Top Trends in Global Banking and Financial Services Industry in 2024

Change is inevitable in any industry, more so in banking and financial services due to their geographically diversified customer base, cross-border legislations, and fundamental role in economic activities.

Several macro factors drive changes in banking and financial services, shaping distinct trends and pushing the boundaries for innovation and delivery of financial services in 2024.

For example, banking customers have used digital payments for over a decade since 2000s. However, the pandemic dramatically increased the usage and customer base of digital payment platforms. According to worldbank.org, two-thirds of the adult population worldwide began using digital payments after the pandemic in 2021. Over 40% of adults made digital payments for the first time since the pandemic.

This trend indicates a need for banks to offer digital payment services to customers and invest in improving their experience. Enhancing fraud detection in digital payments is also becoming critical as online transactions increase.

Banking regulations are another area of change, continuing to see a tectonic shift. Over the past two decades, banking laws and regulations have been getting more nuanced and far-reaching due to events like the 2008 global economic meltdown, the 9/11 attacks, etc.

There is an increased focus on cross-border collaboration, due diligence, and consumer protection, increasing the chances of scrutiny. For instance, while digital ad-serving technology has enabled financial services to reach more prospects, it obligates them to protect user privacy in line with data privacy laws.

International laws such as the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) ensure they do so to avoid hefty penalties and reputational losses.

Macro Factors Affecting Banking and Financial Services Globally

1. The rise of digital technologies and the prevalence of data
2. New competitors and business models
3. Proliferation of laws and regulations
4. Evolving customer expectations
5. Growing focus on ESG
6. Changing workplaces and talent

Here are some prominent trends taking shape due to the factors above.

Trend 1: Increased Adoption and Applications of Generative AI (Gen AI)

Gen AI tools and solutions are rapidly evolving since the launch of ChatGPT in 2023, and virtually every industry is exploring the potential of Generative AI. The banking and financial services industry is among those that stand to benefit the most, with several well-defined use cases.

According to Juniper Research, the annual global spending on Gen AI by banks will increase from $6 billion in 2024 to $85 billion in 2030, projecting over 1300% increase in the spends.

Key use cases/applications of Generative AI in banking and financial services in 2024 include:

1. Risk Management: GenAI can help manage emergent credit risks, technology risks, and other financial and non-financial risks through synthetic data creation, risk modeling, testing, etc.
2. Customer Support: Generative AI solutions such as intelligent chatbots can enable autonomous client servicing to a great extent by generating personalized responses to queries in real time. Virtual bankers and relationship managers are some other possibilities based on GenAI.
3. Detection and Prevention of Financial Fraud: Proliferating fraud typologies necessitate urgent intervention of cutting-edge technologies guided by human expertise. Generative AI is at the frontier of technologies that can curb financial fraud by leveraging data, training advanced models for detecting false positives, learning anomalous patterns, behavioral analysis, etc.

Other emerging applications of generative AI in banking and financial services industry include:

• Wealth management and portfolio optimization
• AI-powered algorithmic trading
• Contract generation
• Credit and loan operations
• Treasury and estate operations
• Customer relationship management
• Card operations

Despite its potential, Generative AI also presents challenges, such as

• The risk of embedding bias in financial models
• Generating synthetic data that could be misused.

Additionally, regulators are increasingly focused on AI transparency and ensuring these systems do not inadvertently harm consumers or create unfair advantages.

Besides, criminals also have access to Generative AI capabilities and are actively using them for deepfakes and to run sophisticated fraud schemes and financial crimes. To effectively address these threats, it’s essential to understand how to combat Generative AI-enabled deepfakes and other financial frauds.

Trend 2: Growing Reliance on Cloud and Edge Computing to Capture Value

Cloud computing is gaining more relevance with financial institutions’ growing focus on priorities such as digital banking, innovation, customer experience, operational agility, scalability, and cost-effectiveness. A research report by Insight Ace Analytic informs that cloud adoption in banking is expected to grow at a CAGR of  16.3% from 2024–2031.

Further, the report projects wealth and investment banks among top adopters of cloud due to their increased need for predictive analytics, risk management, and data regulation.

According to AWS Banking on the Cloud 2024 report, banks are focused on distinct priorities to drive innovation, customer experience, and improve their core operations, and cloud services have a crucial role in supporting these priorities.

For instance, cloud provides the necessary infrastructure for crucial requirements such as data aggregation and data analysis, security enhancement, rapid experimentation, etc., to devise a better experience for customers.

