5 Predictions For Banking And Fintech In 2024

In 2024, we anticipate several significant trends and innovations that will shape the banking and fintech industry. As the world rapidly embraces digital transformation in finance, the future of the banking sector looks promising yet challenging. Let’s explore some of the key predictions for banking and fintech in 2024.

Key Takeaways

• 2024 is expected to witness acquisitions in the BaaS market as larger banks tap into the potential of banking as a service.
• Bank-offered buy now, pay later (BNPL) options are set to experience significant growth, with credit unions leading the way.
• The focus on enhancing the employee experience will gain prominence, leading to increased productivity and satisfaction.
• While the growth of real-time payments may be limited in 2024, commercial RTP payments are expected to show significant growth by 2025.
• Generative AI adoption will vary, with larger banks exploring its applications while smaller banks may lag behind.

A big(ger) bank will acquire a BaaS bank

In 2024, we predict that a large bank with assets exceeding $100 billion will make a strategic move by acquiring a smaller bank specializing in banking as a service (BaaS). While there has been a decline in interest among banks regarding BaaS, the demand for these services from fintech companies remains strong. This presents a unique opportunity for larger banks to enter the BaaS market and cater to the evolving needs of digital financial services providers.

As the future of banking transforms with the rapid growth of fintech, acquiring BaaS banks allows larger institutions to leverage the specialized expertise and technology platforms offered by these smaller players. By consolidating their resources, these big(ger) banks can enhance their capabilities to offer more innovative and streamlined banking solutions to fintech companies.

This predicted acquisition also aligns with the ongoing trend of banking industry consolidation. In recent years, there has been a wave of mergers and acquisitions in the financial sector, driven by the need to stay competitive in an increasingly digitized landscape. Acquiring a BaaS bank not only expands a larger bank’s service offerings but also strengthens its market position within the rapidly evolving fintech ecosystem.

“Acquiring a BaaS bank not only expands a larger bank’s service offerings but also strengthens its market position within the rapidly evolving fintech ecosystem.”

By acquiring a BaaS bank, big(ger) banks can tap into the growing demand for banking as a service while simultaneously accelerating their digital transformation initiatives. Through this strategic move, they can achieve greater agility, extend their reach in the fintech space, and foster innovation within their organizations.

BaaS Bank Consolidation Table

Table: Predicted acquisitions of BaaS banks by big(ger) banks in 2024

Bank-offered BNPL will grow significantly

Another prediction for the banking and fintech industry in 2024 is the significant growth of bank-offered buy now, pay later (BNPL) options. While fintech companies have been quick to address the consumer demand for pay-later solutions integrated into the merchant purchase journey, banks have been slower to adapt. However, with the threat of lower interchange revenue and increasing consumer interest in BNPL, banks will need to ramp up their efforts and offer competitive options.

Credit unions are expected to lead the way in offering BNPL services, leveraging their existing relationships with consumers. Their community-based approach and focus on personal finance make them well-suited to provide flexible payment options. On the other hand, banks may face challenges in gaining significant volume in the BNPL space due to the nature of BNPL as a pre-payment part of the purchase process.

Banks can overcome these challenges by forming strategic fintech partnerships to enhance their BNPL offerings. Collaborating with established fintech players can provide banks with the necessary expertise and technology to compete in the rapidly evolving BNPL market.

“Banks need to recognize the changing dynamics of consumer payment behavior and seize the opportunity to cater to the growing demand for BNPL options. By offering bank-offered BNPL, they can ensure they remain relevant in the increasingly competitive fintech landscape.”

In order to effectively tap into the BNPL market, banks must prioritize user experience and convenience. Streamlining the application process, providing real-time payment notifications, and offering flexible repayment plans are all initiatives that can enhance the consumer experience and drive adoption of bank-offered BNPL options.

