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That Financial Institutions Should Expect This Year, the Fintech is a fast-evolving space. Ability to keep up with the pace of transformation could be a crucial determinant of success or failure in the next year. Knowing how to navigate the landscape of banking technology bolsters security and operational efficiency. It also elevates the user experience. Consider AI-driven solutions in anti-money laundering (AML) and know-your-customer (KYC) processes, for instance. These technologies do more than just speed things up.
They can actually enhance precision in customer profiling. Meanwhile, smart contracts made possible using blockchain technology can simplify financial dealings and improve transparency. So, as it finds just a matter of weeks from 2024, it’s time to ask: what do these advancements signify for banks and their clientele? And, how can FIs prepare for what’s ahead? Let's have a look.
At a glance of 2023 year’s End: Banking has seen a transformative shift in the past few years. What once was a promising trend in digital banking has now firmly rooted itself as a central player, reshaping how we engage with our finances. Challenges from the covid-19 pandemic intensified this digital push. The result was a richer understanding of market needs, thereby fostering a more expansive suite of products and services. That the findings prevail a staggering 3.6 billion people worldwide will have embraced digital banking by the end of 2024. Even more telling, nearly 94% of these users are predicted to tap into mobile banking at least monthly. We must also note that there have been a lot of shake-ups in legacy banking this past year. The industry is in need of a tech reinvention if it intends to compete with emerging fintechs and startups. More than ever before, industry leaders need to be dialed into these evolving patterns. They need to identify strategies that will bolster their market stance and keep their customers coming back for more.
Role will Central Bank: It is going to discuss the state of finance in 2024, we should begin with the matter of Central Bank Digital Currencies, or CBDCs. These are essentially digital banknotes; unlike cryptocurrencies like Bitcoin, CBDCs are issued and regulated by central banks. This gives them legal tender status. CBDCs combine the stability of traditional financial systems with the benefits of modern digital technology. They aim to make payments smoother, reduce transaction costs, and expand financial accessibility. Their digital nature allows for innovations like smart contracts, leading to more flexible financial interactions. CBDCs provide the assurance of traditional currencies while harnessing digital advantages. However, integrating CBDCs might challenge existing banking structures, potentially altering the roles of commercial banks. In times of economic instability, there could be a rapid shift to CBDCs, raising concerns about bank runs. Given their centralized structure, issues related to privacy and transaction monitoring arise. Additionally, the global adoption of CBDCs without a coordinated approach might complicate monetary policies. Ultimately, CBDCs offer exciting prospects for the future of finance. However, their implementation requires in-depth research, comprehensive data evaluation, and practical testing to fit seamlessly into the changing global financial landscape.
To watch in 2024 and other banking trends: CBDCs are far from the only trend to know about for next year. Banking in 2024 will demand more than just keeping up; it's about setting a new pace. Generative AI is breaking ground. Add to that the sweeping embrace of cloud technologies, rising cyber challenges, and fluid trends like embedded finance coming to the fore. It’s clear that the call of the hour is adaptability. Financial leaders are tasked not merely to react, but to anticipate and innovate. It's critical for financial entities to weave plans that not only tackle today's issues but also meet tomorrow’s demands. To guide us forward, here are ten groundbreaking innovations that may determine the space of the financial landscape in 2024:
Artificial Intelligence (AI)-As perhaps the hottest topic in technology right now, this one is a no-brainer. AI tools like chatbots swiftly address queries, while biometric solutions bolster security and refine AML and KYC processes. From streamlining document analysis with computer vision to leveraging machine learning for improved lending and investment decisions, AI stands as a transformative pillar in banking.
Banking Process Automation-Banking process automation (or “BPA”) streamlines a myriad of banking operations. Through robotic process automation (RPA), tasks like invoice processing and payment approvals become more efficient. This automation extends to credit card fraud detection and mortgage processing, ensuring faster responses, enhanced compliance, and data-driven insights. Blockchain & DeFi-Blockchain's inherent transparency and security can reshape financial transactions. Its ability to streamline trade, automate via smart contracts, and facilitate rapid peer-to-peer payments makes it a game-changer. Especially with the rise of decentralized finance (DeFi), blockchain promises more inclusive and efficient financial services.
Advances in Cybersecurity- As custodians of vast data troves, banks prioritize cybersecurity. Tailored protocols, encryption tools, and AI-driven fraud detection mechanisms guard against threats. Anti-hacking software further strengthens banks' defenses, ensuring both data integrity and customer trust. As hackers come to embrace new technologies like AI, financial institutions must respond in kind.
Hyper- Personalized Banking-Banks today emphasize tailoring experiences. They can offer bespoke services by leveraging strategies like omnichannel banking and AI-driven financial recommendations. Tools from wealth management to buy now pay later (BNPL) projects heighten customer engagement and satisfaction.
Immersive Technologies in Banking- Augmented and virtual reality redefine customer and employee interactions. From VR-driven training modules to virtual showrooms for loan applications, immersive technologies captivate users. The emergence of Metaverse banks further signals an era of deeply engaging banking experiences. Neobanking-Digital-first neobanks champion convenience and efficiency. They operate without traditional brick-and-mortar constraints and can provide integrated services, from automated reconciliation to workflow management. All this can be done at no cost, or potentially even reduced costs to customers, as they require less overhead spending.
Quantum Computing in Banking- Quantum computing offers a leap in processing prowess by tackling the limitations of classical computing. It may aid banks in tasks ranging from portfolio optimization to accurate financial forecasting, heralding a new age of computational finance. Emerging startups are at the forefront of crafting cost-effective quantum computers tailored for the banking sector. These quantum solutions will play pivotal roles, from refining derivative pricing to bolstering cybersecurity measures.
Transition to the Cloud- The shift to cloud computing facilitates agility and scalability in banking. By harnessing the cloud's flexibility, banks can swiftly adapt to market changes, drive innovations, and better cater to evolving customer needs. They are also insulated from disruptions or potential security breaches resulting from the failure of a single static server. These and other trends open banking, AI, and the robust capabilities of big data and analytics are reshaping the way in which banking is done. They’re ushering in a surge of efficiency and innovation. These tools are not just about tech prowess. They're elevating the game by tightening security, making customers happier, and ensuring banks play by the rules with precision. In 2024, we'll be seeing faster, more secure operations ready for tomorrow's challenges.
Concluding remarks: All over antiquity, the financial services industry has often been at the vanguard of change. FIs have guided people and businesses through the ups and downs of economic and societal shifts. As we move forward, there's a good chance that we may look back at 2024 as an oceanic change; the year when the next part of progress really began. By embracing and driving this transformation introducing new products and crafting services that make a difference financial visionary might just be setting themselves up for a prime in the contest for years to come.
The writer is Company Secretary of The City Bank Limited
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