News!: Opus Technologies Launches FinGeniusAI Solutions – An Open Innovation Platform for Building Future-Ready Solutions.. Know More
News!: Opus Technologies Launches FinGeniusAI Solutions – An Open Innovation Platform for Building Future-Ready Solutions.. Know More

CEO’s Corner

Banking and Payments in 2024:
At the Vanguard of a Paradigm Shift

Share :

Payment innovation was at its peak in 2023. Let’s take a look at some of the key payment trends that made a splash in 2023 and how they will shape 2024.

Key Takeaways:

1.      The exponential advancement of new technologies and the convergence of multiple trends are profoundly influencing how banks operate and meet customer needs.

2.      A decelerating global economy will pose significant challenges for the banking industry in 2024. Banks’ ability to manage costs and drive new revenues will be tested.

3.      The impact of generative AI, embedded finance, open data, and fraud mitigation will intensify in 2024.

4.      Stringent regulations to define the scope of emergent technology are on the cards and will drive digital transformation.

The payments industry stands at the epicenter of a transformative revolution driven by the convergence of technological advancements and evolving consumer demands. This revolution has resulted in a meteoric rise in alternative payment solutions, a trend that continued in 2023.

Given the market share that early adopters can enjoy, incumbents and disruptors alike are racing for dominance to deliver personalized and frictionless payment experiences. This has led to the emergence of Banking as a Service (BaaS), embedded finance, and artificial intelligence (AI) as key enablers of technology and product innovation in the banking and payments industry.

However, one cannot overlook the influence of the macroeconomic and geopolitical environment, which has acted as a restraining force in shaping the trajectory of the banking and payments industry in 2023. Financial leaders and decision-makers will have to navigate this complex environment to stay ahead of the competition in 2024. This requires a strategic approach that balances innovation with resilience.

 

AI Goes Mainstream: Expectations versus Reality

Arthur Samuel of IBM first used the term ‘Machine Learning’ in 1959. However, 2023 was the year when AI truly became mainstream. The emergence of Generative AI programs like ChatGPT and DALL-E, brought the topic to the forefront of public consciousness. AI is expected to have a profound impact on almost every industry, including banking and payments.

Emergent AI was the main theme for the Gartner Hype Cycle for 2023 and beyond. Source: Gartner

Artificial intelligence (AI) is transforming the financial services industry as it improves operations, customer experiences, and cost efficiency. A Finastra study, Financial Services State of the Nation Survey 2023, found that 83% of the financial institutions had implemented or were testing generative AI applications. However, an S&P Global Market Intelligence Report revealed that only 8% of the 338 US banks traded on the major US exchanges mentioned using AI and/or machine learning from 2022 to the third quarter of 2023 in transcribed calls and presentations. However, these banks, such as JPMorgan, Bank of America Corp., Citigroup Inc., and Wells Fargo & Co., held 80% of the total assets of all major exchange-traded US banks. JPMorgan claimed to have over 300 AI use cases in production.

Source: S&P Global Market Intelligence

As budget allocations tend to go to revenue-generating units first, fraud detection, risk management and customer service are the most common use cases for AI in the financial industry. It is worth noting that in 2022, over 98 million users (approximately 37% of the U.S. population) engaged with a bank’s chatbot.

Such accelerated levels of interest in a new technology are unprecedented. However, this adoption hype comes with its own set of challenges. A Moody’s Analytics report, Navigating the AI Landscape, identified data accuracy and reliability, transparency, bias control and data protection as key issues stakeholders face when implementing AI solutions.

Organizations that are at these opening stages vouch for the importance of choosing the right partner to harness the power of this technology. As per the same report, 97% of respondents were interested in working with solution partners to implement AI-based solutions.

While AI will have an unprecedented impact on the financial industry, we should also be mindful of data privacy and security concerns related to AI adoption. On October 30, 2023, the US administration issued an executive order establishing AI-specific regulations aimed at promoting the “safe, secure, and trustworthy development and use of artificial intelligence.” The executive order tackles some of the challenges and risks associated with AI, including data protection, legal liability, transparency, and consumer rights. It also instructs federal authorities to establish standards and objectives for AI technologies.

This executive order, along with subsequent actions, will form the bedrock of the federal regulatory approach to AI.

Key Trends That Shaped the Payments Industry in 2023

While AI was the centerpiece for most of the boardroom discussions around growth, emergent concepts like BaaS and embedded finance also witnessed an exceptional rise in 2023. 48% of financial institutions globally have enhanced or implemented BaaS capabilities into their offerings, a significant jump from the 35% recorded in 2022 – with similar growth seen in embedded finance.

