An eye on the future: Staying ahead of the trends
Looking to 2024 and beyond, it is already clear that the pace of change shows no signs of slowing. We believe the following trends will grow in importance in the coming years. The most future-forward financial institutions should sit up and take notice.
The workforce is evolving
Hiring and retention is proving difficult as there is a lack of access to tech and analytics professionals with mature skill sets. This has been further compounded by difficulties in training existing staff members to face digital transformation.
The return to normality since the pandemic has brought with it a return to offices – which is proving difficult for the tech sector. Employees who have become used to the flexibility of remote working or hybrid working are pushing back against companies that don’t offer it. This is adding to the challenge of hiring and retention for certain organizations.
The answer for retail banks and credit unions has been to collaborate with a higher number of digital-first fintech companies alongside placing more emphasis on up-skilling programs. Even with these measures, the search for competent talent remains a priority and a challenge as we move into 2024 (The Financial Brand).
The rise of Gen Z talent
As we approach the half-way point of the decade, Gen Z’s contribution to the workforce is maturing. By 2025, this generation is expected to comprise 27% of the workforce and banks will need to pivot to attract the top talent. Gen Z has different expectations of what jobs should offer, which places more emphasis on culture, diversity, modern career opportunities, and ongoing learning experiences (EY).
A continued upward trend of ESG
Even amidst economic uncertainty and consumer financial worries, there is still a marked upward trend in demand for sustainable practices and products. Green consumerism and consciousness remains a key concern for customers.
In fact, 66% of global consumers single out sustainability as being one of the primary factors in the decision to make a purchase. The study also found that 32% of consumers expect to pay a premium for sustainable products, amounting to between 22–44%. However, 68% of consumers are still unwilling to pay a premium for ESG related products (Simon Kucher & Partners).
In terms of barriers to ESG uptake, this lack of affordability is the largest concern, with lack of availability, trust, and the nature of the messaging also giving cause for pause.
Buy Now Pay Later is evening out
Continuing with last year’s trend, there is an increase in Buy Now Pay Later (BNPL) – which is perceived as more flexible than credit cards, particularly by younger generations (CNBC). However, the rate of growth is expected to slow as the sector reaches maturity. Forecasts predict that user penetration will reach or even exceed 40% of digital buyers for the first time in 2023. Continued growth is expected to come mostly from younger users.
In all, spending will reach $94.87 billion, which represents a 25.5% year- over-year growth. While this represents over double user growth, it is a significant deceleration when compared to 2022 (Insider Intelligence).
It appears that with every year that passes, there is an increased reliance and tendency towards mobile. Although mobile banking is now a prerequisite for banking services, the battleground of experience has now entered the granular arena. The financial institutions that are able to offer a smooth, cohesive, and complete experience will succeed in the future.
Switching savings accounts
In general, economic uncertainty leads to more conservative financial behaviors. However, the predicted growth in customers switching savings accounts is more likely tied to rewards, bonuses, and other incentives that will convince customers to forsake their traditional accounts.
As Forrester says, the rise of AI means “the deposit landscape will get flatter” – providing customers with greater control over where they choose to deposit their savings. This is further compounded by (or perhaps primarily the result of) open banking, which dismantles the power of traditional banking business models. (Forrester)
For incumbents, being able to find new ways to demonstrate value will be paramount. This is particularly true as the struggle for securing deposits intensifies. It is not just a case of traditional vs. a few fintech companies. The playing field has expanded to include megabanks, neobanks and even technology giants like Apple (The Financial Brand).
Banking as a Service (Baas)
The challenges involved in driving digital transformation are worth the time and effort, however. We can see this in the meteoric rise of Banking as a Service. Originally championed by left-field fintech companies, this model is holding increasing value for financial institutions. According to Jupiter Intelligence, BaaS is expected to increase by 240% from 2022 to 2027 to account for $27 billion by 2027 (Capgemini).
The benefits (and drawbacks) of open banking
Open banking is an enormous win for customer experience, allowing them to gain a better understanding of their data, investments, and overall financial health. The same can be said for fintech companies that often serve as secondary accounts for customers.
For traditional incumbents, the move to open banking is more of a mixed blessing as they lose the power of their business models. Incumbent banks simply have no option but to embrace the value of open banking, which will likely mean more collaboration partnerships with fintechs.
The EU PSD2 directive has been in force at a Union-wide level since 2018 (EU). Switzerland is positioned to follow suit, after the signing of a “Memorandum of Understanding” this year by the Swiss Bankers Association (SBA) that seeks to introduce multibanking my 2025 (Swiss Banking).
These changes don’t necessarily spell bad news for banks, however. By pooling resources with fintech companies, banks can embed financial services into their touchpoints and products to improve the customer experience. Customer-centricity, after all, is the point to which all initiatives should be aiming in 2024. Developments that appear to relinquish long-held power should be thought of as steps forward provided they improve the customer experience.
The shaky world of niche journeys
There has been a rise in the number of neobanks focused on niche segments based around specific target identities. Examples of this include the LGBTQ+ banking platform Daylight, Credit Karma for loans, or Aspiration, which specializes in sustainability-focused banking.
Not all of these neobanks will survive. Daylight, for example, has already announced its closure after being plagued by management scandals (Techcrunch). Others will be forced to pivot or get acquired as the market for such niche offerings is not mature enough for continued growth (Forrester).
But that is not to say that these approaches are entirely without merit. If anything, the rise of inclusive finance has shown that there is a demand and profit to be made. Building on this, fintechs or traditional institutions will likely leverage this knowledge – probably through acquisitions – to provide products and experiences that are tailored to hyper-specific customer journeys.
While these niche journeys are infrequent, when they do align with customer needs, they are particularly effective. One such example is Settld, a financial platform that is focused on losing loved ones (Settld).
In general, the rise of inclusive finance aligns with the overarching trend of increased customer-centricity and holds substantial potential for financial institutions moving forward (Forrester).
A boom in embedded finance
“Our research shows the scale of demand for innovative financial experiences. In the next 12 months, over 70% of younger consumers say they plan to shop via social media, 67% plan to explore checkout free supermarkets and, despite its mixed reception in 2022, 64% of Gen Z shoppers plan to access the metaverse in 2023.”
Embedded finance, where financial services are offered via non-financial means, is experiencing a growth spurt. According to one survey, 72% of respondents claim that in the future, the majority of financial products will be offered in this way (EY).
There are a number of apps in Asia that are leading in this area, offering e-commerce, rewards, travel booking, on-demand services, games, and more as part of their lifestyle platforms. Standout examples include Singapore’s Grab and the Gojek platform from Indonesia, which leverage data from deliveries, taxi apps, and digital wallets to create financial products for underserved customers. By using open data, they can better assess the levels of risk involved even without credit reference agencies (Forrester).
Key Takeaways
Workforce Evolution Challenges:
Financial institutions face difficulties in hiring and retaining tech-savvy professionals amidst the digital transformation, exacerbated by the return to office-based work post-pandemic. Collaboration with digital-first fintech companies and up-skilling programs are strategies employed to address the talent shortage.
Gen Z Impact on Work Culture:
As Gen Z enters the workforce, banks must adapt to their preferences for workplace culture, diversity, and ongoing learning experiences, signaling a shift in talent recruitment strategies towards modern career opportunities.
Rise of Embedded Finance:
Embedded finance, where financial services are integrated into non-financial platforms, is gaining momentum, driven by the demand for innovative financial experiences. This trend highlights the importance of providing unified customer experiences across various touchpoints to meet evolving consumer expectations.