Charting the Course: Financial services in 2024 – trends, challenges, and innovations

As teams hone their go to market strategies for the new year, it’s time to start thinking about where the opportunities are for financial services firms to excel. There are a lot of new technologies out there with new ways to interact with customers – how does an FI begin to think about prioritization?

Challenges in the fintech space

Post-2023, fintech companies continue to grapple with the persistent challenge of achieving profitability. A tough fundraising environment doesn’t help. In fact in Q3, fintech investing dropped globally by 36% year over year to $6 billion, according to S&P. While later stage venture capital targeting fintech has been more resilient, the tightening of funding has forced many to reevaluate their business models, igniting the quest for sustainable revenue streams.

Tech stack modernization in banking

Banks face the intricate task of modernizing their tech infrastructure, riddled with disparate systems across products. This complexity is the product of decades of building on top of core software, launching new products, and acquisitions. Now, banks are getting to the point where they want to pull all of that data together to get a 360-degree view of their customers in order to truly personalize the services they’re providing. Quite frankly, none of them have figured it out. 

Banks are so rich with data, and they have so much of it that exists within their various products. Part of the difficulty is figuring out what to pull out and how to put that into a consumable data repository that is then valuable and accessible for the institution, so that the bank can truly see what’s happening. 

With the advances in AI, data is becoming more critical in this space, and the industry will get better at being able to pull the data together to better personalize financial services. Instead of ripping out and replacing their core banking platforms, banks will be best served by turning to point fintech solutions that have proliferated which can sit on top of their legacy systems. There’s still a lot of work to be done.

Serving the expectations of younger customers

The emergence of Gen Z, as a prominent consumer demographic, fuels the necessity for tailored, immediate services. It’s so important to address Gen Z’s demand for personalization and immediacy in financial products and services. The industry must pivot towards catering to these expectations to secure loyalty and relevance among younger consumers.

And it’s fascinating the way the different generations react to different things. As Gen X, I’m a sucker when I go shopping and somebody puts together a nice looking, complete outfit for me. I’m going to buy that every time. But my kids and grandkids don’t shop that way. When we think about Gen Z, they are the first social generation, growing up with the internet. When they have a question, they immediately go and get an answer to it. 

Their financial behavior is different, too. Younger customers will go to the mall to do all their research – to touch and feel what they want in real life. But when it comes to buying what they want, they’ll go online and buy from wherever they can get the best price and get it delivered. So how does a merchant service a Gen Z that’s walking into a store as part of their research but without the intention to buy there? Identifying where a potential customer is in their buying cycle will be critical to providing value to them over the long term.

Younger customers are also focused on making their plans come true. Whether it’s a retail purchase or travel, they’re thinking about how they budget it all in and the products – whether credit, debit, or BNPL – that will enable them to do all these things. Merchants have to offer them a variety of options, because for them, it’s all about budgeting appropriately, so that they can feel good about purchasing all of the things that make sense for them.

The other key part of this is the need to do this in real time. Personalizing financial experiences is essential to serving younger customers like Gen Z and Gen Alpha who grew up on social media and are accustomed to the real time, immediacy of those products. We’ve been talking about this for a long time, and I don’t think we’ve cracked the nut yet on how we actually pull all that together. 

The promise of real-time payments

One of the transformative facets poised to impact financial operations in 2024 is the move toward real-time payment systems. Faster payments have the potential to catalyze global transactions, which is particularly beneficial for businesses requiring immediate cross-border commerce. 

It all started with Zelle. It was actually about real time presentment, not real time posting, though. And when you think about real time payments and FedNow, it’s about real time posting and the actual immediate movement of money. Getting the use cases for real time payments is important. 

For example, take a small business that needs to purchase supplies for whatever project they’re working on. My husband does construction, and a lot of times he’ll go to the lumber yard and have to make a purchase in real time for lumber. I think that’s a great use case for real time payments: particularly large orders of supplies for a small business that needs to purchase those in real time because then the lumberyard knows that they’ve got paid in real time, too.

Gig workers are another example for use cases driving real time payments. Delivery drivers and Uber drivers want to get paid immediately and not wait for a traditional pay cycle. Financial institutions need to get very clear on who they want to service and what services they are going to offer, because they’re all going to be a little different. Depending on the use case, real time payments can make a lot of sense. 

The benefit of a single tech stack

Having grown up in this space, working with and servicing banks for my entire career, the thing that I get most excited about is the tech stack that we built here at i2c. It truly is a single tech stack that has the capability to offer all of your card issuing services, whether that’s credit, debit, or prepaid, along with all of the service components like fraud and chargebacks. There’s also a core banking component that’s built into that tech stack. 

When you have all of that within a single tech stack, you get the ability to consume all the information about consumers and products like credit, mortgage, loans, and debit. So, you have the data accessible which allows you to offer personalized, real time use cases and services to clients. 

It also gives you the ability to offer new products. Think about a customer that may be applying for an unsecured credit card. They may not necessarily get approved for that, but you can approve them for a secured credit card. Within that same tech stack, you can actually offer them multiple products, and you don’t have to go to a different tech stack in order to service them.

The other thing that I find so exciting about i2c is the ability to move around the globe with our customers. We have customers today that are in over 200 different territories and countries throughout the world on the same tech stack. What that means is that their customer, no matter where they are in the world, can transact with them and it’s all going to look the same.  From a client perspective, the reporting and feature functionalities are also going to look the same. 

Optimism amid challenges

The new year ushers in newchallenges and opportunities within the financial services sector. Amid the challenges lie immense opportunities for innovation and community-level impact. But ultimately, financial institutions possess the potential to drive change while adapting to emerging technologies and evolving consumer demands.

As the sector braces for the year ahead, the convergence of technological innovation, consumer-centric strategies, and adaptive business models will define success and relevance in the financial services landscape of 2024.