Benefits of Bank-offered BNPL

Bank-offered BNPL options present several benefits for both consumers and banks:

• Convenient and accessible financing for consumers
• Potential for increased sales and customer loyalty for merchants
• Additional revenue streams for banks
• Enhanced data insights for banks to better understand consumer spending habits

As banks adapt to the changing landscape of consumer payment behavior, bank-offered BNPL is poised to become a valuable tool in their arsenal, catering to the evolving needs of modern consumers.

The “employee experience” will be an area of focus

In 2024, as banks face layoffs and prioritize efficiency, enhancing the employee experience is predicted to become a key area of focus. Recognizing the potential for productivity gains and increased employee satisfaction, banks will prioritize creating a positive work environment for their employees. This focus on the employee experience will be crucial for maintaining a motivated and loyal workforce.

Productivity Gains through Employee Experience

Improving the employee experience can have a direct impact on productivity gains within the banking industry. When employees feel valued, supported, and engaged, they are more likely to perform at their best and contribute to the organization’s success. A positive work environment can boost morale, reduce stress, and increase overall job satisfaction.

Additionally, investing in employee development programs, training, and providing a clear career path can empower employees and enable them to perform their roles more effectively. Engaged employees are more likely to go the extra mile, leading to improved productivity and enhanced customer service.

Role of Chatbots in Enhancing the Employee Experience

Chatbots have revolutionized various industries, including banking, by automating repetitive tasks and streamlining workflows. In 2024, chatbots will continue to play a significant role in improving the employee experience within the banking sector.

By leveraging chatbots, banks can provide employees with virtual assistants that can assist with routine inquiries, provide quick access to information, and handle administrative tasks. This allows employees to focus on more complex and strategic activities, leading to increased efficiency and productivity.

Overcoming the Challenges of Banking Industry Layoffs

The banking industry has faced significant layoffs in recent years, leading to increased pressure on remaining employees. By focusing on the employee experience, banks can mitigate the negative impact of layoffs and create a supportive environment for their workforce.

Supportive initiatives such as employee recognition programs, flexible work arrangements, and opportunities for personal growth and development can help alleviate concerns and maintain employee morale amidst layoffs. By emphasizing the value of each employee and providing resources to support their well-being, banks can create a more resilient and engaged workforce.

Real-time payment volume won’t materialize in 2024

While the demand and interest for real-time payments (RTP) continue to grow, the expected volume in 2024 may fall short of projections. Despite the increased adoption of RTP infrastructure, most banks are still in the early stages of implementation, with limited capabilities for comprehensive RTP solutions. As a result, the volume growth of real-time payments is likely to be limited.

One contributing factor to the restricted RTP volume growth is that many banks are currently operating in receive-only mode, focusing on enabling inbound RTP transactions rather than facilitating outgoing payments. This cautious approach reflects the current state of the industry and the need for banks to carefully develop their RTP strategies.

Additionally, while the Federal Reserve is working on its own RTP system called FedNow, it may take some time for the solution to be fully implemented and adopted by all banks. The rollout of FedNow is expected to be gradual, and it will require banks to integrate this new system into their existing infrastructure.

Overall, the limited volume growth of real-time payments in 2024 can be attributed to the challenges in developing and implementing comprehensive RTP solutions, as well as the ongoing transition of banks towards full participation in the RTP ecosystem. However, it is important to note that while general RTP volume growth may be constrained, commercial RTP payments show more promise for significant growth by the end of 2025.

RTP Volume Growth Challenges

The growth of real-time payment volume faces several challenges in 2024:

1. Limited RTP infrastructure and capabilities: Many banks are still in the early stages of implementing RTP solutions, which limits the volume of transactions that can be processed in real-time.
2. The cautious approach of banks: Due to the complexity and risks associated with RTP, banks are taking a careful approach to implementing and adopting real-time payment systems. This cautiousness delays the widespread adoption of RTP and hampers significant volume growth.
3. Integration of FedNow: The introduction of FedNow by the Federal Reserve presents an opportunity for banks to enhance their RTP capabilities. However, the integration process requires time and resources, causing delays in the realization of significant RTP volume growth.
4. Pricing and marketing strategies: Banks need to develop effective pricing and marketing strategies to promote the adoption of real-time payments among customers and businesses. Developing these strategies takes time and careful consideration, limiting the immediate volume growth of RTP.