Although cloud adoption brings numerous benefits, it also introduces security and data privacy challenges. Financial institutions must ensure compliance with stringent regulations such as GDPR while securing sensitive customer information. Multi-cloud strategies and enhanced encryption techniques are often employed to mitigate these risks and protect data integrity.

For instance, in 2023, a major European bank faced a $50 million fine for non-compliance with GDPR, underscoring the increasing scrutiny around data protection and cross-border privacy regulations. This example highlights the heightened risk that financial institutions face as compliance requirements continue to evolve.

Trend 3: Increased Regulatory Scrutiny, Need for Safety and Soundness, and Consumer Protection

Governance, Risk, and Compliance (GRC) continues to be a prime focus of regulators and policymakers, who are expected to bring more stringent mandates to address new and emerging risks in 2024. On the operational side, cybersecurity threats and new technologies such as AI, blockchain, and cloud are rapidly shaping new risk scenarios.

Similarly, geopolitical issues and economic uncertainties continue to challenge the financial stability of the global banking and financial services ecosystem.

Increased regulatory scrutiny may also pose challenges for fintech startups, especially in terms of meeting compliance requirements that often demand extensive resources. This may result in higher barriers to partnership with traditional banks, who are also under pressure to ensure the compliance of their fintech partners, thus making the collaboration ecosystem more challenging.

According to Deloitte 2024 banking regulatory outlook, the US banking regulators are slated to bring significant updates to capital, resolution planning, compliance, and oversight in 2024. Major trends and developments on the regulatory front include:

1. Increased supervisory scrutiny of financial institutions and focus on delayed remediation of findings.
2. Expanding scope of scrutiny, from large banks to midsized financial institutions, fintech, payment companies, and big tech firms.
3. Areas of regulatory scrutiny to include liquidity debt and capital requirements.
4. Safety and soundness among the top priority of banking regulations, including Basel III international standards also known as “Endgame”, long-term debt requirements, etc.
5. More emphasis on protecting consumer rights from potential violation due to technologies such as blockchain, artificial intelligence and other aspects like fintech partnerships, fair lending, etc.

Read more on how RegTech adoption is shaping financial compliance strategies.

Trend 4: Macroeconomic Conditions, Regulatory Changes, and Cyber Risks Among Top Threats

While several types of issues pose risks to the banking and financial services in 2024, a few of them have taken the centerstage.

According to the ERM Initiative Report on Top Risks by Protiviti and NC State University, which surveyed 1,143 board members and C-suite executives, the change in current interest rate environment is the top risk to maintaining profitability and growth in financial services in 2024. The major reasons driving this perception include liquidity crisis, more stringent regulations, increased funding costs, and fundraising difficulties.

The following are some other risk trends in financial services:

• Economic conditions and inflationary pressures are among the second most concerning factor for businesses in 2024.
• Cyber threats and cybersecurity risks are continuously growing and rising higher in the ladder of risks. As per the report, cybersecurity is now among the top 5 risks concerns in 2024.
• The third-party risk landscape continues to expand and grow more serious in 2024. Key third-party risk concerns emerge from factors such as counterparty credit risk, financial volatility, security incidents, and the growing use of third-party cloud and SaaS solutions.

The Protivity-NC State University report mentions some additional risks that will be emerge as critical areas of concern for financial services in 2034. These new risk categories include:

• Skill and capability gaps will hamper adoption of digital technologies
• Rapid wave of disruptive innovation led by emerging technologies will continue to pose bigger threats
• Increased regulatory scrutiny and evolution of laws will necessitate increased due diligence
• Need to attract, nurture, and retain talent in the changing labor market, including succession planning, will be more strategic

Trend 5: Mobile, Personalization, Automation, and Security Most Important for Customer Experience

While customer experience reigns supreme from the standpoint of delivering value to customers, specific aspects standout as key factors that financial services must consider for enabling a great customer experience. These aspects include:

1. According to a National Survey conducted by the American Bankers Association in 2023, approx. 48% of customers use mobile devices and apps to manage their bank accounts, followed by desktop, branch, ATM, and telephone calls.
   This finding clearly indicates that superior mobile banking experience can be a key differentiator for banks and other financial services, helping them attract and retain customers and increase their lifetime value.
2. In a report titled The State of Personalization Maturity in Financial Services in 2023 by Master Card Dynamic Yield, 72% of the people that were surveyed considered personalization as “highly important” in today’s financial services industry. And 86% of financial institutions identify personalization as a critical business priority.
3. AI-powered automation will continue to gain prominence as an enabler of customer experience in the financial services industry in 2024. Many of the repetitive processes such as online application filling, documentation, payment processing, etc. are key candidates for intelligent automation. For example, intelligent chatbots can provide a real-time interface for banks to engage with customers 24×7 irrespective of their time zones.
4. Security and privacy are among the top concerns of customers as they continue to adopt digital platforms for financial and non-financial activities such as online payments, deposits, purchases, enrollments, mobile banking, etc. For instance, biometric authentication, such as fingerprint scanning, facial recognition, and even voice biometrics, can help enhance security and contribute to a seamless customer experience by eliminating the need for traditional passwords.

