Turning 2024’s Industry Challenges Into Opportunities for Growth

Experts are calling 2024 a “crossroads year” for the financial industry. That’s because the banking industry is facing a number of disparate challenges at a time when it’s in the throes of change.

Savvy banks are viewing these challenges as opportunities to better serve their account holders, staying open to innovation and planning their growth strategies to ride out this time of flux.

Banks need to know what they’re facing in order to craft an effective strategy. Here are some of the opportunities on the horizon as 2024 nears.

Challenge: The Economy
It’s not shaking out to be as bad as was predicted, but households are still dealing with higher costs of basics like food, gas and rent. According to Bloomberg, U.S. households are experiencing financial stress as well, as evidenced by increases in delinquencies, foreclosures and charge-offs.

In this time of economic uncertainty, consumers need financial advice. Should they take out a home equity loan to pay off high-interest credit cards? Is there a way to save in tough economic times? Increasingly, online personalities are doling out financial advice on social media sites. But customers should be getting their financial advice from their primary financial institution, not the influencer of the moment. One powerful way to do that is to build financial tools into your digital banking platform, so customers can access financial advice from you as easily as they do online. 

Challenge: The Growing Sophistication of Fraudsters
Cybersecurity and the protection of account holder data continue to be an uphill battle, especially when it comes to payment systems like the Automated Clearing House (ACH). Fraud is increasing as ACH use is skyrocketing. The ACH Network processed 30 billion payments valued at $76.7 trillion in 2022, fueled in part by the growth of Same Day ACH. The recent direct deposit glitch at Wells Fargo hasn’t helped consumer confidence. The 2023 AFP Payments Fraud and Control Survey by J.P. Morgan revealed that 65% of organizations were victims of payments fraud attacks or attempts last year.

As you’re budgeting for 2024, plan to invest in cybersecurity. Three must-haves are:

• Secure digital account opening requiring a minimal amount of personal identification
• Monitoring, including dark web monitoring, and alerts
• A layered security approach featuring two-factor authentication, one-time passcodes and behavioral biometrics

Challenge: The Expansion and Contraction of the Industry
Branch closures, which spiked during the pandemic, are continuing now, affecting Americans’ access to physical banks and credit unions. But it’s not just branches. There are fewer than 4,500 brick-and-mortar financial institutions today, per the FDIC, down from around 15,000 at their peak in the 1990s. Fintech is also feeling the pinch of consolidation through acquisitions, mergers and even shifting their model to acquire banks. According to FinTech Magazine, there will be a “tidal wave of consolidation” in the fintech industry over the next year, driven by the need to scale and a struggle to raise capital.

To retain or attract account holders due to this shift, offering easy to use digital banking will provide an alternative channel for consumers affected by branch closures and may prevent them from opting for digital-only neobanks and fintechs who are aiming to steal share of wallet. Banks that are on the cusp of acquisitions or mergers or have gone through one, should be using data about account holder transaction and channel usage.

There is a double benefit here. First, that data helps in mapping spend patterns to determine the best locations for new branches or ATMs, forecasting branch traffic and discovering where money is leaving the institution. Another powerful benefit: It deepens your insights into account holder activity, allowing you to personalize relationships with consumers by providing relevant marketing and offers when they need it.

Challenge: The Battle for Deposits
Increasing deposits is a top concern for financial institutions heading into 2024, according to a new survey by Jack Henry. Nearly half of respondents said deposit growth was first on their list of priorities. This deposit battle is the result of the younger generation not being loyal to a primary financial institution, economic woes and stress eating into savings and tech giants offering no-fee high yield accounts.

It’s incumbent on banks to focus on growing deposits, and that means a strategic plan to focus on reaching, attracting and retaining younger account holders. It requires a shift in mindset and tactics. Gen Z, born between 1996 and 2010, is proving to be a tough nut to crack for traditional financial institutions. Gen Z consumers are estimated to have $360 billion in spending power, and are expected to inherit $11 trillion of wealth over the next 10 years.

Why are they proving to be so elusive? They don’t quite get the concept of a primary financial institution when there’s an app for everything at their fingertips. Neobanks and fintechs are marketing directly to them on their mobile devices, and it’s easy and immediate to do things like apply for a loan online. Financial institutions should be reaching out to Gen Z through online marketing campaigns. Not only will it increase deposits that are now lagging, but it will create loyalty among the elusive Gen Z.

Directing 2024 budget dollars to technology and strategies that empower banks to quickly and easily develop and launch the right digital banking solutions, products, services and experiences to their customers or members is critical. But it’s just as important for banks to have an open mind and be willing to integrate, adapt and evolve budgets and strategies in ways they previously would not have considered.