– Insights by Darryl Knopp, Senior Director Marketing at FICO
During the last year, we’ve witnessed a combination of deep-rooted forces and technological advancements reshape the banking landscape. We’ve seen rising interest rates and inflation impact the mortgage and consumer loan markets, as well as banks’ deposits strategies. We’ve also experienced major innovations in artificial intelligence (AI) and real-time analytics, with many banks making great strides in their digital transformation efforts.
For forward-thinking financial institutions that are seeking new paths for growth, here are the top five financial services banking trends we’ll see in 2024 and beyond.
1. Customer Experience Underpinned by AI
The use of AI has become very mainstream, from ChatGPT and Generative AI tools to risk management for financial institutions. Generative AI is enjoying its time in the spotlight and has had a significant impact, but we’ll likely see it follow the technology hype cycle similar to other innovative breakthroughs such as blockchain.
As we continue to refine and expand AI technology, its applications for customer experience (CX) in financial services will grow exponentially. In 2024, we will have a growing volume of digital banking customer experiences that are driven by AI and machine learning. This is going to be a new era of CX where financial services/banks can provide greater customer value and unleash more opportunities for growth by leveraging technology that enables more human-centric experiences.
With the widening adoption of AI, consumer demand for fairness and transparency will keep rising. It will be increasingly important for organizations to understand, test, and validate the AI models they utilize. These past few years have shown us how dangerous it is to hurry AI-based products and tools into the market without proper due diligence. To ensure ethical outcomes, AI systems must be fully explainable and auditable, which are core tenets of Responsible AI. As always, with great power comes great responsibility.
2. The Rise of Intelligent Ecosystems
In 2024, we will see more companies adopt open ecosystems to bridge silos across their enterprise and drive collaboration across the banking industry. These ecosystems will be based on applied intelligence platforms that use AI and APIs to unify decisioning processes across the organization. This type of platform software acts like an organization’s brain and central nervous system, providing clarity across all the decisions a business makes for their customers and fueling the connectedness that’s needed for integrated customer experiences.
Financial institutions seeking to fuel their digital banking transformation efforts will leverage business composability to gain competitiveness and dramatically improve agility. Composability uses modular “building blocks” that can be discovered, shared, combined, and recombined for rapid product innovation by the business team. This enables fast and iterative creation, testing, and delivery of programs and services without impacting IT resources.
As financial institutions look for more ways to explore CX and implement new services, many will also turn to the controlled environment that digital twinning provides. By allowing for more calculated risk-taking (without risking the existing business), digital twinning and simulations will open a host of new business opportunities for banks that want to innovate quickly.
3. Next-Level Hyper-Personalization
While technology continues to advance, the demand for personalized experiences will also continue to rise. Hyper-personalization has already become a minimum expectation for banking customers and front-of-mind in company boardrooms. Financial institutions that are able to provide more contextual, humanized, and intuitive experiences and opportunities for customers will thrive in the coming years.
We know that hyper-personalization is critical for nurturing customer engagement, trust, and retention. With the added benefit of emerging technologies, this is an area that we’ll see grow rapidly. We are at the cusp of the next generation of AI-driven personalization, where we can create more engaging customer experiences that bring value to both the customer and the business. Successful hyper-personalization will be achieved by firms that adopt open ecosystem software and advanced analytics that fuel real-time insights and actions at scale.
In 2024, there will also be a growing theme of “digital empathy” for financial services that’s aimed at building customer trust and loyalty. The rising demand for hyper-personalization and the pushback against over-digitization will bring a more human side to the financial services industry. Banks are already competing on much more than pricing and terms – it’s becoming increasingly important to demonstrate empathy through highly individualized interactions and experiences.
4. The Death of Cash
Is the death of cash coming in 2024? With so many companies going cashless over the course of the COVID pandemic, the widespread growth and adoption of digital payments will continue to surge. The race for an all-digital future continues to move forward as more governments and central banks around the globe are beginning to advocate a switch to all-digital currencies, and more banks are doubling down on hyper-personalized solutions for customers.
As more of our lives go into the digital space, it increases the demand for products and services to be provided on websites and mobile apps. It stresses digital channels as well as the need for real-time fraud detection, safeguards against financial crime, and alternative methods for authentication. It’s having a major impact on merchants by bringing heightened scrutiny and competition to that part of the industry. It also compels companies to seek more dynamic, always-on personalization for digital banking customer experiences.
The decline of cash is changing the way organizations operate and how customers choose the firms they want to do business with. It will continue to impact banks’ competitiveness and CRM strategies as they strive to meet consumer demands for convenient and secure digital payment options for the banking industry.
5. Banking for a Better World
In 2024, we will see a renewed focus on financial wellness and customer-centricity. This includes efforts in financial inclusion by trying to understand where we lack data and how we can meet the needs of underserved communities and credit-invisible populations. It also includes an increase in financial education regarding how consumers can manage their money and use financial products that will benefit them. People want to know that their bank cares about them and this is a trend that will continue to gain momentum in the coming years. The old adage comes into play – “People don’t care what you know until they know that you care.”
The more data you have about a customer, the better you can understand and treat them. Open banking will begin to play a more crucial role in the growing demand for more personalized financial services, including investing and financial wellness programs, because it helps build a robust, holistic view of each customer.
While the U.S. probably has the most mature open banking market, it is still catching up with other parts of the world in terms of its regulatory landscape. Advancements in digital banking technology will soon pave the way for widespread adoption of open banking by businesses and consumers alike. Together, external and internal data are very powerful and more financial institutions will start leveraging both as a competitive advantage to nurture their customer relationships.
These five trends will shape the financial services and banking industry as we forge into 2024. Consumer banking expectations will continue to grow – as will the competition – and financial institutions will need to revamp their methods and strategies for winning customers and improving their bottom line.
