It is well to be noted that this has been both an exciting as well as a tumultuous year when it comes to the financial sector. A growing focus when it comes to ESG, i.e., environmental, social, and governance commitments happen to be on the rise of macroeconomic uncertainties, a revived concern when it comes to risk management as well as the rapid spread of automation have gone on to help transform an industry that has traditionally been regarded as cautious as well as resolute. What seems for sure is that 2024 is all set to be no less transformative, particularly from a technology point of view.
Interestingly, the financial services sector has always been one of the first adopters of new technologies; hence, it is little wonder that AI has quickly gone on to gain widespread rollout. Due to this, generative AI- GenAI now happens to be a critical requirement when it comes to the digital toolbox for suppliers, and it is growingly being regarded as a table stake. Subsequently, these advancements will bring about more developments in 2024, and one will most likely see numerous key trends which go on to emerge in the new year.
Fintech-and-bank AI partnership
Generative AI has gone on to dominate the financial services tech conversation in 2023, and this is going to continue in 2024 as well. One can witness an influx of fintech start-ups that go on to provide generative AI solutions, and interestingly, venture capitalists are enormously interested in investing in them. But it is also pretty clear that there is a dearth of understanding about how to execute these solutions and overcome the many issues that AI represents. In response, one can go on to see fintechs and banks operate closely in sync so as to develop innovative, customer-centric products as well as services, like AI-powered investments as well as fraud-detection systems they can get along to the market.
Established banks often happen to be challenged with regards to innovation and agility because of legacy technologies, processes, and even systems. Working with dynamic start-ups happens to be part of the answer, as they can go on to provide the desired innovation level and that too at speed. Due to generative AI, banks are looking to have assurances that their clients’ data is safeguarded and does not get absorbed into wider models that their competitors can make use of. These challenges aren’t always completely apparent to fintechs functioning with AI in regulated sectors, as they do not have the banks’ expertise and experience, and AI goes on to pose additional barriers for them. These complexities can be overcome by working with partners like IBM that know the needs of regulated industries and how to function with the banking community at large so as to co-create solutions. Solving these issues will go on to create multiple opportunities, thereby enabling fintech’s to grow along with the banks to deliver better customer services as well as solutions. For instance, compliance and security checks so as to meet the demands of regulators may take time, resources, as well as funding away from customer-facing solutions. Implementing AI to address these issues can reduce costs as well as risks, thereby freeing up time and investment to focus on other areas.
Generative AI can also go on to help fintechs unleash new revenue streams so as to help the financial services sector progress and also gain competitive benefits. But so as to fully leverage AI, fintechs must go on to embed it into business models and processes right from the start, thereby helping them differentiate themselves by being swifter and more responsive to customers’ changing requirements.
Moreover, it is worth noting that the banks are adopting better business processes as a service-aaS solution. Hence, rather than building their solutions themselves, they are digitizing end-to-end business procedures by way of integrating solution providers, such as fintech’s, and their capabilities. They are witnessing this in areas like trade finance and wealth management. One can anticipate seeing fintech collaboration and ecosystem integration elevate as things move forward.
This is yet another pivotal trend that is most likely to gain momentum. It is well to be noted that banks are increasingly making use of data and generative AI in order to evaluate the sustainability of their lending portfolios and also develop new sustainable-finance products as well as services. This is pushed by regulatory requirements and also by consumer demands for a more sustainable banking choice.
In all possibilities, the international market for green finance is anticipated to touch $3,650 billion by 20311.This goes on to represent a significant opportunity for banks to come up with new revenue and also grow their businesses. With the execution of generative AI, banks can go on to access data for more precise and faster analysis as well as reporting. But the mandate for banks is not just to offer green financing but at the same time to help the total economy transition to a greener footing, thereby resulting in banking CEOs coming under pressure to come up with something substantive and also visible in the sustainability landscape. They are already seeing a rise in the number of sustainability fintechs like Yayz, which happens to provides detailed assessments of sustainability customer transactions’ impacts. For instance, they create detailed analyses of airlines, flight purchases, factoring in the kind of aircraft and cabin class, as well as the airline’s sustainability endeavors, in order to provide precise carbon footprints so as to guide financial decisions.
