By W.B. King
Citing an uncertain economy, increasing compliance and fraud issues, competition for deposits, and the ever-shifting loyalties of younger accountholders, Alkami’s Strategies & Budgeting for Financial Institutions – The 2024 Playbook warns that 2024 will be a “crossroads year.” The report added these factors are “coalescing into the urgent need for financial institutions (FIs) to provide heightened user experiences, personalized offers via account holder data and a second-to-none digital banking platform.”
Brett King, chief executive officer and founder at The Futurists Network and coauthor of the report, said the financial services industry will experience an increasing use of artificial intelligence (AI) applications, including the “ubiquity of smartphones, smart assistants and even smart glasses.” He added: “Remember 2024 is also the year that Apple will release VisionPro (mixed reality headset) to the world, and we can expect this sort of technology to be pervasive by the next decade.”
When King shifted focus squarely to the banking and fintech industries, he noted that the U.S. has less than 9,000 FIs today, which is down nearly 25,000 from the industry’s peak in 1991. (In 2022, there were over 4,700 credit unions in the nation.)
“In the U.S. in 2024, bank branches will reach less than two-thirds of the numbers at their peak back in 2008. Cash usage is in sharp decline and the concept of a primary bank has all but disappeared amongst Generation Z (Gen Z) and Generation Y (Gen Y),” King said. “We’re seeing consolidation in the fintech space also, with fintechs acquiring fintechs, banks acquiring fintechs and in the case of players like GoJek in Indonesia, we see fintechs acquiring banks also.”
With regard to neobanks, Kings said the two leading reasons consumers consider leaving their FI is ease of account opening (digital account opening) and superior user experience (UX)/customer experience (CX).
“If we look at the feature set appearing in traditional bank mobile apps today, much of this has been influenced by neobanks who were clear leaders in feature set, and overall user experience, over the last decade,” he continued. “The same will be true for AI, with massive venture capital investment going into AI all over the world right now, but certainly in the application of AI into banking and fintech generally.”
Noting that the rollout of FedNow in the U.S. has been “lukewarm,” King said America is “slipping behind much of the world in fintech adoption, in migration off of cash and checks, in open banking and generally in technological advancement in the sector.”
Attracting and Retaining Younger Members
Fellow report author Jim Perry, senior strategist at Market Insights, Inc., said FIs are in an “intense battle” for deposits.
“Tech giants like Apple and ONE (the fintech backed by Walmart) have easily pulled customers and deposits away from traditional banks with fee-free, high yield accounts. To compete, financial institutions are increasingly turning to fintech partnerships to increase efficiencies and improve customer experiences,” Perry noted. “And despite potential new capital rules and regulatory requirements, some financial institutions are exploring merger or acquisition opportunities as a way to position for future growth.”
The report also emphasized the importance of FIs attracting and retaining younger account holders, especially Gen Z born between 1996 and 2010.
“The youngest of these are just coming of age while the oldest of the generation are shopping for their first cars and homes,” the report stated. “Gen Zers are estimated to have $360 billion in spending power, and according to multiple studies, they are expected to inherit $11 trillion of wealth over the next 10 years.”
When compared to other demographics, Gen Z is the most difficult segment of the population for FIs to attract. Reasons for this trend, the report offered, include spending habit preferences.
“They are the least likely to stay loyal to a bank or credit union and the most likely to cherry-pick solutions they can find in the palms of their hands,” the report continued. “Digital-first offerings make it easy for savvy, digital native consumers to qualify for a personal loan in minutes online, open an account or investigate options for a home mortgage, bypassing traditional financial institutions with the touch of a button.”
Effective IT Spending Strategies
As FIs look toward 2024 and consider respective budgets, Ron Shevlin, chief research officer at Cornerstone Advisors, said FIs should look to maximize the “tidal wave of data crashing onto the shores of financial institution.”
“Gathering all this data, tracking and measuring key performance metrics (KPIs) like trail markers on a rugged path. But here’s the twist – understanding these metrics in isolation is like reading a single page of a gripping novel,” Shevlin, who coauthored the report, continued. “They’re breadcrumbs leading to better decision-making, more effective strategies, and yes, a smoother path to success. It’s intriguing, sure, but without the whole story, it’s just a teaser. Turning raw data into actionable insights takes investment in time, strategy and partnerships.”
While Shevlin said that an uncertain economy could impact certain FI budgets in 2024 and beyond, he expects to see “a rise in digital spend from high-performing” banks and credit unions.
“In 2024, we will see a significant increase in focus and spending on machine learning as financial institutions experiment with Generative AI use cases and conversational AI tools as financial institutions deploy chatbots and intelligent, digital assistants to better support their members, customers and employees,” he said.
Shevlin added that in 2023, total IT spend on digital channels was 23%, which is up 15% from the prior year. For 2024, he estimates that number to be closer to 30%.
“As the digital curtain rises for the next act, we’re all waiting with bated breath for the next exhilarating move. Will the number of users match the rhythm of spending? Will the high performers continue to dazzle us with their futuristic prowess?” Shevlin offered. “The spotlight’s blazing, the stage is set, and this financial spectacle is taking us on a thrilling ride into the future.”
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