In 2024, economic predictions are relatively muted with some growth predicted. Leading American bank J.P. Morgan predicts that economic growth will decelerate slightly next year, fluctuating between light expansion and contraction. There are other challenges on the horizon too, and while inflation is expected to cool over the next 12 months, disruptions to consumer demand and falling house prices will likely continue.
Despite these issues, the financial services market remains poised to meet any disruptors that emerge in 2024. Technological development in the industry is robust, and emerging technologies in the financial services industry will ensure its ability to respond well to whatever the year has in store.
In this article, we’ll go over 10 of the most important technology trends in financial services that all companies working in the industry should be aware of. Whether they represent new tools, digital trends, or emerging concepts, all of these factors represent challenges and opportunities.
Learning about these trends and adopting them when applicable will allow you to leverage a competitive advantage for your company and improve its performance.
Ten Key Emerging Finance Technologies
Artificial intelligence (AI) is a perennial favorite amongst financial services technology trends and for good reason. It continues to evolve and play a major role in the financial services industry.
In 2024, we can expect to see a considerable increase in AI-driven automation creating more personalization options for consumers, the latter of which will primarily focus on their interactions with customer service tools.
For example, AI-powered chatbots are improving exponentially and are able to provide a better-quality user experience than was previously possible. According to Juniper Research, a fintech marketing research group, conversational AI-driven chatbots have experienced a 3,150% growth rate in successful interactions, a clear sign for the finance industry to use this technology
AI will also be increasingly used in routine financial transactions that currently require human supervision, including fraud detection, loan approvals, insurance claims, etc. While this technology requires more testing, it highlights that finance technology trends are pointing to increased AI automation with less human-to-human interaction.
AI is going to become an increasingly important part of the financial services industry. Early adoption is key to ensuring it works effectively for you.
By 2021, cloud technology had already been adopted by 54% of companies working in the financial services industry. In 2024, we can expect to see this technology cement its place as one of the key emerging technologies in the financial services industry.
The primary challenge companies will face in adopting cloud technology is rising costs driven by increased demand for cloud services. This is partly driven by the huge demand that occurred during the COVID-19 pandemic.
Cost overruns in cloud services may occur due to unplanned cloud adoptions, improper merger and acquisition integration, and data egress fees (charges from cloud providers for moving or transferring data). Financial services companies looking to either adopt cloud technology in 2024 or optimize their cloud processes should ensure they achieve this process successfully by engaging with external support.
Not only will this ensure that their adaptation process goes smoothly, but they will also be able to draw on expert opinion to help create a unique cloud ecosystem for their business. This will improve their brand profile thanks to increased personalization.
While financial services companies understand the importance of high-quality cybersecurity more than ever before, the average consumer has also significantly increased their awareness of data security. That’s why you can expect next-generation cybersecurity to be one of the key digital trends in financial services next year.
Cyberattacks are becoming more commonplace driven by new technologies and increased interference by state actors. Companies working in the finance industry will need to invest in next-generation cybersecurity in 2024 to protect themselves and meet consumer expectations for better security.
Investments in finance and cybersecurity will likely focus on the following key factors over the next 12 months:
- Biometric authentication will increase consumer confidence in corporate cybersecurity while also improving user experience via increased convenience.
- Endpoint security, designed to identify malware and other common security threats rapidly, will be used to better protect individual devices like mobiles and laptops.
- AI risk assessment is designed to reduce the risk of increasingly sophisticated phishing attacks, as this is a tactic commonly employed in the latest state-actor cyberattacks.
- Quantum computing cybersecurity, designed to match the next stage of information technology development, will be used to detect and deflect quantum-era cyberattacks.
- Cyber threat intelligence will use AI predictive modeling to identify future cyberattack threats and generate automated responses.
Buy Now, Pay Later
Credit systems have been around for decades but have proven difficult to access for a large swathe of consumers with poor credit ratings. The next evolution of this concept, one that provides access to limited, interest-free borrowing, is Buy Now, Pay Later (BNPL).
BNPL is already popular in countries that have adopted the concept. It’s not a new technology in financial services, but rather a logical next step in its development.
BNPL allows consumers to make a purchase that will then be divided into several interest-free payments fixed over a set period of time, for example, over three months. It acts like a credit card by allowing the consumer to pay later.
However, unlike credit cards, BNPL entails less financial risk, not just because of the lack of interest rates but also because the payments are fixed in advance. Major companies like Apple have already implemented this system, and it’s not hard to understand why.
According to Juniper Research, BNPL payments are expected to account for a quarter of all e-commerce transactions by 2026. That’s up from just 9% in 2021, one of the most efficacious digital transformation trends in the finance industry.
Embedded finance is an ongoing hot topic in the financial services industry. It even generated a considerable amount of discussion at Web Summit 2023 in Lisbon.
At that conference, there was a perception among some attendees that embedded finance was one of the emerging technologies in finance that had failed to reach its full potential. Some commentators said that the predicted high volume of big-name brands adopting embedded financial services had failed to materialize.
In 2024, we can predict that embedded finance will begin to reach its potential and become a digital trend. It should achieve widespread adoption across various platforms, including e-commerce and social media.
This will be linked to the increased popularity of BNPL, which provides a democratization of payment options for new and existing consumers. They appreciate the flexibility and financial freedom embedded finance can provide.
The reason embedded finance hasn’t (or is perceived as not having) reached its potential is its difficulty with government regulations. With various state institutions now more aware of its potential, we can expect to see positive improvements to embedded finance that will provide more choices to consumers.
