, 2024 is shaping up to be a truly transformative year for the banking and financial services sector.
2023 Recap: The Top Banking Industry Trends that Shaped the Last Year
The year 2023 certainly has been an eventful one for the finance and banking industry.
Around this time last year, our team at Exadel had a look at the emerging trends from 2020 to 2022 to identify the most probable trends to make waves in 2023. Let’s look back on our predictions for the top eight banking industry trends in 2023 and how these predictions shaped up over the last year:
8 Digital Banking Industry Trends to Watch for 2024
Now that we have had a look at our banking trend predictions from 2023, let’s dive into the nitty-gritty details that banks and financial organizations need to know for 2024.
Here are the top eight banking industry trends to watch in 2024:
Trend 1: Generative AI Takes Center Stage
In last year’s banking trends prediction report, the Exadel team identified three main use cases for artificial intelligence (AI) and machine learning (ML) in banking:
- Automated customer identification and authorization
- Creation of responsive and conversational interfaces for front-office banking
- Powerful analytical and predictive capabilities for enhancing fraud and risk management
While these use cases still remain some of the most popular for AI in banking, there has been one particularly notable development that stands to reimagine the technology — generative AI.
Generative AI is a subset of AI focused specifically on natural language processing and content generation. This type of AI holds much promising potential for the banking industry, particularly in terms of the front-end use cases for improving overall customer service and experiences.
According to David Wadhwani, Chief Business Officer of Digital Media at Adobe:
At the moment, generative AI is still in its early days, with one of the most popular gen AI applications being ChatGPT. Although the technology is currently best employed for basic content creation and research, it’s poised to become one of the most important technologies for enabling a more efficient, secure, and productive banking industry. It is definitely one of the banking industry trends for 2024. A 2023 McKinsey report reveals that 75% of the value that generative AI could deliver comes from four main facets of business — customer operations, marketing and sales, software engineering, and R&D. Additionally, McKinsey expects generative AI to have a “significant impact across all industry sectors,” and that it will bring in an extra $200 billion to $340 billion annually for the banking industry alone.
Trend 2: Blockchain & Cryptocurrency Encounter Regulatory Roadblocks
Last year, we discussed the growing popularity of blockchain and NFTs. Specifically, we predicted that these technologies may have two main impacts:
- The creation of coins as part of democratized wealth management
- The use of distributed ledgers as a new financial infrastructure for banks
While we were right to predict that blockchain would have a big year in 2023, no one could have predicted quite how chaotic that year would be. From the fall of FTX in late 2022 to the more recent SEC lawsuits against major crypto exchanges like Coinbase and Binance, it’s safe to say that the blockchain industry has faced some serious challenges.
The SEC lawsuits, in particular, marked a change in the currents, as regulators around the world began to hone in on blockchain and its related technologies. Though not all regulatory actions have been negative — such as the growing development of stablecoins, which we will discuss in Trend 3 — blockchain has experienced some especially rough seas since our last trend report.
Across the globe, many of the regulatory changes regarding blockchain deal specifically with cryptocurrency, while other blockchain-based projects and products remain in a legal gray area.
One of the biggest banking industry trends in blockchain and crypto regulation over the past year came from the EU in the form of the Markets in Crypto-Assets (MiCA) regulation.
This piece of legislation encompasses crypto assets not currently regulated and aims to support both market integrity and financial stability. Additionally, MiCA is designed to provide consumers with more information to make better-informed decisions regarding cryptocurrencies and their related risks.
Trend 3: Stablecoins Likely to be the First Mainstream Blockchain Product
Though cryptocurrencies and blockchain as a whole are certain to continue facing regulatory challenges, one particular blockchain product seems to be an exception — stablecoins. We’re now going to explain why it is one of the crucial banking industry trends for 2024.
Stablecoins are a type of cryptocurrency whose value is pegged to a fiat currency, such as the U.S. Dollar (USD) or the Euro. The creation of stablecoins came about as a means to help address the volatility seen with other major cryptocurrencies, like Bitcoin and Ethereum, which tend to fluctuate drastically in value.
In August 2023, the U.S. was positioned as a leader in the stablecoin space after PayPal (the highly popular money management platform) announced the launch of PayPal USD, or PYUSD for short. PYUSD is a stablecoin backed by the U.S. Dollar and can be bought, sold, held, and transferred via the PayPal app. According to PayPal, PYUSD is backed by reserves to maintain a stable $1 (USD) value.
The launch of PYUSD was the first official stablecoin launched by any U.S. financial firm, marking a historic moment for the technology.
In the EU, stablecoins have been issued for longer and by more firms — but regulators are likely to begin cracking down harder in the year to come. According to a Reuters report, the European Banking Authority began the process of fleshing out MiCA requirements for stablecoins, with the proposed regulations potentially coming into effect in June 2024.
For stablecoin issuers, the key to a successful year in 2024 is likely to depend on the early adoption of new regulatory standards, giving early adopters the chance to adapt before any looming 2024 deadlines.
Trend 4: Tech Spending Will Increase
Banking technology has only become more and more advanced as time has gone by. We are likely to see these advancements reflected in banking investment budgets for technology as a banking industry trend for 2024.
According to recent research reported on by The Financial Brand, 79% of financial institutions are planning to increase tech spending over the next two years. Of these institutions, the biggest spenders make up 35% of the total institutions and plan to increase investments by 6% to 10%.
Meanwhile, a recently published Gartner forecast predicts that global spending on banking and investment technology services will reach a total of more than $652 billion by the end of 2023. This marks a projected 8.1% increase from 2022, with software spending seeing the largest jump at 13.5%.
