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These Tech Trends Will Reshape the US Banking Industry in 2024
American banks are heading into 2024 with guarded optimism. If inflation continues to moderate and employment remains stable, the economy may avoid the recessionary impacts and credit market disruptions that the industry anticipated last year. Rather than managing severe macroeconomic headwinds, banks should be able to invest in the technology innovations that will drive sustainable growth through the rest of the decade. The trends below will define the direction of this year’s banking technology spending.
1. A continued focus on cost and efficiency
Banks have responded to the current economic environment by re-organizing/restructuring, cutting budgets for technology and consulting, scaling back on new investments, reducing workforces, pausing hiring, and eliminating high-cost centers such as in-house operations or custom technology with inflexible fixed costs. This year, banks will explore various frontiers for cost reductions that reimagine operational expenses while creating open, agile, and flexible systems consistent with sustainable technology expenses.
2. AI goes mainstream
This year, AI (particularly GenAI) will go mainstream. During the past year, banks have been focused on building their GenAI strategies, refining GenAI governance and guardrails, and validating the likely ROI of their generative AI investments. This year, banks will move beyond GenAI prototypes, first scaling internal GenAI use cases (like banker/agent knowledge base and assistant tools) before turning to customer-facing use cases such as full-scale contact center and customer assistance transformation. (Banks should also double down on AI compliance to ensure they abide by all regulations.) Banks can reduce employee workloads, automate customer interactions, and improve customer experience through these use cases.
3. Faster, more data-rich payments
From the outside, payments seem simple. Banks need to ensure that consumer and corporate customers continue to experience simplicity even as payments accelerate and the backends become more complex from a data perspective. Banks have already come a long way in terms of payment automation. The next phase of payment maturity will require reworking the front/middle/back-office approvals and reporting to accommodate ISO 20022’s more structured data standards, leveraging AI to support real-time payments, and helping an expanding set of enterprise clients build out embedded banking. This next phase of payments transformation will benefit from advanced payments data lakes and analytics, microservices-based architectures, and blockchain (particularly blockchain for cross-border payments).
4. Evolving approaches to fraud identification
Fraud identification is a perennial priority for banks, but the stakes are rising again, mainly because of the potential for GenAI-powered bad actors. In this context, behavioral biometrics and device intelligence will be more critical than ever, as will fraud analytics and AI. As GenAI-infused fraud comes onto the scene, AI will also be the best defense.
5. Compliance challenges on multiple fronts
US banks will need to engage in multiple compliance efforts this year. CFPB’s emerging Personal Financial Data Rights rule aims to set the parameters for open banking in the US. It will require banks to reexamine their practices around customer data collection and data use. At the same time, banks will be accommodating to new reporting requirements related to the Community Reinvestment Act and must implement the final rule changes by January 2026. DFA 1071, meanwhile, means that banks will be challenged to ensure that recent consumer fairness-in-lending practices are extended to SMBs, which will require core platform updates, banker training, and expanded datasets (which must be captured, managed, and reported to regulators). As AI (including GenAI) scales, banks must ensure that governance practices promote adherence to statutes like the Equal Credit Opportunity Act, which holds AI outcomes to the same standards as human decision-making.
6. A consumer lending transformation imperative
Most consumer lending technology supporting originations, servicing, collections, and loss mitigation is now ten or even 20 years old. This is true across numerous products: auto, cards, personal loans, and mortgages. Last year, we saw unprecedented inquiries and initiatives in this otherwise dormant space. Interest rates have peaked, and lenders should prepare to take advantage of this space as the lending market bounces back. With some challenger banks making great strides in streamlining lending journeys, banks need to prioritize rethinking onboarding, origination, servicing, and collections. The most successful banks will pair contemporary SaaS-based platforms with custom intelligence and UI/UX to orchestrate an enlightened customer experience.
7. A year for treasury transformations
Banks have a massive opportunity to help commercial clients integrate from accounts payable through accounts receivable and interpret the data to offer better products and services. This includes KYC/AML checks, API-driven customer experience integrations, and intuitive omni-channel platforms. As commercial customers demand solutions to enhance their corporate treasury activities, banks are increasingly partnering with fintechs and software players to provide quality treasury management offerings. The advent of API-enabled solutions and fit-for-purpose fintech capabilities will likely alter the composition of treasury management products and services revenue pools. Historically, bank-provided treasury platforms have focused on core transaction execution central to their corporate relationships. However, the advent of software-as-a-service and API connectivity has made robust, multifunctional workstations far more feasible; in response, software firms and other third-party providers have grasped this opportunity to create solutions that are gaining ground with corporate clients of all sizes across various sectors.
8. Data transformation
Most banks have already started their data transformation journeys, but they still need to be completed. While the initial focus was on data infrastructure modernization and the move to the cloud, data transformation will continue to expand into data consumption rationalization, bringing real-time drill-down analytics, enhanced data quality, better data definition, and due diligence. Banks now have an opportunity to harmonize this internal and external data in a unified fashion via a centralized data lake to support previously unimaginable analytics, AI, and GenAI use cases.
9. Cloud migration and transformation
Most banks operate in a hybrid cloud environment, blending on-premises solutions with services from cloud hyperscalers. Cloud economics has recently emerged as a theme enabling banks to get the highest performance out of their cloud spending. The next stage in cloud maturity will lean heavily on industry clouds to build new capabilities in core banking, lending, and decision management.
10. A turning point for small and medium business (SMB) digitalization
The SMB segment brings unique challenges due to the disparate nature of the customer base, divergent product use, and small ticket sizes. Even so, in an increasingly competitive market, it’s a sector that few banks can afford to overlook. This year, banks will undertake efforts to drive better SMB customer experience, improve product penetration, reduce back office and banker workload, and offer innovative products and services to SMB customers. At the same time, SMB digitalization efforts will more closely mirror recent consumer banking transformation, bringing seamless digital-first customer and product onboarding and improved loan origination. But SMBs need more than just loans: They need full partners to help them better understand their data ecosystems and make decisions to enhance their business outcomes. Banks have numerous opportunities to spin up insights-based cross-sells that improve revenue for themselves and their SMB customers.
11. Data-focused sustainability initiatives
Total AUM in the ESG investing sector continues to grow, as does the focus on ESG lending and ESG-backed securities. At the same time, asset values and return models must adjust to accommodate new climate and environmental business risks. Regulatory changes will continue to pick up speed, and ESG will ascend the board-level agenda. More than anything, this means additional diligence, and diligence is all about data. Banks will need automation-heavy data strategies to ensure that they can marshal credible sustainability datapoints in real-time.
While the macroeconomic environment remains uncertain, the technology imperative for banks has become quite clear: They need to invest in data, cloud, and AI because data is now the currency of the realm. The sector’s emergent complexity – a dizzying ecosystem of APIs, cloud hyperscalers, fintech partners, challenger banks, service providers, and niche startups – is also where the opportunity lies. As the backend of the banking ecosystem becomes more complex, the winners will be the ones that harmonize these many partnerships into customer-facing offerings that feel clear, simple, and compelling.
