5 Predictions For Banking And Fintech In 2024

OBSERVATIONS FROM THE FINTECH SNARK TANK

Having complained in a recent post on LinkedIn that a lot of the predictions I see are nonsense, you may think I’m crazy for posting my own set of predictions for 2024.

You’re probably right.

That said, here are my banking and fintech predictions for 2024:

1. A major financial institution will acquire a Banking-as-a-Service (BaaS) provider.

A preview of Cornerstone Advisors' upcoming "What's Going On in Banking" (WGOIB) study reveals a decline in the number of banks seeking entry into the Banking-as-a-Service (BaaS) sector compared to previous years. Quite unexpected, isn't it? Regulatory challenges, uncertain economic circumstances, and a cautious stance towards technology investment are collectively restraining the growth of BaaS initiatives.

The waning interest in BaaS doesn't alter the fundamental demand for BaaS services. Fintech companies are increasingly eager for new offerings, improved tech integration, and robust compliance measures.

This presents an opportunity for larger banks (with assets exceeding $100 billion) to enter the BaaS sector more assertively.

Prediction: In 2024, a bank with assets exceeding $100 billion will acquire a smaller BaaS-focused bank to expedite its penetration into the BaaS market. Subsequently, the acquiring bank will enhance the acquired entity by infusing it with substantial technology, compliance, and business development resources.

2. Bank-offered BNPL will grow significantly

Referring to the WGOIB report, discussions with financial institutions in previous years regarding their intentions to offer buy now, pay later (BNPL) services have yielded lukewarm responses, at best. However, the growing consumer interest and engagement in BNPL, coupled with the looming threat, if not the actual occurrence, of reduced interchange revenue, are compelling banks to address the trend in 2024.

Nandan Sheth, CEO of fintech Splitit, highlighted in Forbes the sluggish response of banks to address consumer demand for pay-later solutions seamlessly integrated into the merchant purchase journey. He notes that banks often miss the crucial "in-checkout" moment, thereby conceding ground to fintechs offering integrated installment plans.

Sheth contends that banks possess advantages in scale, trust, and available credit. He emphasizes that success in the BNPL space hinges on leveraging banks' strengths to provide a distinctive set of offerings through strategic partnerships—a sentiment I share.

When I predict significant growth in bank-offered BNPL, it's credit unions that I believe will lead the charge. In 2024, tech companies facilitating BNPL services for banks and credit unions are poised for a prosperous year.

However, banks venturing into BNPL may encounter challenges in achieving substantial transaction volumes. Why? Because BNPL represents as much a pre-payment aspect of the purchase process as it does a payment decision.

Companies like Klarna, often avoiding the BNPL label, comprehend this dynamic. They furnish tools and technologies to their merchant partners, empowering them to influence consumers' choice of product and provider, not solely their payment method.

3. The “employee experience” will be an area of focus

I understand the sentiment. The incessant emphasis on "customer experience" has indeed been a prominent theme in the banking industry for over a decade. While customer experience remains crucial, there's merit in shifting focus towards enhancing the "employee experience."
Given the impending layoffs in the banking sector and the growing imperative for efficiency, smart bankers and tech companies are recognizing that prioritizing employee satisfaction and productivity gains can yield significant benefits.
Chatbots, in particular, serve as a valuable tool for improving the employee experience. Often, they prove more effective in assisting employees with their tasks than in addressing customer inquiries. By deploying chatbots and similar technologies, banks can streamline internal processes, boost productivity, and ultimately enhance the overall employee experience.

Investing in initiatives that prioritize employee satisfaction and efficiency can lead to a more motivated workforce, reduced turnover rates, and ultimately, improved organizational performance. It's a shift in focus that could yield substantial dividends in the long run.

4. Real-time payment volume won’t materialize in 2024

Undoubtedly, the number of banks enrolling with FedNow will continue to rise, and the percentage growth of real-time payment (RTP) volume will be substantial—primarily due to the ease of achieving high growth rates with small volumes. However, in terms of overall payment volume, RTP is unlikely to make a significant impact.

Two factors will constrain RTP volume in 2024:

1. Dominance of Receive-only Mode: The majority of banks registered for RTP via FedNow are currently operating in receive-only mode. As humorously remarked by a LinkedIn connection, "everyone has a mailbox, but no one is sending mail."

  

2. Absence of RTP Solution: Tony Hayes, founder of the Banking & Payments Group, recently highlighted that "if priced correctly, real-time payments could enhance income for forward-thinking banks." However, the caveat of "if priced correctly" looms large. Pricing, particularly for fee-based services, remains a challenge for many financial institutions.

   

At recent payments conferences, several bankers have mislabeled FedNow as a "solution." In reality, it should be perceived as a "capability."

Capabilities are not priced and sold independently. They are integrated into a comprehensive solution—a product or service offering—where attractive pricing options are determined based on target market preferences, and the solution is marketed accordingly.

Achieving this alignment will require time and effort from banks.

By the conclusion of 2025, however, commercial RTP payments are expected to experience significant growth, as savvy banks recognize the lucrative opportunities within this domain.

5. Generative AI use will be under- and over-stated

No compilation of predictions for 2024 would be comprehensive without acknowledging the role of artificial intelligence (AI), right?

However, except for a select few larger banks with dedicated innovation teams focused on leveraging Gen AI tools, the majority of mid-sized and small banks, as well as credit unions, are unlikely to extensively utilize Generative AI in 2024.

To be more precise: They may not even be aware that they're utilizing it.

What I mean by this is that when you inquire with senior bank executives about their institution's utilization of Generative AI, many may respond with "nothing at the moment" or "we're exploring opportunities" (which often translates to minimal progress).

This response stems from their lack of awareness that marketing may be utilizing Gen AI tools for crafting marketing copy or that legal departments are leveraging it for contract construction and review. That exceptionally well-written blog post by the 22-year-old intern? Likely authored with the assistance of ChatGPT.

Conversely, there will be bankers who believe their institution is experimenting with Generative AI, when in reality, they are utilizing conversational AI and machine learning.

Bonus Prediction: The ambiguity surrounding the distinctions between various AI technologies is unlikely to dissipate in 2024.

Are You Ready For a “Down in the Dumps” Year?

It seems like 2024 might shape up to be a challenging year for the banking industry, as indicated by the struggles and limitations predicted for various sectors such as BaaS, RTP, BNPL, and Generative AI. Additionally, banks are facing hurdles in deposit gathering, grappling with rising fraud and cybersecurity threats, and experiencing staffing challenges.

Ironically, amidst these difficulties, it could be a favorable year for fintech companies, especially those catering to and supporting banks. According to Cornerstone's forthcoming WGOIB study, approximately two-thirds of banks anticipate an increase in IT spending in 2024, with only 9% expecting a decline. This influx of funds suggests opportunities for fintech firms to thrive, as banks seek solutions to navigate the challenges they face.

SOURCE: (oliviagh.xyz)