5 Emerging Trends for Successful Financial Institutions

Financial institutions have adapted and evolved over the past few years. Those that continue to respond to changing conditions, such as inflation, interest rate increases, and customer expectations, will be successful.

In 2023 we’ve seen banks fail and interest rates rise drastically, making an already risk-averse industry even more cautious. When interest rates rise fast, as they have recently, it can be problematic for financial institutions. A recent American Banker survey shows 54% of industry professionals don’t expect market stabilization until sometime in 2024.

It’s not just inflation and American volatility driving the disruption of financial institutions. Technology trends like data analytics, artificial intelligence, and fintech are all changing accepted business practices.

Financial institutions must be prepared to adapt and evolve to the latest trends. Here are five trends every successful financial institution should note.

1. Technology & Digital Transformation

While many banks have focused on cost reduction as economic fears increase, innovation remains an area where financial institutions continue to invest. According to 2023 data, banks are spending resources on the following digital transformation tools:

• Conversational AI in the form of chatbots to optimize the customer service experience. With most financial institutions struggling to find staff, these tools offer banks a way to keep up with service demand.
• Commercial digital banking and loan origination systems that accommodate the growing demand for a seamless mobile application experience.
• Customer relationship management (CRM) software, particularly with AI-enabled features, to better manage clients.
• Real-time payment (RTP) platforms to improve B2B payments, payroll, and account-to-account (A2A) transfers.
• Application program interfaces (APIs) to improve the interactivity between legacy banking platforms and new systems.

Digital capabilities have become essential to operations, and many customers continue to prefer them. Bankrate says 60% of consumers plan to use a digital bank in the next year. While all banks have had to shift their focus to online transitions, credit unions have especially felt the sting of customers shifting from in-person to digital banking.

Better technology is available, and it pays to stay current because you stand to benefit from advanced capabilities enabled by data analytics, automation, artificial intelligence and more.

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2. Fintech

Fintech organizations used to be viewed exclusively as direct competitors to financial institutions, offering new and innovative technologies thanks to their nimbleness and technology-focused beginnings. Today, banks and fintechs have a much more collaborative relationship. Some banks leverage fintech solutions to enhance their offerings, such as offering blockchain as an alternative way to securely send and receive money and deliver the hyper-personalization experience consumers now demand. Whether financial institutions invest in technology themselves or partner with fintech organizations, banks and fintech can collaborate on developing new products, improving existing solutions, and enhancing the customer experience.

3. Data

Every financial institution needs to get intentional with data. You need a single source of truth that pulls data from all your systems to analyze it for insights and decision-making. Data-focused solutions and analytics are critical to a financial institution’s agility and success.

For decades, U.S. enterprise organizations have captured customer data. Today, these companies, including the banking field, are becoming more data-driven. 

With the high volume of information captured, it’s easy to drown in a sea of unstructured data. Investing in the platforms that drive data-driven decision-making is critical for big banks to stay current. These systems can pay for themselves by offering better insight into areas such as proactive risk management in new accounts and operational analytics to streamline banking best practices. 

4. Disruption and Market Volatility

Given the high-profile bank closures in 2023, financial institutions must work to offset safety questions, distrust, and contagion fears from customers, investors, and federal and state regulators. As a result, some banks now offer products that provide additional deposit insurance coverage for large balances exceeding the FDIC thresholds to provide additional peace of mind.

Expect increased mergers and acquisitions as banks look for strategic partnerships and opportunities to consolidate in order to decrease organizational volatility and counter fintech disruption while boosting digital capabilities. In the meantime, market uncertainties will continue to impact financial institutions. This level of intensity is unknown for financial institutions, yet digitization will remain a key trend in financial institutions, even as markets continue to evolve, primarily because banking customers will demand it.

5. Risk and Cybersecurity

From customers and employees to external bad actors, cyber threats are at every corner of the banking industry. Financial institutions had the second-highest volume of data breaches in any business sector last year, and 79 organizations reported significant cybersecurity incidents. Cybersecurity threat management is a necessity.

Cyber Defense Magazine says the most significant cyber threats to the industry include:

• Compliance issues that lead to leaked customer data.
• Ransomware threats.
• Social engineering schemes.

Mobile banking brings an increased threat vector for banking institutions.

Banks are responding to these risks by adding third-party resources in the form of Virtual Chief Information Security Officers (vCISOs) to focus solely on protecting financial institution data. vCISOs are contract consultants that eliminate the need for a costly full-time hire. Banks and credit unions must also invest in extreme scenario planning and disaster recovery to lessen cybersecurity risk and improve their response and a VCISO can help lead those initiatives.