We’re well into the final month of 2023, and with the new year looming on the horizon, we at Pismo decided to look at five trends that may shape our industry in 2024.
1 – AI will continue to grab the headlines
While language models like ChatGPT were making waves in late 2022, this year saw them explode into popular consciousness. Few companies on the planet haven’t had a meeting about how best to use these exciting pieces of technology.
Some have raised issues around hallucinations, fake information, and flawed training data, and regulators are still getting to grips with exactly how to control the future implementation of AI. This hasn’t stopped its seemingly inexorable rise.
2024 will see AI become entrenched in process and strategy. Real-time customer interaction, transaction management, and regulatory compliance will all feel the impact. It’s not hard to imagine consumers receiving personalised financial updates generated by language models trained on their transaction data.
On the institutional level, we will likely see a streamlining of resources by implementing AI to optimise operations and create cost savings. We will likely see a pivot from institutions viewing AI as a singular product applied to siloed business areas into a technology that can be applied at the strategic level.
2 – Embedded finance develops its potential
In last year’s predictions blog, we said that the industry would wake up to the potential of embedded finance. Embedded finance allows non-financial companies access to the broader fintech and banking ecosystem. They gain access to specialised tools using APIs, piggybacking on regulated providers. These tools can build financial products without needing compliance or development costs.
Open banking has enabled a growing interconnection between traditional financial institutions, fintechs, and businesses. The proliferation of APIs has meant a levelling of the playing field and opened up new revenue streams for companies that previously didn’t have skin in the finance game.
There are plenty of avenues through which institutions are looking at utilising an open finance environment. This could be done by improving the account creation process, capturing customers via third-party ecosystems, or enabling instant digital issuance of cards.
Globally, the adoption of open finance protocols and schemes has grown, laying the groundwork for developing deeper embedded finance ecosystems.
3 – Efficiency and cost saving become paramount
The global economy is experiencing a slowdown, and supply chain disruptions throughout 2023 were felt keenly across markets. Divergent and sporadic economic growth means institutions must look hard for ways to affect the bottom line.
Last year, we predicted 2023 would focus on efficiency and resiliency, reflected in banks looking to eliminate unnecessary costs by streamlining the infrastructure at the heart of their organisation. This will continue apace in the coming year.
Where will these savings be found? In the deployment of new technologies and the curation of a specialised talent pool to operate them. Automation is improving efficiency across organisations but comes with challenges like technical complexity.
Firms must build a workforce capable of operating and iterating on the new technologies they deploy. Failing that, working alongside capable partners and systems providers can provide a bridge between the old world and the new.
4 – The battle for customer deposits intensifies
As the macroeconomic situation remains uncertain, customers will demand higher deposit rates. They’ll start looking for greater returns, better service, and experience from their banks. Large banks in Europe and the US reported deposit flights as their customers moved to digital banks capable of offering better rates.
For large institutions aiming to retain customer interest, an ability to provide personalised and relevant services and products is becoming increasingly critical. Whether through adopting new technologies like AI or reevaluating their existing infrastructure, banks must consider which quick wins can enable them to retain healthy deposit levels.
True personalisation will be hard to achieve when held back by legacy systems and an inability to create tailored experiences using customer data. Firms should take an approach focused on advanced modelling and predictive analytics to improve the delivery of real-time services.
5 – Consumer payments take centre stage
Consumer spending is increasingly shifting from cash to digital. This proliferation will require institutions to take new steps to provide digital payment solutions and protect their customers from fraud.
Governments and regulators are already taking steps to embrace a digital future, with large economies leading the charge. Nowhere is this better exemplified than in India, a country that has undergone a digital payments transformation in a few short years.
The use of credit cards has remained steady, and BNPL has democratised access to credit at both point-of-sale and in the digital world. Meanwhile, real-time payment networks appear and connect worldwide, raising hopes of a globally viable cross-border payment service.
Card issuers will react in 2024 by broadening their portfolio of products and supporting new customer payment methods. This includes, but isn’t limited to, cryptocurrencies, peer-to-peer payments, digital wallets, BNPL integration, and new credit propositions.
The interconnected nature of card networks will only grow more complex and require effective and targeted technology strategy to cut through the noise and find the actual value.