Banks will, hence, make more financial decisions that happen to be based on sustainable finance. There is also going to be major reporting on their carbon footprints as well as with whom they work like their partners. IBM is already going ahead with helping its customers in the financial services sector so as to develop the AI-based tools required to make this a reality.
While these are just starting their generative AI journey, the banking sector is further along with decentralized finance- DeFi. One can see much more focus on central bank digital currencies- CBDCs as they go on to gain traction, with central banks discovering the possibilities of coming up with their own regulated digital currencies. It is well to be noted that there have already been pilot tests of a digital euro token across Spain.
This is indeed shifting the focus from cryptocurrencies and moving towards DeFi becoming mainstream and, with time, more normal, specifically as more central banks go on to issue digital currencies. This will go on to lead to the creation of more solutions. As DeFi wallets create cross-chain functionality, they will go on to see more applications that help in cross-border payments, decrease fraud, and accelerate activities such as anti-money laundering checks.
Significantly, the momentum when it comes to regulated digital currencies will speed up in 2024 as banks go on to incorporate them into their structures, thereby helping them to become the new norm. But, apparently, there are still technical issues to overcome so as to ensure blockchain-based solutions can go on to meet the needs of real-time payments if they really want to become mainstream.
Wearables as well as biometrics happen to be reoccurring trends in recent years, and the growth of the IoT will continue to strive towards new and innovative options when it comes to making payments. Payment friction happens to be a key challenge for banks and also fintechs, mostly through the use of one-time passwords and other verification methods in order to prevent fraud. Wearable technology teamed with digital biometric identities will enable to decrease this friction while at the same time limiting fraud.
It is well to be noted that as Web 3.0 develops and also delivers a more decentralized, secure, and even user-centric www, users will go on to own and also control their digital identities. This will go on to help to solve many of today’s problems. For instance, if someone travels to another country today, his or her credit rating within the new country starts from scratch, and the individual has to start rebuilding it, as there happen to be no credit agencies having a global coverage. With Web 3.0 as well as digital identities, credit scores can be linked to digital identities, thereby avoiding the requirement to rebuild credit scores.
But as these types of technologies get growingly linked to identities, the security of those identities as well as their protection will become more paramount. While banks at present make use of standard encryption methods so as to protect this data, they must revisit this as quantum computers go on to develop.
The quantum-computing leverage
One of the important emerging trends happens to be the rise of quantum computing, which is a technology that is maturing rapidly and can potentially throttle a technological revolution in the future across financial services. Unlike classical systems, which make use of binary digits or bits so as to store information, quantum computers make use of qubits. Although the bits in today’s electronics can only happen to have a value of either 0 or 1, a qubit can go on to have both all at once.
The banking sector in 2024
It is absolutely crystal clear that 2024, following 2023’s progress, is going to be a year of change. One can hope to see a mixture of regulatory requirements as well as innovative technology developments, right from further adoption of AI, because of increasing collaboration as well as increased sustainability reporting to regulated digital currencies, elevated biometric payments, and also developing conversations on the future probabilities of quantum computing.
Generative AI is going to continue to be one of the dominant conversations in financial services as well as banking, and the increased significance of sustainability will undoubtedly impact all elements of financial services with the CBDCs and wearables reshaping how and also where consumers can get to conduct transactions.
- Allied Market Research (AMR): Sustainable Finance Market by Investment Type (Equity, Fixed Income, Mixed Allocation, Others), by Transaction Type (Green Bond, Social Bond, Mixed-sustainability Bond), by Industry Verticals (Utilities, Transport and Logistics, Chemicals, Food and Beverage, Government, Others): Global Opportunity Analysis and Industry Forecast, 2021-2031 – https://www.alliedmarketresearch.com/.