In the financial landscape, 2023 will be remembered as a historic year with high-profile regional bank failures, a steady stream of Fed interest rate hikes, the explosion of generative AI and machine learning (ML), and many other significant events and shifts. Along with dealing with these issues, community bankers have also faced several challenging conditions during the last year, including securing deposits and mitigating fraud, and addressing compliance, risk management and liquidity concerns, all while continuing to meet their customers’ evolving needs. With 2024 budgets set in anticipation of new opportunities and challenges for the year ahead, here’s a glimpse of areas worth watching as bankers continue on their innovation journey this year and beyond.
Automation, AI and ML
AI, ML models and automation are currently the biggest buzzwords in banking, and with good reason. According to recent projections from market intelligence firm IDC, worldwide spending on AI could reach more than $300 billion by 2027, with banking as one of the largest contributors. What’s more, an Economist Impact report from 2020 also suggested that 77 percent of surveyed bankers believed that AI would be a key differentiator between winning and losing institutions over the coming years, while a recent Insider Intelligence report suggested that banks could save as much as $447 billion by the end of 2023 through implementing AI applications.
Regardless of their focus, these tools will undoubtedly continue to disrupt the financial services landscape due to their ability to process and quickly utilize vast amounts of data to automate tasks and increase efficiency. While versions of these capabilities have been in use to some degree for years, technologies like generative AI offer the promise of improved efficiency in a number of ways. In addition to the chatbots many are already familiar with, banks can leverage AI and ML models to automate account acquisition, mitigate risk and prevent fraud. Some banks are even using the technology to drive digital customer engagement and deepen bank-customer relationships.
Current examples include using chatbots to not only offer digital customer support but to also monitor transaction data to help spot unusual activity and support loan underwriting. No longer relegated to just chatbots, these tools are already making significant impacts in the lending process at several banks, whether automating the assessment of an applicant’s creditworthiness or helping navigate headwinds.
While community banks will be weighing their options to implement more AI- and ML-powered tools, they will also need to consider the ongoing compliance standards and potential regulatory impacts that are evolving in real-time related to these technologies. Staying up to date on the current climate can help ensure bankers stay ahead of any upcoming regulatory shifts to quickly adapt their strategies accordingly.
Faster payments
Faster payments saw some major innovations in 2023, most notably the launch of the Federal Reserve’s long-awaited faster payments rail, FedNow. Like other faster payments options, FedNow drives efficiency and offers an inclusive, safe and secure option that helps community banks stay competitive and meet evolving customer needs. Access to faster payments, including same-day ACH, RTP, push-to-card and now FedNow, will continue to be a function customers will expect from their financial institution and a key part of their overall digital experience.
Data analytics
Data access and analysis continue to be critical components for all banks. Recent surveys from ICBA member banks have suggested these areas to be a high priority for the new year, which drove the impetus behind the solutions focus for these key areas in the next ThinkTECH Accelerator cohort which began in January. Strong, in-depth data analysis capabilities not only enable banks to operate effectively, strategically and intentionally as an organization, but also to understand how their customers are engaging with them. Through data, community banks can understand their customers’ needs on a more holistic, deeper level and can then leverage this knowledge to take action to address their challenges and identify opportunities to engage with their customers in new, relevant and more effective ways. Centralizing data sources across a bank’s disparate systems helps streamline reporting, simplify bank operations, and ultimately make more strategic decisions; all of which will be key to remaining competitive in 2024.
Navigating the new year
Staying ahead of regulatory changes, sorting through the thousands of fintech providers and navigating business challenges are ongoing tasks for all community banks, regardless of the year. However, it is far easier when they can leverage their network of colleagues and industry allies to work together to solve these pain points. The greatest consideration lies in vetting potential vendors and partners. When looking to work with any organization, bankers should ensure these entities understand the community banking landscape and the unique needs and challenges community bankers have in navigating it.
Throughout the decades, community bankers have shown tremendous strength and resiliency in their continued support of their customers and the communities they serve. As the industry looks ahead to the next year and anticipates the coming months, these bankers should feel confident and excited as they plan their strategies and embrace the new technologies that will drive growth and success at their banks — both for 2024 and many years to come.
Charles E. Potts is EVP/chief innovation officer for the Independent Community Bankers of America.