The other technology segments named as growing investments included:
- IT Services (9.3% growth in 2023)
- Data Center Systems (5.7% growth in 2023)
- Internal Services (4.2% growth in 2023)
- Telecom Services (2.4% growth in 2023)
Looking ahead to 2024, what we can glean from this information is a clear focus on optimizing internal systems and communication. With data capabilities growing only more sophisticated, and outsourcing partners becoming more secure, the growth of IT Service and Data Center Systems are likely to continue their climb well into next year.
As for software spending, this facet of technology is highly likely to remain a priority. Banks and financial service providers are working diligently to digitize in order to keep up with the rapid pace of technological change within the industry. To achieve this digitization, reliable software is a necessity.
Trend 5: Mobile Banking is on the Rise
Ever since its invention back in the 1990s, the smartphone has slowly but steadily revolutionized banking. It’s also one of the most important banking industry trends for 2024.
Today, mobile banking apps have become all the rage, especially among the Millenial and Gen Z generations making up the younger and increasingly abundant group of modern banking consumers. Over the past decade, the use of mobile banking as a primary method for accessing bank account information has grown tremendously. According to data from Bankrate, just 9.5% of Americans used mobile banking as a primary banking method in 2015 compared to 43.5% by 2021.
The use of mobile devices for banking has only become more popular as consumers have grown more accustomed to mobile banking, and as mobile banking development has matured to offer a broader range of services through the mobile channel.
Trend 6: Legacy Systems Become Obsolete
As digital banking has matured and become more sophisticated, we have nearly reached the end of an era for legacy banking systems.
Digital banking solutions are no longer about solving highly specific problems or adding extra support to existing legacy systems. Today, digital as a leading banking trend in 2024 has evolved to feature a modern digital core which is native to advanced technologies like the cloud and reliant on innovative tools like AI and ML.
According to Deloitte’s report on Modernizing Legacy Banking Systems:
“Core system and app modernization can allow a bank to offer the innovative digital features and capabilities that customers now expect. It also enables delivery models that are much more compatible with today’s technology and talent environment— models that are streamlined, standardized, and scalable in response to changing market needs.”
The reality of the situation is that legacy systems have become almost obsolete. Even with several institutions and businesses still relying on the technology, it is evident that the need to adapt to a truly digital core is no longer a convenience nor an added value, but a vital necessity. It remains a banking industry trend for 2024 and the following years.
The benefits of adopting a modernized core include:
- Greater overall digital competitiveness, with an improved ability to support digital features and capabilities that ensure efficiency in today’s markets
- Improved customer service, particularly in terms of overall customer satisfaction and product innovation, as well as greater overall scalability and flexibility
- Reduced costs on delivery of technology and software, as well as optimized outsourcing to ensure total cost efficiency across an entire platform
Trend 7: Climate Concerns Grow Among Banking Professionals
The days of speculating about the impact of climate change on global markets are gone. It’s become clear that the climate crisis has real-time consequences that must be addressed now. This is the emerging banking industry trend for 2024.
In July 2023, the Financial Stability Oversight Council published a Climate-Related Financial Risk report. Within this report, three key categories of risk are highlighted regarding banking climate risk:
Trend 8: Open Banking Goes Global
Across the globe, open banking as a banking industry trend for 2024 is in various stages of development. While some regions have taken great strides to embrace open banking, others are still lagging behind due to regulatory challenges.
In Europe, for instance, the UK has adopted the Open Banking Standard, while the European Union (EU) is currently regulating open banking under the PSD2 regulation (soon to become PSD3).
These regulatory standards have paved the way for open banking adoptions in other regions — Deloitte reports that Hong Kong and Australia specifically have taken a more regulatory-driven approach to open banking similar to the approach seen in the UK and EU.
One key player that has yet to adopt comprehensive open banking legislation is the U.S. — but that may be set to change in the very near future.
The Consumer Financial Protection Bureau (CFPB) is currently working to publish a new personal data rights rule that will accelerate the adoption of open banking in the U.S. and break down barriers that have previously inhibited mass adoption. A formal proposal from the CFPB is expected in late 2023, with a finalized version planned for 2024.
According to the CFPB:
“Our proposal will recognize that the CFPB must resolve certain core issues because system participants are deadlocked or because existing approaches do not put consumers fully in the driver’s seat. But many of the details in open banking will be handled through standard-setting outside of the agency. Properly pursued, such standards can allow open banking to evolve as new technologies emerge, new products develop, and new data security challenges arise.”
Should the U.S. adopt a regulatory-driven approach to open banking — as opposed to a market-driven approach largely devoid of government initiatives and intervention — it could transform the global banking industry, allowing the U.S., EU, and other major regions to collaborate more freely.
This may be especially crucial to consider for financial service providers hoping to either expand abroad or engage with international outsourcing partners. Global open banking could ultimately create new opportunities for business among banks and financial service providers alike.
How Exadel Helps You to Keep Up with Banking Industry Trends for 2024
To confidently head into 2024, financial organizations need the support of expert technology partners with a deep understanding of current banking industry trends — like Exadel. Prepare your strategy with a clear understanding of the banking industry trends for 2024.
Exadel offers comprehensive technology services and consultations, including:
- Technology strategy development
- AI and data management
- Digital experience optimization
- Digital product development and platform management
- IT managed services
Plus, Exadel’s experts can help your organization achieve an end-to-end digital transformation, complete with all of the latest technologies and a digital core you can rely on long-term.
Contact the Exadel team today to learn more and get started.
