How will the banking sector run 2024’s challenge-laden gauntlet? Inflation, challenger banks, digital disruption, a shrinking global economy and skill shortages will put the sector to the test.
Whatever happens, 2024 will likely be a seminal year for the world’s financial institutions. The Broadgate team have identified some primary pain points in what’s poised to be a complicated future.
Breakdown
Opportunities:
The rise of sustainable banking
Hyper-personalised financial products
Revenue diversification
AI-enabled operational efficiency
Burgeoning sustainable finance markets
Challenges:
Cybersecurity
An intricate regulatory landscape
A tumultuous global economy
Reluctance to adopt new technology
Heightened consumer expectations
Mounting Pressure on Ageing Gen X Customers
Generation X are feeling the pressure on all sides, and it’s influencing the way they choose their banks. Between supporting their elderly relatives and their adult children, gen X have been labelled the ‘sandwich generation.’
Bankrate found that 52% of US gen Xers claim money has a negative effect on their mental health – banks and wealth management service providers must be equipped to provide the right level of holistic advice alongside their products to avoid losing custom. A 2023 report from Accenture revealed some telling stats: Only 23% of surveyed customers rated their bank highly for personalisation, and 59% acquired a financial product from somewhere other than their primary bank.
The call for greater personalisation represents a prime opportunity for banks to design innovative financial products, yet banks are historically slow to adapt to change (especially compared to digital natives).
Banks that can successfully modernise their IT infrastructures will have an easier time competing. Whether it’s increasing pressure from consumers or the potential for product diversification, the digital change has never been so important, and AI looks primed to play a key role.
Cybersecurity and Regulatory Complexity
From the UK’s Consumer Duty Act to the changes to third-party risk in the US, Regulatory scrutiny is on the rise around the world, placing the strain on functions dedicated to protection and enablement.
Amendments to the European Government’s CRR III (Capital Requirements Regulation) are looming on the horizon, and once approved, banks will need to implement them before January 2025. You can read a comprehensive breakdown of what the changes mean for financial institutions here.
In the face of increasing digitisation and evolving data privacy legislation, cybersecurity will be a major talking point in the coming year, a critical area of business that still proves tough to broach for many decision-makers. According to Astra Security, just 14% of SMBs have a cybersecurity plan in place, yet SMBs account for 43% of annual cyber attacks.
The IMF (International Monetary Fund) conducted a study of financial institutes in 51 countries, claiming that an alarming 42% of them lacked a dedicated cybersecurity or tech risk management system.
Cybersecurity has been viewed as a cost centre in the past, which is partly why so many companies lack the resources today (alongside a lack of understanding, poor access to talent, and a rapidly changing tech climate). Thankfully, this view is changing.
Digital Currencies
Financial institutions around the world are weighing up the possibility of offering central bank digital currencies (CBDCs). So far, there are 11 countries that have fully launched a digital currency, and there are many more due to explore pilot schemes this year, including Singapore, Switzerland, India and Brazil.
At their best, CBCDs represent greater financial inclusivity, better cash flow management, and increased payment transparency. That said, they may also present a unique challenge to the banking sector, possibly contributing to the rising problem of profit decline (leading to a lack of credit availability).
Talent Troubles
The banking sector’s ongoing battle with talent troubles is set to intensify as large portions of its workforce near retirement age. Attracting and retaining a new generation of talent is mission critical, and leaders will need to work diligently to ensure they establish a desirable employer value proposition in the modern working world.
Here at Broadgate, we’ve been helping financial services businesses realise their visions by supplying them with top talent, even in a competitive market.
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