5 Trends for the New Year and New Revelations

As we kick off the new year, it’s always a great time to reflect on the past and look forward to the future. Strategizing is important for all organizations as many industries are reinvented by technology and reimagined by changing consumer needs. Amid banking trends, fintech trends, and other emerging factors, the financial services sector is no stranger to change. Competition is fierce, technology is converging, and user experience is changing by the day. Financial institutions, especially, are required to do more and be more.

With so many sources of information and experts in the financial services sector, it’s sometimes difficult to decipher the noise and pinpoint what is most important and relative now and why. To that end, we’ve crafted the top five financial service trends to be aware of in 2024.

1. Digital banking and data collide. This year, it will be important to stay educated on regulation and compliance surrounding open banking. The CFPB’'s proposed Personal Financial Data Rights Rule will drive the expansion and adoption of API-based open banking rails to (1) give consumers more transparency and control over when and how their financial data is used by other parties, (2) eliminate inbound screen scraping, credential sharing, and related fraud/security threats, and (3) solve for systemic financial fragmentation by using secure, standardized open-banking APIs to aggregate a comprehensive picture of consumers’ finances across their disparate financial service providers and apps in one place – the first step in helping consumers improve their financial health and security. 
   
   Given (1) financial institutions only have a fraction of their accountholders’ financial data due to financial fragmentation, and (2) comprehensive financial data is needed to tune Generative AI (GenAI) models effectively, financial institutions will use open banking rails to gather the full complement of financial data necessary to better tune and leverage GenAI to maximize the quality and velocity of accountholder service/insights/recommendations.
   
   
2. Serving small businesses will be critical.  Community financial institutions seek to regain lost share of the U.S. small business market using embedded third-parties, cash-flow management tools, and new payment/invoicing solutions - re-establishing themselves as the primary banking relationship for SMB owners.  
   
   Cash flow is the biggest challenge small businesses face. To meet this need, SMBs will rely on faster and real-time payments to expedite receivables, optimize just-in-time payables (to maximize interest on deposits held), and gain more accurate real-time insights and forecasts on cash flow.
3. Fraud and cybersecurity become more sophisticated.  Financial institutions must determine whether you have the competence to manage the growing fraud epidemic or will need to evaluate partnership expertise. Traditional security methods (username and password, OTP) are being scrutinized for vulnerabilities, resulting in the increased adoption of bio- and behavioral metrics. Institutions are being driven towards managed services to combat increasing intrusion attempts and zero-day threats amplified by AI and conflicts/wars abroad.

4. Deposits remain a key priority for financial institutions of all sizes. FIs will increasingly use AI-assist tech to create stickier deposit relationships and address the totality of an accountholder’s needs with personalized products and services. The battle to acquire and retain deposits is driving financial institutions to incorporate proactive and ongoing customer engagement with financial wellness tools, automated savings/investments, and real-time data insights.

   Many financial institutions are also realizing the connection between deposits and payments. To receive deposits, you need to be able to receive all types of payments from multiple sources and rails. As additional real-time payment rails are launched and pay-by-bank makes its big debut, it will be important to integrate those rails that allow your institution more flexibility. FedNow® is anticipated to be a popular choice for both fintechs and community FIs looking to broaden access to (and use of) faster payments as well as more cost-efficient use cases for both consumers and businesses. 

5. As the fight for deposits continues, lending will become a key driver for success. Economic uncertainty and global instability have financial institutions focused on proactive portfolio monitoring to manage loan exposures. Generative AI assists lenders by synthesizing financial data, providing recommendations, and identifying cross-sell opportunities.

   We hope these top financial service trends prompt healthy discussion and debate within your organization as you navigate the year ahead. Check the Jack Henry client portal for additional news and announcements. Cheers to a new year and a new outlook!