To illustrate the gradual growth of RTP volume, below is a table that showcases the predicted real-time payment volume in various scenarios:

Note: The values in the table are for illustrative purposes only and do not represent actual data.

It is important to remember that real-time payments are still an evolving area within the financial industry. As banks continue to invest in RTP infrastructure and refine their strategies, the volume of real-time payments is expected to increase gradually.

Generative AI use will be under- and over-stated

In 2024, the adoption of generative AI in the banking industry is predicted to vary. While larger banks with dedicated innovation teams may extensively explore the use of generative AI, mid-sized and small banks may not fully leverage this advanced technology.

Some banks might unintentionally employ generative AI tools for functions like marketing copywriting, reaping the benefits of automated content generation. Conversely, other banks may mistakenly believe they are utilizing generative AI when they are actually utilizing conversational AI or machine learning technologies. The confusion surrounding different AI technologies is expected to persist in 2024, creating a challenge in accurately assessing the true extent of generative AI utilization in the banking sector.

Generative AI has the potential to revolutionize various aspects of the banking industry, including customer service, risk assessment, fraud detection, and even personalized investment recommendations. However, its full potential may not be realized due to the complexities and divergent understandings of AI technologies.

Examples of generative AI in banking:

Here are a few examples of how generative AI can be applied in the banking industry:

• Automated customer support: Generative AI-powered chatbots can provide instant responses to customer queries, improving response times and customer satisfaction.
• Fraud detection: By analyzing large volumes of data and identifying patterns, generative AI can help banks detect fraudulent activities and prevent financial losses.
• Personalized financial advice: Generative AI algorithms can analyze individual financial data and offer personalized investment recommendations, based on risk profiles and financial goals.

By harnessing the power of generative AI, banks can streamline operations, elevate customer experiences, and drive innovation in the financial services landscape. However, careful consideration and education are needed to ensure that the benefits and limitations of generative AI technologies are fully understood by banking professionals.

Conclusion

In conclusion, the banking industry outlook and fintech future in 2024 are characterized by significant advancements and challenges. Acquisitions in the banking as a service (BaaS) market, the growth of bank-offered buy now, pay later (BNPL) options, and the focus on enhancing the employee experience are some of the key trends shaping the industry. However, limited real-time payment (RTP) volume and the varied adoption of generative artificial intelligence (AI) present additional complexities.

The banking industry is witnessing a digital transformation, driven by the rapid development of financial technology (fintech). Acquisitions in the BaaS market provide an opportunity for larger banks to capitalize on the demand for banking services from fintech companies. As consumers increasingly seek convenient payment solutions, the growth of bank-offered BNPL options is expected to gain momentum. This shift presents challenges for banks seeking to adapt and offer competitive options while managing lower interchange revenue.

An area of increasing importance is the focus on improving the employee experience within banks. Enhancements in this area can lead to productivity gains and increased employee satisfaction. Moreover, real-time payment volume is expected to grow gradually due to the complexities surrounding RTP solutions. Additionally, the adoption of generative AI remains varied, with larger banks exploring AI tools while smaller banks may not fully utilize these capabilities. The year 2024 is poised to be a period of growth and innovation in the banking and fintech sector, as these trends shape the industry landscape.

Source Links

• https://www.forbes.com/sites/ronshevlin/2024/01/07/5-predictions-for-banking-and-fintech-in-2024/
• https://www.forbes.com/sites/jordanmckee/2024/01/15/payments-in-2024-five-predictions-for-the-year-ahead/
• https://www.americanbanker.com/list/5-predictions-for-the-banking-industry-in-2024