The banking sector has experienced significant changes over the last decade due to new technology, evolving customer expectations, and increasing competition from fintech firms. To stay competitive in the dynamic landscape, banks must strategically adapt their core infrastructure, product offerings, and digital approach to create a truly customer-centric experience.
This article examines five pivotal trends that will continue to shape the banking sector in 2024. By examining recent practices adopted by industry leaders, we will demonstrate how the once-traditional industry is ready to tackle the demands of digitalization and foster innovation.
Trend 1: Core Modernization &
Cloud-Based Infrastructure
In the forthcoming years, big banks will prioritize core modernization as a key element of their long-term strategy. With new improvements made by today’s cloud service providers, more banks will recognize the advantages of migrating their core systems from mainframes to the cloud. The cloud offers greater resilience, agility, innovation, and delivery speed than legacy systems. Its API-based architecture allows banks to better leverage their database to deliver highly personalized customer experiences.
As indicated by Accenture Research,
A significant *63% of leading banks are either in the process of migrating their core systems to the cloud or making preparations for such a transition.
JPMorgan Chase is ahead of the curve with its modernization initiatives. In 2021, it first announced the cloud transition of its retail banking systems to Thought Machine’s Vault platform. By April this year, JPMorgan Chase had spent over $2 billion on building new “cloud-based data centers” and had migrated approximately *38% of its applications to the cloud. According to Chairman and CEO Jamie Dimon, the bank’s infrastructure modernization is slated to bring in an additional *$1.5 billion in cost savings and efficiencies over the next three years.
Bank modernization is an ongoing process that requires a substantial investment. However, it paves the foundation for harnessing advanced technologies such as Artificial Intelligence (AI) to enhance efficiency and drive long-term profitability. For banks that have yet to form a cloud strategy, now is a good time to evaluate and start with feasible steps within the company’s resources and goals.
Trend 2: AI-Driven Personalized Banking Solutions
Cloud-based data centers offer numerous advantages, and one notable benefit is the greater potential of Artificial Intelligence (AI). The nature of cloud infrastructure provides banks with the computational power required to handle and analyze vast amounts of customer data in real-time. This enables banks to derive valuable insights into customer behaviors and preferences, allowing them to customize products and services to deliver a highly human-centered experience.
Bank of America (BoA) is an early adopter of Artificial Intelligence as part of its product strategy. Beginning in 2019, Erica, BoA’s AI-driven virtual assistant, has handled customer queries, provided personalized recommendations, and guided customers through various banking processes. The integration of chatbots and virtual assistants has significantly reduced wait times, improved overall satisfaction, and transformed how customers engage with banks.
By leveraging data-driven insights, BoA can provide a tailored product offering and loyalty program. Through analysis of each customer’s purchasing patterns, financial needs, and savings goals, BoA offers a personalized loyalty program that allows clients to conveniently track, manage, and redeem multiple rewards programs in a single place.
BoA’s AI-driven approach has yielded an impressive customer retention rate of nearly *99%.
In addition to Bank of America, JPMorgan Chase expects to benefit from its AI-driven strategy. The bank has made substantial investments in data analytics and AI technologies, with the expectation of generating *$1.5 billion in business impact by the end of 2023. By leveraging these technologies, JPMorgan Chase aims to enhance customer personalization and gain valuable insights into individuals’ banking preferences, saving goals, and financial aspirations.
Trend 3: Online Banking VS. In-Branch Engagement
After the pandemic, 97% of customers now conduct most of their banking activities on mobile devices, highlighting the prominence of online banking and a seamless omni-channel experience.
An omni-channel experience involves providing a consistent banking experience across multiple channels, which include mobile apps, websites, and physical branches. Customers today expect the ability to start a transaction on one platform and continue it on another without any disruption. They also expect to have access to their accounts and services anytime, anywhere, on their preferred platform.
Customers today do most of their banking on their mobile devices, with only *3% of interactions happening face-to-face.
Despite the dominance of online banking, in-branch services remain pivotal for maintaining customer stickiness and strengthening relationships. Accenture’s survey reveals that customers prefer in-person meetings when opening new accounts or products. An in-person meeting remains the preferred option when opening new products— *27% of consumers said it was their first choice, ahead of mobile apps (22%) and websites (21%).
This finding demands banks re-evaluate where physical branches fit into the overall customer experience and reach a balance between hi-tech innovations and in-person interactions. By blending digital convenience with personal engagement, banks can offer the best of both worlds, providing customers with the flexibility of self-service while maintaining the human touch and expert guidance that branches offer.
Trend 4: Embrace partnerships with FinTechs
Moving forward, we’ll witness a significant shift in the dynamics between traditional banks and fintech players, shifting from competition to collaboration. Fintech companies, once perceived as threats, are now viewed as strategic collaborators, particularly as open banking regulations gain traction in the United States.
