In 2024, retail and commercial banks, and their customers, will continue to feel the impacts of an increasingly digitalised landscape, with the tensions between innovation, traditional ways of working and regulation putting continuous pressure on customer relationships.

Banks will continue to innovate and re-organise to adapt to the rapidly evolving landscape. This evolution will likely see a surge in personalised banking experiences, where AI-driven tools anticipate customer needs, streamline operations, and improve the experience. Additionally, there will be a concerted effort to strike a balance between these technological advancements and maintaining the human touch in customer interactions. As this digital transformation unfolds, banks will need to prioritise transparency, customer experience and regulatory measures to ensure a trusting and secure relationship with their customers.

By leveraging our expertise and insights, we aim to empower leaders and organisations to embrace innovation, adapt to market shifts, and capitalise on emerging opportunities. Partner Sam Subesinghe outlines pivotal banking trends for 2024, serving as a guide for business leaders, enabling them to make informed decisions and proactively strategise for success in the year ahead.

Banking trends

A focus on generating positive customer sentiment

Prioritisation of digital-first platforms will continue to drive banks towards innovation within the generative AI space. Over the last few years, the maturity of these AI solutions has continuously improved and the number of plausible use cases leading to viable market products has steadily increased. Banks are already finding that simply enabling generative AI in customer servicing may not be enough. In 2024, we expect the consequences of these early generative AI solutions to be a primary focus, with an emphasis on customer trust sitting centre stage.

Banks are already finding that simply enabling generative AI in customer servicing may not be enough.

A bank’s usage of customer-facing generative AI must be balanced with acceptance and trust of these new technologies, which can be bolstered or broken based on customer perception of usability and usefulness, information and design quality, and perceived riskiness and privacy concerns.

In the upcoming year, we anticipate that banks who have already deployed customer-facing generative AI solutions will focus on analysing customer sentiment to understand how well their customers have accepted these solutions. Likewise, banks seeking to expand their generative AI capabilities, or banks who are newcomers to the generative AI space, will prioritise data systems and processes that can help generate actionable, trust-based analysis. 

As the market becomes saturated and familiarised with digital customer services, banks that standout and maintain a competitive edge will be those who most successfully pair innovation with security. Whether it be improving systems for customer sentiment analysis, designing dynamic personalisation strategies that respect and safeguard customer data privacy, or implementing AI-driven fraud detection and prevention, those who design their generative AI with trust in mind, will excel in the coming year.  

For more on how we’re helping leaders in this space today, click here.

Clicks or bricks

Customer trust is also hitting (or leaving) the high streets with banks closing branches at rapid rates. In the UK alone, it’s estimated that over 240 branches will shut up shop by the end of 2023. The continued shift away from in-person branches can be partially attributed to customers’ increasing preference for accessing their banks through digital channels, but it also signifies a shift in business priorities and economic savings, with banks focused on leaning out and modernising their workforce.

While digital banking continues to gain momentum, the loss of physical branches is dampening customer satisfaction and impacting customers’ trust. Mitigating risks and managing the fallout in cash-dependent and cash-preferring communities will continue to be key as banks navigate customer acquisition and retention across younger and digital-native populations, older persons, and small businesses that rely on easily accessible cash access.

However, it’s not just customers who are experiencing rapid change. Branch closures are forcing a modernisation of the workforce and undergoing rapid internal structure changes. Over the last year, we’ve seen more and more banks turn attention inwards, ensuring that the organisation’s operations, resourcing, and skillsets are ready to change with the times too. We expect this trend to persist into 2024, however in the UK, the new powers granted to the Financial Conduct Authority (FCA) on cash access will potentially see an increase in ‘banking hubs’ that will offer branch services for different banks. 

Free banking be gone

But not all consumer-facing changes will be exclusively digital. Customers in the UK and EU are also likely to see the costs of storing money and accessing banking services increase. As changes in regulation and an economic downturn impact margins across the board, the consequences may be felt by customers through the introduction of new banking service fees. Already, over 1/3 of users of NoteMachine ATMs, a US-controlled ATM operator, have already been exposed to cash withdrawal charges. Neobanks, including Monzo, have also introduced ATM withdrawal fees for customers.

Not all consumer-facing changes will be exclusively digital.

As profit margins in the European banking sector continue to be under pressure, and pending regulations, including Basel IV’s increased minimum capital requirements on banks, meet today’s trend towards digitalisation, we expect UK and EU banks to look across the pond to America when contemplating the introduction of new servicing fees in 2024.

In the US, large banks including Bank of American and Wells Fargo charge servicing and maintenance fees for their checking account products if certain thresholds are not met. With the potential introduction of new banking service fees, customers may find themselves facing higher costs for basic banking services like storing money and accessing ATMs. This shift could particularly affect those who rely heavily on cash or frequently use ATMs outside their bank’s network.

For customers in EU, especially the UK, accustomed to free banking or minimal fees, this could be a notable adjustment and may drive a more critical assessment of banking relationships and service offers amongst affected customers.

Consumer duty

Banks seeking to introduce or change customer facing products will need to do so in a compliant fashion. Under the recently introduced Consumer Duty regulation, this means “act to deliver good outcomes for retail customers” in ways that deliver high standards of customer care and protection and go further to equip customers to make effective decisions in their own interest. Consumer Duty requires that banks increase a customer’s ability to make autonomous and informed financial decisions by clear communication, improved transparency in business behaviours and practices, and an elevated consideration of the risks or benefits.

A year on, banks are facing a July 2024 deadline, by which point, they must prove to regulators that their back-book items are up to par with the new requirements. To do so, banks will need to ensure their data management practices, including analysis, alerting, and reporting, support Consumer Duty. Simultaneously, banks will continue to train and upskill workforce that interacts with these new reporting metrics and ensure operational management and ways of working are augmented to fit the requirements.

The overarching theme underscores the ongoing pursuit of customer-centricity and transparency within the banking sector. Despite facing a condensed timeline for implementation, banks should leverage this moment to prioritise investments in critical capabilities that guarantee top-tier customer safety and experiences.

Major change for margin gains

The forecast for 2024 in the banking sector signals a pressing need for sustained investments in digitisation and generative AI innovation to sustain competitiveness. Central to this evolution is the pivotal role of customer experience and engagement in driving retention and acquisition strategies. In response, innovative strategies must be pursued, such as educational TikTok series, aimed at fostering financial literacy among younger generations and delivering on the level of transparency customers inherently desire. This proactive approach not only aligns with banks’ responsibilities, but also represents a unique opportunity to actively engage customers while fulfilling the imperative to empower and educate. The synthesis of cutting-edge technology and customer-centric strategies stands poised to redefine the banking landscape and the relationships between institutions and their customers.

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