Transformation, Turbulence, Potential: The Landscape of Digital Retail Banking in 2024

Digital retail banking in 2024: An era of uncertainty

The world is in a state of rapid change. Macroeconomic challenges and geopolitical shocks are causing turbulence in economies while customers constantly change their demands. Societies are shifting in unpredictable ways, and technological advancements are giving rise to new competitors that pose a significant threat to industry-established players.

Furthermore, the lingering impact of the COVID-19 pandemic adds another layer of complexity to the business environment, making the need for adaptation and innovation even more apparent.

The global economy’s unpredictable and ever-changing nature has created uncertainty within the industry. This unease is reflected in the IMF’s World Uncertainty Index, which measures the frequency of the word ‘uncertain' or its variations in Economist Intelligence Unit reports. The index is at its highest level since the spring of Q2 2020 when the world experienced the initial lockdown due to the Covid-19 pandemic.

CIOs are the crucial bridge connecting the traditional financial world to the digital future. With their deep understanding of legacy systems and extensive knowledge of emerging technologies, they skillfully navigate the intricate landscape of digital transformation and foresee its potential implications for the industry.

Uncertainty creates opportunity. Those who make the right decisions in difficult times will reap the rewards when calm returns. 

-  Renato Oliveira, ebankIT CEO, 2023

Renato Oliveira, ebankIT CEO, argues that this era of change is the perfect opportunity for banks to rethink their digital strategies to compete with the cutting-edge customer-centric services, experiences, and journeys delivered by fintechs, big tech, and other emerging competitors. Put the customers first when deploying technology, and you can increase acquisition, reduce costs, drive growth, and increase revenue.

Adaptive digital banking: planning for an era of disruption

The financial services sector deserves immense recognition for its remarkable response to the digital shift during the pandemic. As we enter 2024, retaining that innovative spirit and determination is crucial to forge ahead despite challenging circumstances.

Most organizations are focused on enhancing their digital offerings to attract new customers and provide value to existing ones. However, many financial institutions have predominantly adopted an efficiency-driven approach, utilizing digital channels primarily for everyday transactions on a large scale. While this strategy reduces costs, boosts productivity, and enables banks to acquire new customers, it fails to fully tap into the true potential of digital banking, which has the proven ability to generate customer value and untapped growth opportunities.

Digital channels have the power to differentiate and drive growth, making them worthy of investment in terms of time and resources. Inflation, sluggish growth, and constrained customer budgets should not deter financial institutions from investing in the future.

Which technologies will be transformative in 2024?

The AI revolution continues to shape the conversation in 2023 and is poised to dominate in the coming year. One notable example is ChatGPT, a leading Generative AI model that launched in late 2022 and has already amassed over 100 million users.

According to estimates by the McKinsey Global Institute (MGI), the rise of AI, or gen AI, has the potential to add between $200 billion and $340 billion in value to the banking, wholesale, and retail sectors. This value comes from unlocking greater productivity and other benefits through the integration of AI technologies.

AI's ascent will also pave the way for other transformative trends, such as hyper-automation. This involves the orchestrated deployment of various tools, platforms, and technologies, including machine learning, event-driven software architecture, robotic process automation, and business process management. The result is the automation of numerous processes, leading to increased efficiency and productivity.

In the realm of banking, open banking is set to have a significant impact. With new regulations in the US, the PSD3 in Europe, and further innovations in Brazil, the UK, and other ecosystems, open banking is poised for a big year. The 2022 Gartner CIO and Technology Executive Survey revealed that 54% of senior technology leaders in banking enterprises are increasing their investment in application programming interfaces (APIs) for data-sharing.

Looking ahead, up to 60% of finance organizations are predicted to deploy composable finance applications, utilizing modular technology solutions from a range of vendors. Cloud technology will remain a key investment priority for financial tech leaders, and there will likely be a growing focus on blockchain.

While deploying these technologies concurrently can introduce complexity, digital banking platforms that integrate a wide range of services can cut through this complexity, reducing costs and time-to-value while simultaneously enhancing ROI, customer experience, and acquisition. To truly prioritize customer-centricity, these platforms must also incorporate a human touch to meet evolving customer needs.

What shifts are occurring in customer preferences?

The younger generations, known as digital natives, present a tremendous opportunity for banks. In a recent report titled "Millennials and Gen Z Still Need Bank Branches," Gartner revealed that these generations are not as inclined towards digital channels as previously assumed. Surprisingly, Gen Z retail banking customers are significantly less likely to initiate their interactions with a bank digitally than older generations. The survey found that 33 percent of Gen Z customers have their first interaction with a bank in a physical branch, a higher percentage than Gen X and Millennials and only one percent behind the Boomers.

Given that younger generations may be new to the banking world and lack the lifetime experience of Boomers, they can greatly benefit from face-to-face interactions with bank staff who can introduce them to relevant services and products. However, suppose a bank's digital offering is truly customer-centric and humanized. In that case, these experiences can be provided online, starting with interactions with chatbots and escalating to human staff when necessary.

Humanizing digital services is crucial in various use cases, and digitalization will continue to be a significant trend in both the short and long term, with financial institutions leveraging technology to drive growth. Institutions combining the right technology with superior banking services to deliver humanized, customer-centric experiences will thrive in a year of uncertainty and change.