By W.B. King
Among findings in the Juniper Research’s Top 10 Fintech and Payments Trends 2024 is that A2A (account-to-account) payments is a segment to watch.
“Open banking is vitally important to A2A payments. By enabling permissioned access to bank accounts for third parties, open banking can provide the user interface and front end for linking instant payment schemes with digital wallets,” the report offered. “These technical abilities are combined with strong growth being seen in open banking adoption.”
As an example, the report found that in the U.K., over one in nine residents have used open banking services, with 10.8 million open banking-initiated payments made in August 2023. In Western markets, financial institutions (FIs) should prepare to let go of the traditional payment cards.
“The fact that these card schemes are owned and operated by American businesses is problematic to regulators, with this infringing on the perceived sovereignty European authorities have over their payment systems,” the report stated. “As such, a coordinated shift to payments that run on locally owned and operated payment rails would be of major benefit.”
2024, the report noted, will also be a “major year” due to the anticipated growth in VRPs (variable recurring payments).
“VRPs are variable payments that can be set up by the user; allowing greater configurability and ease of use than traditional direct debit payments,” the report continued. “As such, A2A payments are also highly suited to disrupting recurring payments in the longer term. VRPs are scheduled to be explored in greater depth by U.K. regulators in particular in 2024; setting the stage for further growth in A2A payments.”
Generative AI
Also making Juniper’s 2024 trends list is how generative artificial intelligence (AI) will “transform” FIs’ spending insights.
“We believe that 2024 is the year when these use cases for generative AI will crystalize into specific benefits for lots of different verticals, but in particular for banks and financial institutions,” the report offered. “Given the scale of generative AI’s capabilities, it is important to understand why there is so much potential, specifically in the banking sector.”
Among areas of noted “potential” is the amount of data banks and credits unions hold, which AI lives and operates on.
“As banking has a wealth of data, including transaction behavior, account balances, spend categories et cetera, this opens up the possibility for generative AI to create useful content that can help to improve the customer relationship,” the report noted
“Traditional banks face stiff challenges from digital-only banking brands,” the report continued. “Given the fact that the most common banking services are free or low cost, banks are now competing on user experience as their biggest differentiator, which poses a major challenge to traditional banks, who have often struggled to provide a compelling user experience.”
While the report noted regulatory challenges ahead, the forecast is for “Ongoing pressure on banks in terms of competition and the emergence of generative AI.”
FedNow: Adoption Rates Remain Uncertain
At the end of 2023, Federal Reserve Governor Christopher Waller said at Money20/20 that the Federal Reserve would count upwards of 350 banks and credit unions as adopters of its newly offered FedNow real-time payments settlement service.
While the report confirmed that FedNow has had “strong early support from financial institutions within the U.S.,” the real-time payments engine is not expected to be as “transformative” as in other markets, including India or Brazil.
“The growth trajectory for FedNow will be quite different. While India’s UPI and Brazil’s PIX were encouraged by regulators, and adoption in certain use cases was mandated, this is not the approach the U.S. Federal Reserve has taken; opting to make the tools available and allow the market to scale at its own pace,” the report stated.
“This does not mean that we believe FedNow will be a failure,” the report added. “Indeed, we believe that FedNow will eventually become a vital payments service within the U.S. market, replacing several existing payment rails and improving efficiency within the U.S. payments ecosystem.”
In 2024, the report anticipates “a lot of exploration of value-added services (VAS)” that can be “built on top” of the FedNow platform.
“By taking a market-led approach, the Federal Reserve has essentially created a toolbox for financial institutions to then create their own business models on top of this,” the report noted. “As such, we expect to see lots of innovative value-added services emerging within 2024, with lots of different pilot schemes emerging from different financial institutions.”
Among general advice Juniper provided to FIs for 2024: Innovation for innovation’s sake is no longer a viable strategy.
“Given the economic pressures, and the intense competition in almost all markets, fintech vendors must ensure that their solutions offer genuine progress on key pain points, rather than offering speculative gains,” the report noted. “As funding from venture capital continues to be restricted, fintechs must prioritize practical solutions that address specific needs.”