By Kathy Stares, Executive Vice President of North America for Provenir
Kathy Stares
To truly thrive in 2024 in an increasingly competitive industry, financial institutions need to provide consumers with world-class customer experiences, while adapting to a shifting marketplace.
From evolving lending practices to new competition, and changing fraud risks and compliance needs, below are the top 10 trends that will impact the financial services landscape in 2024.
Growing Adoption of AI for Improved Customer Experience: In 2024, expect to see the use of Artificial Intelligence to drive agility and customer satisfaction. With a convergence of financial services products such as embedded finance and open banking, providers need to meet a wide array of customer demands and expectations. This means honing the digital journey to provide value at every single touchpoint with hyper-personalization.
AI can help identify the best offer at the right time, streamline the ability to accept that offer, and move the customer through to payment — all in one frictionless process.
Deploying AI-Infused Strategies for Fraud Detection: As financial fraud and risk vectors constantly evolve, accessing and applying real-time data to the latest defensive measures in a fully automated fashion makes AI and machine learning (ML) indispensable to detect and mitigate fraud. By adopting AI-infused strategies, Fis can transition from traditional policy-based approaches to those that leverage predictive, explainable and scalable ML algorithms, radically improving both the speed and accuracy of fraud decisioning.
Evolving Data Management and the Democratization of Data: Data management and ingestion have been key to financial services strategies during the expansion of open banking and general digitization efforts across the industry. Most providers now have their foundations in place, which means 2024 will be the year to move to the next level and push forward the democratization of data.
In combination with AI, data democratization employs more data access, better analytics, and more intentional ingestion to underpin digital journeys to better serve customers. We have already realized the immense impact new forms of data such as alternative data can have on both risk and customer experience, and the coming year will provide an opportunity to use it to refine those customer touchpoints along the entire journey.
Digital Payment Evolution: Consumers are used to making P2P payments on platforms such as Venmo, PayPal and contactless payments at the point of sale. The problem is that these transactions are not yet frictionless. This is the nirvana in the evolution of digital payments is going; expect to see new developments in this area this year.
AI and alternative data can play a key role in helping to accelerate this evolution. Tier one digital wallet providers have been advancing in step with evolving technology to make the customer journey as fast and as seamless as possible. Ultimately, whatever entity can optimize the customer payment experience and use “what’s in their wallet” to drive more intelligent decisions, will be the victor.
A More Digitized Focus for Customer Onboarding: According to Juniper Research, banks are anticipated to increase their onboarding spend from $7.4 billion in 2023, to $9.9 billion in 2028; representing a 34% increase. The study also found that the implementation of AI in identity verification is expected to reduce the average time spent per digital onboarding check from over 11 minutes in 2023, to under 8 minutes in 2028. Streamlining customer and merchant onboarding processes is crucial to remain competitive and the integration of not only AI, but other advanced technologies such as biometric verification, can significantly reduce onboarding time and reduce friction in the customer experience.
Hyper-Personalization Driven by Data Analytics: Personalized financial services are becoming a key differentiator. According to a study by McKinsey & Company, banks that successfully use customer analytics to improve customer experience can increase their customer satisfaction scores by 20% and their revenues by 15%. Financial institutions are using advanced data analytics and a wider variety of data sources integrated into credit decisioning to enable more accurate risk assessment and to say “yes” to more customers with confidence.
Sustainable and Ethical Banking Practices: Sustainable and ethical practices are increasingly influencing consumer choices. Financial institutions adopting green policies and transparent operations are likely to gain customer trust and loyalty. According to a recent survey, 24% of European consumers are likely to switch banks over environmental, social and governance (ESG) policies, and 61% of U.K. consumers want their bank to be more progressive when it comes to their positive social and environmental impact. Leadership is taking notice as 73% of banks plan to offer more sustainable options in the next five years.
A report from Boston Consulting Group showed that one example of a retail bank implementing innovate sustainable practices is “through green mortgages, which provide discounts on interest rates or fees to purchasers and builders of energy efficient properties. Banks can also use the daily banking relationship as well as their personalized engagement capabilities to support customers in environmentally friendly and ethical living.”
Collections Strategies that Build Customer Loyalty: In the current era of economic uncertainty, effective collections strategies are vital. Employing empathetic and customer-centric approaches in collections can improve recovery rates and customer relationships, and using a holistic risk decisioning solution can help financial institutions identify the best treatment strategies and most effective communication channels to help customers. This can also help banks’ pre-collections strategy, with embedded intelligence enabling financial institutions to be more proactive in predicting potential defaults and minimizing losses.
Buy Now, Pay Later (BNPL) Continues to Evolve: While widely popular because of its simplicity and convenience, BNPL is also a way to open opportunities in underserved market segments. The opportunity for banks is now. One report showed that 43% of consumers would be interested in using BNPL plans offered by their banks rather than fintechs. Banks that can integrate BNPL into existing banking services can help ensure a more comprehensive (and competitive) financial solution to customers – and enable penetration into a wider customer base.
This is a pivotal year for the financial services industry where embracing change and innovating risk management strategies will be key to staying relevant and profitable. Understanding these trends and adapting to the challenges at hand will be crucial for financial institutions to create better connections to customers and streamline operations.
About the Author
Kathy Stares is Executive Vice President of North America for Provenir, a global leader in AI-powered risk decisioning software, processing more than 4 billion transactions annually for disruptive financial services organizations in more than 50 countries worldwide. With more than 20 years of experience and accomplishments in financial services technology, Kathy brings deep knowledge and curiosity about risk decisioning innovation.