Welcome to the world of finance in 2024. In this dynamic environment, our team ventures a look ahead to the year 2024. We’ve rolled up our sleeves and delved into the depths of technology trends in the financial markets. The result is a collection of forecasts for the year 2024. Let’s explore together what the future might hold for the financial industry and what implications this might have for the young upstarts, the fintechs.
1. Return of Demand Deposits: We predict that banks will rediscover the good old demand deposits. Discount brokers have entered the race for the highest savings interest rates. They are enticing with interest rates around four percent on accounts, bonuses, and cashback when paying with their own credit card. In a world where everything is instant and digital, a return to tried-and-tested customer loyalty measures will become a trend. Banks could score here with innovative offers that promise flexibility, exciting benefits, and attractive returns.
2. Flexibilization of Balance Sheets: Banks will increasingly move away from rigid structures and pursue more creative approaches in business field development. In today’s world, it is a competitive advantage for established banks to see fintechs not as competitors, but as necessary partners to meet rising customer expectations. The biggest challenge, according to a recent study by Capgemini: Only 21 percent of banks say their systems are agile enough for collaboration. In contrast, more than 70 percent of fintechs are frustrated with the processes of established banks.
3. Boom in Instant Payments: We are witnessing a rapid increase in instant payments, which will revolutionize payment transactions. Banks that cannot keep up in this area may quickly fall behind. For example, the payment provider Brite is already advertising with the slogan: Simple. Error-free. Instant. – Real-time payouts enable error-free and instant account-to-account payouts to your end customers. Whether it’s insurance benefits for consumers or instant payment for pizza delivery account to account – all sides benefit from this cash flow optimization.
4. Reorientation of Risk Management: Faced with constantly changing global conditions, banks will be forced to rethink and adjust their risk management strategies to protect against unpredictable market changes. Common KYC processes are as labor-intensive and costly as they are prone to errors. But some brave pioneers have already set out to change this: The start-up Sinpex, for example, optimizes KYC processes for companies. Sinpex’s software automatically performs all necessary KYC checks, including obtaining official documents, PeP, checking sanctions, and negative news.
5. Increased Priority for Cybersecurity: The supervisors of the European Central Bank (ECB) want to find out how well the major banks in the euro area are prepared against attacks on their IT systems. At the beginning of 2024, the supervisors will start their first stress test on cyber risks (“Cyber Resilience Stress Test”). About 100 institutions are expected to participate. We predict that cybersecurity will be a significant communication occasion in 2024. Banks that invest in their IT security and develop innovative protection mechanisms will be at the forefront of this communication wave.
6. Increased Focus on Sustainability and ESG: The Banking Association wants to create clarity regarding ESG data. Corporate representatives have long been calling for standardization and fear that the issue around ESG data could become as complicated as KYC processes. The financial magazine FINANCE and LBBW published a study last year, questioning, among other things: What role do sustainable financing instruments play in the current time? Has the topic of sustainability already arrived in large and medium-sized companies? If so, how does it manifest in everyday business life?
7. Battle for Gen Z: With new, digital offerings, banks will vie for the attention of Generation Z. This customer group expects not only digital excellence but also products that match their values. However, young people seeking financial advice do not turn to banks or successful entrepreneurs, but to mom and dad – at least that’s what a representative study by “Morning Brew” and Generation Lab among nearly 1,000 American college students from November 2023 shows. Thus, the focus for fintechs wanting to reach the young Gen Z remains on clean value orientation. This can include highlighting user-friendly, mobile platforms and aligning with social and ecological responsibility.
8. Increasing Digitalization: The banking world will continue to focus on the development of digital solutions, as today’s abundance of information becomes an almost unmanageable flood of data. By 2030, the banking sector sees a potential savings of more than 300 billion US dollars worldwide through the use of AI. But only those who can analyze and evaluate large amounts of data will be able to unearth this treasure. Many banks are currently failing at this, as a Horváth study shows. This is where the use of artificial intelligence makes the difference: Automated analyses not only collect data but also evaluate it. This also includes the introduction of AI-based systems to improve risk and compliance, customer experience, and internal process efficiency.
9. Shift in Business Models: The signs are clear: the recent approval of Bitcoin ETFs in the USA, the issuance of the first crypto custody licenses in Germany (e.g., to Commerzbank as the first full bank), or the EU-wide ECSP licensing for first providers like Zinsbaustein as an alternative to largely unregulated crowd investing – We expect that providers of financial services will continue to diversify their business models and increasingly focus on specialized and regulated services to assert themselves in a competitive market.
10. The Year of Taking Action: The business models of the European banking and fintech landscape face multifaceted fundamental challenges in 2024. Therefore, strategic decisions in the coming year will be put to a tough test. Banks that invest in personalized and customer-oriented services will rise in customer favor. Here, innovative technologies like blockchain or AI could play a key role.
For those who want to learn more about the hottest current trends in the financial industry: At the start of the event season 2024, the Frankfurt Digital Finance 2024 will offer deep insights into current challenges and solution approaches of the European financial industry.
