The trends to look out for in 2024

Ah, January. It’s cold, it’s dark and yet there are 12 months stretched out in front of us, full of potential and daylight.

As we noted in our 2023 review, it’s unlikely that this time last year anyone would have predicted two of the three biggest US bank failures in history occurring, let alone in the space of a few days. But that’s not going to stop us from gazing into the crystal ball of banking to pick out what we think will be some of the significant narratives for the year.

Come December, we’ll look back to see if we were right, wrong or somewhere in between.

2023 was a year when reverberations of many high-profile corporate collapses, such as SVB and FTX highlighted the importance of ensuring business fundamentals were in place across the industry. Safe, trusted, well-regulated and profitable businesses have become more attractive to clients, investors and regulators.

The demand for greater transparency over where and how consumer funds are held has increased, and this has started to highlight the differences between being a Bank and an EMI, safeguarding compared to FSCS protection, or the clarity of ownership and controls of funds held in a bare trust compared to traditional bank accounts through Embedded Banking solutions. More transparency and education are always important for sustainable long-term growth of the industry.

2024 will see these ripple effects continuing to play out. Mergers will likely occur to address some of these effects. New entrants will continue to enter the market but will probably have to demonstrate stronger and clearer business cases to attract investment and regulatory approvals.

John Salter, Chief Customer Officer

Both in Europe and North America, it’s a trend that has serious scope for growth. According to research from the European Central Bank (ECB), Single Euro Payments Area (SEPA) instant credit transfers currently account for only 14% of all conventional SEPA credit transfers.

The European Commission’s draft proposal to mandate the use of instant payments for all Eurozone transactions, now provisionally agreed upon by the European Parliament and Council of the EU, will be a major driver. This draft law is expected to be placed before the European Parliament before May 2024 and, subject to ratification, will be implemented by the end of next year.

Moreover, the emergence of the next generation of open banking payment solutions, some of which facilitate instant payments with a range of value-added services, will also play a significant role. Developments like Variable Recurring Payments (VRP) are exciting, as an example, as they facilitate secure, direct links between payment initiation service providers and bank accounts, in line with agreed limits, and offer more control and transparency than existing alternatives.

Mid-December 2023 saw the Joint Regulatory Oversight Committee (JROC) VRP working group deliver its much-anticipated blueprint that proposed a pilot for consumer-to-business Variable Recurring Payments under a commercial API model to be rolled out by Q3 2024. That blueprint also laid out some important elements highlighted by Garner’s Future of Payment Review around an implementation group, a Dispute Resolution Implementation Group chaired by Pay.UK, to progress issues related to liability, insolvency and risk management.

Combined with growing merchant awareness of the benefits of instant bank payments, we’re going to see greater visibility in the checkout, paired with initiatives aimed at incentivising consumer uptake. I think this will lend to the ongoing development and adoption of user-friendly digital wallets for seamless in-store and online payments, as well as peer-to-peer transfers.

Megan (Caywood) Cooper, Chief Product Officer

While this trend began a decade ago, when compared to retail banks, the wealth sector has been slower to adopt digitally native services. This inertia isn’t because they don’t see demand for a better customer experience but deep-rooted in dated, batch-based technology. In this case, two highly conservative industries, wealth management and legacy transaction banks, have combined and, as a result, services haven’t fundamentally changed in decades.

With newer entrants gaining market share and growing their AuM (Assets under Management), incumbents have recognised there is a huge addressable market if they lower the barriers to entry with a compelling digital experience. While the phrase ‘democratisation’ has become something of a cliché, these new firms have changed the perception of what it means to have a wealth manager.

In 2024 we’ll see more traditional wealth firms looking to embed new capabilities at speed and scale that will support the creation of services to serve new demographics, as well as differentiate their offering in an increasingly competitive market.

Sukhy Atwal, Head of Wealth, Pensions and Insurance

The current cost of living crisis has underlined the need for the financial services industry to ensure access to suitable products at a lower cost, for everyone. Bank branch closures continue to occur, potentially starving communities of a local presence. Meanwhile, the move towards an increasingly cashless society means people who struggle to access banking services generally struggle to access most digital solutions.

The growing reliance on mobile and online services is exacerbating these problems. Indeed, current financial conditions have led to an increase in cash use, from 15% of all purchases to 19%, for the first time in a decade as people find it easier to manage their finances using physical notes and coins.

While these are fundamental issues that will take many years to fix, I believe 2024 will be a year when more industry participants come together and look to solve them. These collaborative efforts will help to support the most vulnerable members of society, from the elderly affected by the rise of digital-first services to those struggling due to the ongoing squeeze on household incomes.

Daniel Lapeña Gómez, Head of Banks and Building Societies

The opportunities for the coming year lie in joining up previously disparate processes, functions and technologies in the payments value chain, enabling them to be orchestrated from a single set of tools or as a single process. Right now, the number of options to make payments can cause confusion and frustration for consumers. The opportunity is to simplify.

Specifically, we will see further innovation in digital wallets, particularly user-friendly digital wallets for convenient in-store and online payments, as well as easier peer-to-peer transfers. Peer-to-peer payments and closed ecosystem payment systems will keep money off conventional rails and reduce costs.

Point-of-sale solutions will be more integrated into the payment flow presenting more embedded fintech opportunities. Subscription and recurring payments have largely been untouched in the past 10 years, so this is an area ripe for innovation. We may also see increasing use of NFC technologies for payment convenience particularly for physical ‘checkout less’ stores.

At the same time, there will be more regulatory compliance solutions to ensure businesses comply with payment regulations—something we already see in the US.

Paul Staples, Head of Embedded Banking