BANKS, FINANCIAL INSTITUTIONS TO FACE ACUTE CROSSWAY IN 2024

Strategies and budgeting for banks and financial institutions describing a barrage of economic, technological and demographic forces, converging to create unprecedented challenges and opportunities for financial Banks and institutions of all sizes. How individual banks navigate this complex landscape in 2024 will determine their competitiveness, profitability and even survival in the coming years. Those who effectively leverage data, build digital capabilities, and forge strategic fintech partnerships stand to gain market share. Covering institutions’ risk of extinction The economic outlook remains uncertain, which could spur consolidation across the financial sector. New regulations will increase compliance burdens. Fintech disruptors and big techs continue to threaten traditional business models. And perhaps most critically, younger generations have new expectations for digital financial services. The easiest customer experience is not one where it drives to the branch, find a parking spot, wait in line, ask advice and sign a piece of paper. It is one where you simply activate the service you need in real time when and where you need it. This arising
“battlefield” demands agility, custom-er-centricity and adopting an open mindset to change.
Financial institutions must rethink everything from user experiences to back-office processes. In this time of flux, forging partnerships with innovative fintech solution providers will be key to competing at speed and scale.
Regulatory scrutiny challenge, economic volatility and banking While inflation is cooling, households still face financial strain from rising costs according to recent data on de-linquencies, foreclosures and personal debt levels.
This economic stress on consumers spells uncertainty for banks and financial institutions heading into 2024 and onwards. Tighter lending and deposit rate competition resulting from continued high interest rates will squeeze bank margins. At the same time, new regulations are adding to compliance burdens. Guidance around managing third-par-ty vendor risks will compel greater duediligence. Requirements to collect small business lending data will take effect. Cybersecurity and anti-fraud regulations continue proliferating in response to increasingly sophisticated threats. Adapting and adjusting to new tech-nologies, evolving consumer expecta-tions, sophisticated cyber threats and heightened regulatory scrutiny is just part of banking’s ever-changing environment. This combination of economic and regulatory pressures may accelerate consolidation across the industry. Mergers and acquisitions provide avenues for efficiency gains, scale, risk mitigation and revenue growth. Many financial institutions are exploring these options along with more fintech partnerships to ready themselves for the challenges ahead. Attacking for deposits in the digital age The fight for deposits is intensifying amid rate competition from megabanks, neobanks and even technology giants like Apple. Consumers now readily shift funds digitally, as demonstrated by recent mass account closures at major banks sparked through social media. Younger generations in particular have weakening allegiances to traditional institutions. Over a quarter of megabank customers may switch if a local bank offers better rates according to one survey. Yet shifting demographics present risks too – aging baby boomers control a large share of deposits that could move as they retire. To compete, smaller institutions must digitise deposit acquisition while crafting personalised offers to build loyalty. Leveraging real-time data and predictive analytics will be the key to understanding customer needs and introducing relevant products at the right moments. Financial institutions can capitalise on data analytics to prioritise marketing spend, track competitors, compare marketing results to industry peers, and activate the data using a multi-channel approach to include digital banking and mobile banking. Fintech solutions can aid this through digital account opening, automated onboarding, account aggregation tools and marketing automation. Big tech has conditioned consumers to expect speedy, digital-first experiences. Financial institutions must now deliver this to capture and retain deposits in the digital realm. To reach younger generations, banking must prioritise As Baby Boomers retire, the generational wealth transfer will accelerate over the next decade. But younger generations are proving challenging for banks to attract and retain. Millennials came of age during the 2008 crisis and tend to distrust big banks. Fintech firms aggressively target them with digital offerings. But the even younger Gen-Z cohort digital natives in their teens to late twenties poses the biggest threat as they now control hundreds of billions in spending power. Gen Z embraces fintech solutions readily and has little brand loyalty to traditional financial institutions. Half use neobanks or money management apps. Many see no need for a primary bank relationship. To connect with Gen Z, financial institutions must digitise and target products, marketing and user experiences specifically to this mobile-centric cohort. Social media outreach using financial influencers may help, as will de-vice-optimised design and financial education content on digital platforms like You Tube. Partnering with fintech firms can provide the agility to continually add features and experiences younger users expect. Without urgent focus here, local banks risk permanently losing the next generation of lifetime customers.
