Bankers’ Technologies to Watch
The rapid evolution of technology is reshaping the landscape, introducing novel possibilities and prompting banks to reassess their operational paradigms. The confluence of transformative technologies in 2024 is set to redefine banking operations and customer service.
Bankers generally agreed on the key technology trends driving this revolution and their potential impact on the financial sector in the coming year:
AI and Machine Learning
AI and Machine Learning were named 2024’s most impactful technologies, with 44% of respondents selecting their transformative potential. This endorsement follows a year of headlines around AI and ML’s potential to revolutionize risk management, customer service, fraud detection and personalized financial services.
Banking as a Service (BaaS)
BaaS emerged as the second-most impactful trend, capturing 20% of respondents’ votes. Institutions in the $100M-$250 million asset range expressed particular interest in BaaS, indicating smaller institutions’ growing enthusiasm for leveraging it to enhance operational capabilities and enrich customer offerings.
Digital Transformation
Digital transformation followed closely at 18%, highlighting the continued industry-wide shift toward digitalization for improved processes and enhanced customer experiences.
Instant Payments
Since the Fed’s instant payments network made such a splash in 2023, instant payments received only 10% of the vote for 2024, a sharp decline from previous years.
APIs/Open Banking
APIs and open banking fell to 7% from last year’s 17% of the vote.
Industry Analysis
One could consider open banking and BaaS as collectively taking the second-most impactful technological issue, only behind the flashier field of AI. BaaS utilizes the foundation of open banking to foster collaborations between financial institutions, fintechs and neobanks. The synergy created through BaaS allows for the introduction of innovative products and the exploration of new markets.
Industry experts highlight the transformative potential of BaaS for community banks to position them as leaders in profitability and innovation. Moreover, a recent PYMNTS report emphasized that community banks have a unique opportunity to tap into the $22 billion market opportunity created by platforms and fintechs in enabling embedded finance for their end users.18
The significant climb from 7% to 20% since last year signals a rising trajectory for BaaS. This trend is expected to continue gaining momentum for specific asset sizes, potentially making an even more substantial impact by 2025.
Expert Insight
As integrations with core providers expand, institutions with a strategic open banking strategy can more readily “plug and play” best-of-breed products and services based on their unique market needs. AI and machine learning could also potentially support the open banking and BaaS models through methods like API development and help financial institutions better leverage data and automation. Financial institutions embracing these trends could better position themselves for future success.