Winds of change in banking

Whitepaper

Here are the trends that will drive the industry over the remainder of 2024 through next year as forecasted by industry thought leaders.

October 1, 202412 mins

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Amid global economic uncertainty, changing customer preferences and competition from thousands of financial technology startups, banks need to focus on operational efficiency and evolve key systems and processes to accommodate the demands of an increasingly unpredictable business environment. Here are the trends that will drive the industry over the remainder of 2024 through next year as forecasted by industry thought leaders.

Banks focus on deposits to hedge against economic turmoil

For the first time, deposit growth is the biggest business challenge banks see in the year ahead. A strong deposit base ensures liquidity and resilience during economic uncertainty. It is also a reliable funding source and a key indicator of customer loyalty. Growing deposits can help banks strengthen lending capacity, protect against failures, improve customer retention, and reduce reliance on investment banking revenue. Many retail banks now offer cash bonuses for new accounts as a low-cost way to drive growth.

This year, 72% of bank CEOs and 44% of credit union CEOs say growing deposits is paramount.

Jack Henry2024 Banking Forecast

Improving digital experiences is essential to customer satisfaction

Empowered by mobile and self-service options, customers want to manage their transactions and investments whenever and wherever they want. Bank branches still matter, but their role is shifting toward advisory and customized services. Four out of five financial institutions plan to increase technology spending over the next two years. Visionary banks will deploy technology that enables every customer touchpoint to be analyzed to improve service and product offerings.

Consumers said they expect their banking experience to be 65% digital and 35% human by 2026.

BAI Banking Outlook Special Report

Fraud mitigation is a top concern

Fraud is a growing problem for both banks and their customers. According to the Federal Trade Commission, consumers lost more than $10 billion to fraud in 2023, up 14% from 2022. Over one-quarter of U.S. adults have experienced bank and credit account fraud, including 37% of those 65 or older. With the proportion of the world’s population over 60 expected to nearly double to 22% in 2050 from 12% in 2015, fraud mitigation will become a more compelling priority for banks.

Generative AI is expected to worsen the problem by enabling fraudsters to create more convincing scams. However, AI-powered analytics may be banks’ best defense against more pervasive problems like credit card fraud.

By 2027, the anticipated cost of total payment fraud will reach $40.62 billion. Mid-market and small banks [are] viewed by bad actors as especially vulnerable targets.

BAI Modernizing Payment Methods

Lower interest rates will reshuffle banking priorities

The Federal Reserve is expected to ease rates heading into 2025 as recessionary concerns mount. Pent-up demand could grow residential mortgage origination in the United States, prompting banks to market their services more aggressively. Commercial real estate will continue to be stressed by the COVID remote work “hangover.” Office vacancy rates in the U.S. set a record in the first quarter of 2025.

Generative AI captures banking executives’ imagination

The potential for large language models to summarize complex documents, generate customized forms at scale, and interact directly with customers has caught the imagination of banking CEOs, 44% of whom expect generative AI to boost profits this year. Initial gains will likely come mostly from efficiency improvements and productivity gains with fully functional customer-facing chatbots demanding significant testing and regulatory sign offs before widespread deployment.

Generative AI could be a game changer, lifting productivity by 3% to 5% and enabling a reduction in operating expenditures of between $200 billion and $300 billion.

McKinsey Global Banking Annual Review

Fintech competitors drive urgency in digital transformation

The more than 26,000 financial technology startups that are now in business is double the total of 2019. These companies take advantage of customers’ growing comfort levels with digital tools, the ubiquity of smartphones, and a lack of legacy baggage to move quickly into niche areas and exploit entirely new markets such as embedded finance. Banks must accelerate their innovation pace and use partnerships and acquisitions to keep up with these fleet competitors.

Heightened competition [from fintechs] is accelerating the contraction of financial services margins, steering new revenue opportunities away from established institutions.

IBM Institute for Business Value Global Outlook for Banking and Financial Markets

Payment overhaul deadline looms

ISO 20022 is a multi-part international standard that aims to streamline financial data communication between organizations and systems by reducing complexity and promoting interoperability. U.S. organizations must overhaul their payment infrastructure to meet the standard by March 10, 2025. The Federal Reserve is using the deadline to encourage banks to adopt its FedNow instant payments service. Banks that move swiftly toward faster and more transparent digital payments will enjoy a competitive edge.