User experience elevation Over half of customers now use digital channels as their primary method of banking interaction. Yet many financial institution apps and websites offer dated experiences that can’t match both the simplicity and feature depth consumers find in leading fintech apps. User experience now makes or breaks consumer loyalty. Slow or clunky digital account opening, for instance, drives abandonment. Apps without robust money management tools or the ability to instantly move funds fall short of expectations. Even basic steps like logging in should match biometrics and one-click ease of big tech apps. To meet rising user experience standards, financial institutions must redesign digital presence from front to back. This means not just sleeker mobile apps, but transforming back-office processes with automation and digitisation
for speed and seamlessness. User testing and customer journey mapping will reveal points of friction. Fintech collaborations can rapidly deploy best-in-class capabilities at scale. Top user experience will require ongoing effort as expectations continue rising. Data for personalisation Today’s consumers expect personalised, relevant engagement from financial institutions. Fintech firms and big tech organisations lead this through precisely tailored interactions driven by customer data analytics. Banks now need data strategies that build 360-degree customer profiles. Tracking detailed transaction histories and account holder behaviors provides a foundation. Advanced AI techniques can then generate shareable insights on individual user needs, life events and next-best actions. Personalisation will evolve digital banking into a digital sales and service channel that anticipates users’ needs before they are conscious thoughts. Banks, fintechs and partnerships Change is the only constant for financial institutions today. Fintech innovation, mobile lifestyles, economic shifts and compliance needs show no signs of slowing. Keeping pace amid such transformation is impossible alone. This reality makes partnerships an essential strategic priority in 2024. Collaborating with specialised fintech solution providers allows institutions to integrate innovations rapidly without overwhelming internal resources. The right fintech partners focus on speed and agility, providing the ability to deploy capabilities into the market seamlessly and quickly, relying on modern architectures that support growth and platform flexibility. Their real-world expertise and focus let financial institutions concentrate on customers. The most successful partners in the financial services space have a clear line of sight into future-proofing and mitigating risk as much as possi-ble, from both a regulatory and market needs perspective. Areas like data analytics, digital account opening and onboarding, se curity, personal financial management tools, digital small business services, and natural language chatbots deserve partnerships’ attention for impact. The institutions that selectively outsource innovation will pull ahead of their peers. Banks and road ahead: Financial institutions have reached an inflection point. Shifting consumer behaviours, employee mindsets and competitive forces necessitate digital fluency. But transitioning from reactive to proactive will determine market leadership. Banks must become adept at da-ta-driven personalisation, digital experience excellence and strategic fintech partnering. Investment in technologies like Al and security will become baseline budget requirements. In particular, 2024 and onwards will see a significant increase in focus and spending on machine learning as financial institutions experiment with Generative Al use cases and conversational AI tools as financial institutions deploy chatbots and intelligent, digital assistants to better support their mem-bers, customers, and employees. Change-averse cultures won’t survive the crossroads of 2024. But financial institutions that instil agility and customer-centricity will turn disruption into opportunity. For those who embrace this complex moment, the future remains bright. The rest risk fading as banking evolves. The choices individual institutions make right now will set their trajectory for years to come. Now is the time for decisive action. Concluding thoughts With the advent of new technologies and the changing behaviour of custom-ers, the global banking industry needs to take on the challenges of innovation in its processes. Changes in technology, regulatory requirements, and the crisis in the economy along with changing the expectations of customers are the requirements for a substantial change in the banking system. Using digital technologies, fintech companies have offered innovative services to enhance customer satisfaction, in some cases proving more efficient than banks. The bank-fintech collaboration, which comes in various forms, relies on the capabilities of each institution and the corporation’s benefits for each of them. Such collaboration has attracted the attention to the extent focused on fintechs despite its novelty. These efficient banks increase financial stability, intermediation and value to the shareholders. As fintech innovations continue to alter the landscape in the banking sector, the collaboration between fintech and banks will continue to shape the evolution of credit allocation and delivery of services.