A blockchain is a distributed database or ledger shared among a computer network’s nodes. This technology is most associated with cryptocurrency, which has lost much of the shine it once enjoyed.
The huge scandal surrounding the failed cryptocurrency exchange FTX, which led to the recent conviction of owner Sam Bankman-Fried on numerous fraud charges, has tempered much of the excitement about crypto. While it is no longer viewed as the exciting darling of emerging technologies in the financial services industry, blockchain still has numerous practical applications thanks to its combination of technology and finance.
One of the great advantages of blockchain is that it can be used to make data immutable and unalterable. As such, its applications in banking go far beyond the enfant terrible of cryptocurrency.
In 2024, we can expect to see more applications of blockchain in the financial sector. In particular, blockchain has numerous potential applications in regulation technology (also known as regtech).
That’s because blockchain can provide a high degree of data security. This will also make it easier for companies and banking institutions to adhere to the ever-increasing amount of government regulations in the financial services industry.
While it’s more of a concept than something classified as one of the emerging technologies in the financial services industry, sustainable finance will be important in 2024. That’s because sustainability is now highly valued by the average consumer, in finances and other industries.
Consumers expect their preferred banks, corporations, brand choices, etc. to adopt socially aware positions as a matter of principle. This will presumably pose challenges for some financial services companies.
However, advocates of sustainable finance would point to several key advantages enjoyed by those banking (and other financial institutions) that have adopted the concept. Some of these include:
- Sustainable banking can generate increased revenue through product sales and services attributed to consumers who have responded positively to the company’s social stance.
- It can help to deliver significant cost savings and efficiencies, as fewer resources consumed, especially those that are finite, leads to reduced costs overall.
- Financial services that adopt sustainable finance highlight their focus on innovations, making them a more attractive prospect to both consumers and investors.
- A focus on innovative practices also makes corporate entities better able to adopt an agile business mindset, making it easier to adapt to changing market circumstances.
Open banking represents a new approach to banking that enables customers to share their financial data with third-party providers through secure APIs. This can unlock new products like account aggregation, which allows customers to see multiple accounts from different banks, services, etc. in one place.
This provides numerous benefits for the consumer. However, there are some challenges that could arise from this process, as it entails the sharing of larger amounts of data.
To ensure that financial services can fully utilize open banking they will need to ensure they can adhere to three key principles. The first is ensuring that consumers have full, unfettered control over their data along with explicit consent for data sharing.
Secondly, customers have to be able to access their financial data and be able to transfer it seamlessly to other financial services, even if they’re direct competitors. Finally, authorized third parties should be able to access customer data to offer new services, which could be challenging but also provide a focus for new innovative products and services.
Banking of Things
The Internet of Things (IoT), which refers to devices equipped with sensors, processing abilities, software, etc. to connect and transmit data, has long been an established part of the technological landscape. The next evolution of this concept is to apply it to the financial services industry as the Banking of Things (BoT), one of the finance industry’s next major technological advances.
BoT refers to how wireless tech like radio frequency identification and Bluetooth low energy are being integrated with credit and debit cards for cardless transactions and other processes. While this isn’t the newest of financial services technologies, in 2024, we will see BoT take contactless forwards as the preferred payment method for most consumers.
This change in consumer preference will be facilitated by BoT technologies, making more payment options available. Contactless via mobile phones is already popular, and we can also expect financial service companies to start utilizing NFC technology and QR codes, the latter of which is already the primary payment method in the People’s Republic of China.
While this shift could pose some challenges in the finance sector, especially for legacy corporations, it also provides numerous opportunities for innovation. Combined with concepts like open banking and embedded finance, BoT can significantly contribute to increased democratization in financial services.
Metaverse – Augmented Reality/Virtual Reality
While the term ‘metaverse’ may be most associated with Mark Zuckerberg’s foray into new technologies with Facebook, the concept is far broader in reach and importance. It refers to an immersive virtual world—the next generation of the internet—based on a network of interconnected virtual experiences that combine the virtual and physical worlds.
The metaverse concept is deeply intertwined with augmented reality and virtual reality (AR/VR), and without doubt, these technologies will dictate how the internet looks in the near future. As such, financial services companies need to get ahead of technological development and ensure that they’re ready to adopt metaverse-driven AR and VR when consumer demand is there.
A good example to follow here would be Bank of America, which recently launched a VR training program at over 4,000 locations in the United States. The bank is training its employees using VR headsets to access over 20 training programs on how to better interact with clients and handle difficult situations with empathy.
Bank of America believes this will help it reach customers who would otherwise struggle to access essential banking services, particularly those living in isolated areas. This should provide an exponential increase in user experience quality, so it’s a good idea for financial services companies to start planning for metaverse-based technology in 2024.
How Do You Prepare for Emerging Technologies in Finance?
Will 2024 be the year that technological innovation drives the financial services industry to reach unknown new dimensions, or will absolutely nothing advance at all, and we’ll all go back to using the abacus? The answer lies somewhere in the middle; technology will continue to advance at a rate that’s too fast for some and probably too slow for most.
What is certain is that Intellias will continue to place itself at the forefront of both adapting to new technologies and using the latest tech to create real value for our clients. We’ve been in the vanguard of improving technology for a long time, and there is quite a lot to be excited about over the next 12 months.
If you want to learn more about how AI and cloud technology, blockchain banking and the metaverse, could revolutionize the way your financial services company operates, then this is the place to be. We will be posting regular updates on our blog on all these topics and more, so make sure that you stay subscribed to our social media pages.
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