Banking Priorities 2024: Riding the Wave of Change

Jun 11, 2024

2024 has been a year of significant challenges for the banking industry, with a slowing global economy, high interest rates, and new regulatory hurdles. As we move into the second half of the year, banks continue to face these pressing issues while also seeking new opportunities for growth and innovation.

2024 has been a year of significant challenges for the banking industry, with a slowing global economy, high interest rates, and new regulatory hurdles. As we move into the second half of the year, banks continue to face these pressing issues while also seeking new opportunities for growth and innovation.

Recently, at the FIS Emerald 2024 event in Florida, a gathering of banking leaders,  John Durrant, President of Banking Solutions at FIS, shared at one of the sessions about what the future holds for banking. Despite the economic turbulence, the consensus was clear: banks currently stand on solid ground but may need to reconsider revenue models as people take fewer loans during this high-interest rate period.

In addition, the Consumer Financial Protection Bureau’s (CFPB) crackdown on consumer protection laws aims to keep banks in line by capping credit card late fees and subjecting BNPL players to traditional credit rules. With all this in mind…..

In addition, the Consumer Financial Protection Bureau’s (CFPB) crackdown on consumer protection laws aims to keep banks in line by capping credit card late fees and subjecting BNPL players to traditional credit rules. With all this in mind…..

 

What are banks’ top priorities in 2024?

The banking panel discussed the future of banking and highlighted three top-hitting priorities for 2024: batting fraud and cyber risk, boosting operational efficiencies, and retaining deposits.

1. Battling Fraud and Cyber Risks

Experian’s Future of Fraud Forecast indicates that 70% of businesses reported a rise in fraud losses, so banks are on high alert. The threats continue evolving, from AI-powered scams to crashed banking systems to data breaches. Gen AI will be one of the greatest drivers of fraud in 2024. As an example, criminals swindled $25 million from a finance company using a deepfake video. Countering these threats requires ongoing investment in cybersecurity skills, tools, and infrastructure. Gartner predicts a massive $215 billion will be funneled into security efforts in 2024 alone.

2. Boosting Operational Efficiency

Banks are talking about doing more with less by ramping up their use of technology. Boards are demanding teams use AI, despite the use cases for actual implementation still being quite nascent. According to Arizent, American Banker’s parent company, approximately 75% of banks and finance firms are planning to invest more in technology spending, 43% listed AI and machine learning as a top priority, especially among large national banks and payments companies. Last year, only 24% listed AI as a spending focus. A survey by Ernst & Young LLP and the Institute of International Finance shows similar findings: 84% of financial institutions report the wide use of AI models in production today. 86% expect the integration of GenAI to increase the number of models in their inventory, streamlining operations to introduce greater efficiencies.

3. Retaining Deposits

The battle for customer deposits is on. With rising interest rates putting a squeeze on bank margins, keeping customers happy and loyal is more crucial than ever. According to Deloitte, “Deposit costs for the largest banks stood at 2.2% in Q2 2023. Going forward, the global banking industry may be hard-pressed to bring down high deposit costs (and lower deposit betas) even as interest rates drop. Customer expectations of higher rates, coupled with increased market competition, will force many banks to offer higher deposit rates to retain customers and shore up liquidity.” Banks must remind customers of the value they provide beyond deposits, such as insurance and wealth management. They can also use data analytics to custom-tailor products for any at-risk account holders. Lessons can be learned from online banks like Ally Financial and Marcus by Goldman Sachs, which grew their deposit base during the first half of 2023 by tapping into the digital-first market.

Bottom line

As we navigate these tough economic times, banks must find ways to innovate and seek new sources of revenue in a capital-scarce environment. For example, Kipp’s platform aims to solve a critical problem faced by card issuers and online merchants – the significant revenue loss resulting from declined transactions, which are often unnecessary. These declines are triggered by automated risk analysis algorithms used by card issuers to detect non-sufficient funds, attempted fraud, or violations of bank policy. While these algorithms are necessary to protect the issuers, they result in a loss of revenue as about 15% of transactions are declined, causing frustration for cardholders, and pushing the card to a back-of-wallet position, causing both financial and reputational harm for issuers.

 

Kipp bridges the gap between card issuers and merchants, increasing transaction approvals and driving revenue and loyalty. Kipp’s platform enables issuers to make smarter authorization decisions by connecting them with merchants who share pivotal data in real-time. For credit-related declines, issuers can collect additional revenue from merchants willing to pay a premium to avoid a decline. It’s innovation and revenue generation at its best.