From evolving lending practices to new competition, and changing fraud risks and compliance needs, banks are constantly adapting to a shifting landscape. Below are 10 mega trends in banking:

More RegTech Spending to Comply with Increasing Regulatory Scrutiny: With global financial regulations becoming more stringent, banks will also face increased compliance demands. This is illustrated by the growth in regtech which is projected to reach $87.17 billion by 2028. Effectively adhering to these evolving regulations, especially in areas such as Anti-Money Laundering (AML) and Know Your Customer (KYC), remains a top priority.

Using AI and Machine Learning to Detect Fraud: As financial fraud and risk vectors constantly evolve, accessing and applying real-time data to the latest defensive measures in a fully automated fashion makes artificial intelligence (AI) and machine learning (ML) indispensable in detecting and preventing fraud. By adopting AI-infused strategies, banks can transition from traditional policy-based approaches to those that leverage predictive, explainable and scalable ML algorithms to radically improve the speed and accuracy of fraud decisioning.

The Shape Shifting Landscape of Lending: The lending market is constantly shifting, with new types of financial services regularly emerging, such as Banking as a Service (BaaS) and peer-to-peer (P2P) lending platforms, which continue to gain traction. Per Acumen, the global P2P lending market size is set to grow to over $800 billion by 2030, with a CAGR of 29.1%. 

Digital Banking Becomes Mainstream: Digital banking is no longer a luxury but a necessity, and imperative to remain competitive. According to one study, over 90% of consumers view digital banking as an important factor in their choice of bank. Convenience, lower fees, and ease-of-access and use are key advantages of digital banking.

Onboarding Processes Get a Digital Overhaul: For decades, customer acquisition and onboarding have been the primary focus of bank investments. According to Juniper Research, banks are anticipated to increase their onboarding spend from $7.4 billion in 2023, to $9.9 billion in 2028; representing a 34% increase. The study also found that the implementation of AI in identity verification is expected to reduce the average time spent per digital onboarding check from over 11 minutes in 2023, to under 8 minutes in 2028. Streamlining customer and merchant onboarding processes is crucial to remain competitive and the integration of not only AI, but other advanced technologies such as biometric verification, can significantly reduce onboarding time and reduce friction in the customer experience.

Data-Driven Decisions and Hyper-Personalization: Personalized banking services are becoming a key differentiator. According to a study by McKinsey & Company, banks that successfully use customer analytics to improve customer experience can increase their customer satisfaction scores by 20% and their revenues by 15%. Banks are using advanced data analytics and a wider variety of data sources integrated into credit decisioning to enable more accurate risk assessment and to say “yes” to more customers with confidence. 

Sustainable and Ethical Banking Practices: Sustainability and ethical practices are increasingly influencing consumer choices and banks adopting green policies and transparent operations are likely to gain customer trust and loyalty. A recent survey showed 24% of European consumers are likely to switch banks over environmental, social and governance (ESG) policies, and 61% of consumers in the U.K. want their bank to do more when it comes to positive social and environmental impact. Banking executives are taking notice as 73% of banks plan to offer more sustainable options in the next five years to meet customer demand.

Next-Gen Collections Strategies: Given the current era of economic uncertainty, effective collections strategies are vital. Employing empathetic and customer-centric approaches in collections can improve recovery rates and customer relationships, and using a holistic risk decisioning solution can help banks identify the best treatment strategies and most effective communication channels. This can also help banks’ pre-collections strategy, with embedded intelligence enabling financial institutions to be proactive in predicting potential defaults and minimizing loss.

Emergence of New Competitors Driven by Technology: The banking sector is witnessing the continued growth of non-traditional players such as fintechs and tech giants that are driving new digital financial solutions such as embedded finance and neobanks. Traditional banks need to innovate continuously (and explore more inventive partnerships) to stay competitive in this evolving market.

The Continued Rise of Buy Now, Pay Later (BNPL):  While widely popular because of its simplicity and convenience, BNPL is also a way to open opportunities in underserved market segments. The opportunity for banks is now. One report showed that 43% of consumers would be interested in using BNPL plans offered by their banks rather than fintechs. Banks that can integrate BNPL into existing banking services can help ensure a more comprehensive (and competitive) financial solution to customers – and enable penetration into a wider customer base.  

2024 could be a pivotal year for the banking industry – and the financial services industry as a whole – where embracing change and innovating risk management strategies will be key to staying relevant and successful. Understanding these mega trends and adapting to the challenges at hand will be crucial for banks to thrive in this dynamic landscape.