Recent data indicates that leading banks have begun to recognize the value of partnering with fintech firms to drive growth and foster innovation. Through the secure sharing of customer data via open Application Programming Interfaces (APIs), the collaboration enables banks to leverage the expertise of fintech and technology partners to offer innovative products and services tailored to individual needs.
89% of banks believed partnerships with FinTechs as somewhat important.
According to a recent survey, *89% of banks consider partnerships with fintech to be somewhat important. Major players like American Express and JPMorgan Chase have already made significant moves in this direction through acquisitions. JPMorgan Chase has acquired multiple fintech startups, including Renovite, a payments startup. American Express also made a strategic purchase of Nipendo, an Israel-based company, to bolster its B2B payments network. *
By joining forces, banks can access innovative solutions, agile technologies, and disruptive business models offered by fintech companies. At the same time, fintech can leverage traditional banks’ established customer base and regulatory knowledge. This collaboration paves the way for traditional banks to enhance their capabilities and expand their market reach, creating a win-win situation that drives innovation, enhances customer experiences, and propels the industry forward in years to come.
Trend 5: Advanced Cybersecurity Measures
As the banking industry embraces digitization, the need for robust cybersecurity measures becomes increasingly important. Investing in advanced technologies like biometrics, encryption, and behavioral analytics becomes crucial to protect customer data and mitigate cyber threats.
An EY / IIF survey finds that:
*72% of global Chief Risk Officers (CROs) view cybersecurity as the top year-ahead risk, followed by credit and environment risks.
Major banks are actively investing in cybersecurity measures to stay ahead of evolving threats, including advanced biometric authentication to build trust, improve customer confidence, and protect against fraudulent activities. This year, J.P. Morgan will begin piloting biometrics-based payments with select retailers in the U.S., bringing speed and efficiency benefits to U.S. merchants and their customers*. According to Goode Intelligence, global biometric payments are expected to reach $5.8T and 3B users by 2026.*
Major cloud service providers are also playing a crucial role in enhancing cybersecurity, which provides access to advanced security controls. Incorporating a multi-cloud approach can also further enhance security and avoid the risk of a single point of failure. Integrating artificial intelligence (AI) and machine learning (ML) technologies also holds immense potential to revolutionize the field of cybersecurity. By leveraging AI and ML, banks can significantly improve the speed, accuracy, and efficiency of threat detection and response.
As the banking industry continues to evolve, banks face enormous opportunities to drive innovation and deliver customer-centric experiences that will position themselves for success in 2024 and beyond. BORN XDS, with its rich expertise in the banking sector, is well-equipped to help banks navigate challenges and implement innovative solutions. Visit our website to learn more about our offerings and how we can assist your business in delivering exceptional customer experiences. Stay ahead of the competition and revolutionize your financial offerings today.
We Can Help and we’d love to show you how!
*Reference Index
1. https://newsroom.accenture.com/news/accenture-research-finds-four-in-five-banks-planning-to-or-already-migrating-mainframes-to-the-cloud-are-doing-so-quickly.htm
2. https://www.thestack.technology/jpmorgan-cloud-migration-jamie-dimon/
3. https://newsroom.bankofamerica.com/press-releases/consumer-banking/bank-americas-unique-approach-loyalty-rewards-translates-record
4. https://newsroom.bankofamerica.com/press-releases/consumer-banking/bank-americas-unique-approach-loyalty-rewards-translates-record
5. https://www.thestack.technology/jpmorgan-cloud-migration-jamie-dimon/
6. https://www.accenture.com/us-en/insights/banking/consumer-study-banking-reignite-human-connections
7. https://www.accenture.com/us-en/insights/banking/top-10-trends-banking?c=acn_glb_eminence-retailleader_13349052&n=smc_1222#accordion-60340377fc-item-d343cbcb29
8. https://www.pymnts.com/news/banking/2023/us-open-banking-regulations-will-force-more-bank-fintech-collaboration/
9. https://www.jpmorgan.com/news/jp-morgan-to-acquire-renovite-technologies
10. https://nilsonreport.com/mention/1761/american-express/#:~:text=Commercial%20payments%20account%20for%2045,mostly%20driven%20by%20small%20businesses.
11. https://www.ey.com/en_gl/news/2023/01/cybersecurity-is-number-one-risk-for-global-banks-but-geopolitical-risk-tops-european-banks-concerns
12. https://www.jpmorgan.com/solutions/treasury-payments/insights/biometrics-checkout-us-pilot
13. https://www.jpmorgan.com/solutions/treasury-payments/insights/biometrics-checkout-us-pilot