Trend 6: Sustainable Finance is Gaining Significance and Relevance

Environment, Social, and Governance (ESG) actions are a critical priority for financial services due to the obvious need and demand for tangible actions that result in outcomes. While specialized laws and regulations obligate organizations to maintain and disclose specific sustainability measures toward ESG, customers and employees now prefer companies that demonstrate impactful ESG action.

For example, HSBC has committed to providing up to $1 trillion in green finance by 2030, while Barclays was the first to roll out its ‘Green Home Mortgage‘ initiative back in 2018 to encourage sustainable housing. These initiatives demonstrate the financial sector’s growing focus on sustainability and aligning with global climate goals.

The following are some emerging trends in sustainable finance:

1. Green loans are gaining relevance due to their inherent focus on promoting and supporting businesses developing energy-efficient technologies and solutions. According to FinTech Magazine, green loans are more compelling to retail and corporate customers as they align better with their sustainability values.
2. Carbon tracking technology is gaining traction due to its ability to determine the environmental impact of human activities. In banking and financial services, adoption of carbon footprint tracking solutions is increasing due to its fundamental role in measuring and reporting the emissions due to banking operations.
3. Digitization technologies are emerging as a crucial alternative to conventional financial processes such as payment processing. Mobile payment solutions, carbon-neutral payment processing, contactless payments, and digital wallets are some of these.
4. According to Deutsche Bank ESG Trends for 2024, the focus will continue to grow on transition plans as more companies pledge to attaining net zero targets. However, according to Climate Action 100+ report, most focus companies are slow in implementing the measures to meet the goals in line with Paris Agreement.

Trend 7: Talent as a Key Differentiator and Competitive Advantage

Considering the disruption due to new technologies, competitors, regulations, and customer preferences, the financial services industry needs skilled professionals capable of effectively steering the business. This demand includes roles like data scientists, AI specialists, cybersecurity experts, and blockchain developers who can bridge the gap between technology and business strategy, ensuring that digital initiatives align with core business objectives.

While the demand for such roles and high-quality talent is growing, specific trends impact the availability of talent.

1. Flexible Workplaces: While organizations continue to devise innovative approaches to bring back employees to office, people in the workforce desire flexibility in their work locations and timings. In a Deloitte’s survey, about 94% of respondents indicated workplace flexibility – hybrid and remote work options, supportive policies, etc. – as a key factor impacting their well-being and work-life balance.
2. Growing Competition for Technology Talent: Arrival of new technologies has created a demand for proficient workforce. As competition grows, and organizations attempt to outpace each other, they recognize that the corresponding talent is scare and expensive, and therefore, they are devising a more holistic value proposition to attract professionals. Supportive culture, learning opportunities, career growth, and work-life balance are crucial for engaging the right talent.
3. Need for Talent Development: Aside from acquiring new talent, organizations are recognizing the need to upskill and reskill their existing talent pool in sync with industry standards and customer expectations. Consistent development of in-house talent in technical domains, new verticals, and soft skills is a strategic focus area for market competence and employee retention.
4. Long-Term Knowledge Management: Financial institutions, among the different types of organizations, need to manage their knowledge base most due to the critical role of knowledge in running the operations. Therefore, there is an emphasis on curating the knowledge – individual’s process expertise, versioned documents, time-tested learnings, etc. – into digital content libraries that allow centralized and long-term access without dependency on an individual. Digital knowledge management is a rising trend and need to secure documented expertise from loss.
5. Diversity, Equity, and Inclusion (DEI) at the Heart of Culture: In addition to sustainability, DEI constitutes another critical element of an organization’s value system, which can positively influence prospective talent. Financial services companies realize the importance of DEI and have a strategic focus on fostering a diverse, equitable, and inclusive culture.

Awareness and Action are Crucial for Market Relevance

Amid rapid and multifaceted changes, financial institutions must stay aware of the latest developments and trends and take timely actions to maintain their competitiveness.

Considering the need to recognize the fluid landscape and competitive ecosystem, agility and adaptiveness must form the cultural core of financial services to provide them with sustained market relevance.