Source: Financial Services State of the Nation Survey 2023

Accelerated Adoption of Real-Time Payments: People want more speed, convenience, and transparency in their financial transactions. RTP systems are the new norm for modern commerce. A recent study by McKinsey predicts that the RTP market will grow to $30 trillion by 2027, changing the way we pay and get paid.

Embedded Finance – The inclusion of financial services in non-financial products and services is blurring the boundaries between traditional financial institutions and non-financial companies. With customer-centricity at the core, embedded finance solutions offer rich user experiences in everyday activities. A study by Accenture says that 73% of consumers want to use embedded finance solutions. This shows the high demand for personalized and convenient financial services.

The Rise of Alternative Payment Methods – In response to evolving consumer preferences and the demand for more flexible payment solutions, alternative payment methods (APMs) are gaining widespread adoption. These include Buy Now, Pay Later (BNPL), which allows consumers to spread out payments over time, and digital wallets, which offer a convenient and secure way to make payments.

Source: Federal Reserve Bank of Philadelphia, CFI Buy Now, Pay Later Survey

Open Banking and API-Driven Payments: Open banking principles are paving the way for a more interconnected and collaborative payments ecosystem. This initiative allows third-party providers to access and utilize customer financial data with consent, enabling innovative financial services and personalized experiences. API-driven payments further facilitate seamless integration between payment systems and applications. A 2023 study by Finastra found that for 46% of participating financial organizations, more than half of their consumers are using open banking-related services, showcasing the growing acceptance of open banking principles.

Anticipating the Next Frontier: Key Trends for 2024 and Beyond

As we move forward, several key trends are poised to revolutionize the payments industry further:

  1. Continued Growth of Real-Time Payments: RTP is expected to solidify its position as the standard for domestic and international transactions, driven by advancements in payment infrastructure, regulatory support, and consumer demand. In the US market, FedNow framework will ensure fraud prevention, liquidity management, and message standardization.
  2. Maturation of Embedded Finance: Embedded finance will mature into a prevalent practice as non-financial companies seamlessly integrate financial services into their offerings. This will enhance user experiences and expand financial inclusion.
  3. AI-Powered Personalization and Risk Management: AI will play a pivotal role in delivering personalized payment experiences, enhancing fraud detection, and optimizing risk management strategies. This will lead to more secure and efficient transactions.
  4. Expansion of Cross-Border Payments: With the ISO 20022 timeline approaching, cross-border payments will become faster, cheaper, and more transparent. Advancements in payment rails and the adoption of new technologies like distributed ledger technology (DLT) will also play a pivotal role.

The payments landscape is poised for an era of transformation, driven by the convergence of technology, customer demand, and regulatory developments. Organizations that embrace these trends and adapt their strategies accordingly will be well-positioned for success in the future of payments.

One can assume that the financial services landscape is cautiously optimistic about the future. More than half of institutions plan to resume full investments by H1 2024 after a period of constraint. BaaS, embedded finance, and AI are still the top investment priorities, showing their lasting relevance. Financial institutions also look beyond their own interests, focusing on industry collaboration to propel open innovation to bring about radical changes in the way the world transacts.

How Opus Technologies is Gearing Up for 2024

2023 marked a pivotal year for us as we rebranded from Opus Consulting Solutions to Opus Technologies, aligning our name with our position as a strategic partner for banking and financial institutions. This change shows our commitment to being a trusted advisor, helping clients reach their long-term goals with proactive planning, seamless technology integration, and delivery excellence. We have strengthened our partner ecosystem by forming strategic alliances with industry leaders such as Google Cloud, AWS, Microsoft, Databricks, Stripe, Salesforce, and Checkmarx.

As we enter 2024, our focus is clear: speeding up AI adoption for financial companies that are in the early stages of AI integration. We understand the barriers to AI adoption, such as a lack of suitable tools and expertise, data complexity and quality issues, and scalability and reliability concerns. To overcome these challenges, we carefully assess our clients’ needs and develop practical implementation roadmaps covering data preparation, model development, and model deployment.

Our passion for innovation also includes diversifying payment channels using cutting-edge technologies such as blockchain, AI, and deep analytics while ensuring regulatory compliance and security. Fortifying our delivery capabilities for the next phase of AI adoption in the banking and payments industry, Opus is actively working on multiple niche use cases. Some of the key areas that we are focusing on are intelligent payment routing, smart cash flow forecasting, and payment enrichment.

With these advancements, Opus is uniquely positioned to offer smooth, secure payment experiences that meet the changing demands of the market.

Opus Official

Praveen TM is a highly accomplished global payments leader with over 20 years of experience. A veteran in the payments industry, Praveen has immense wealth of insights to share in payments innovations, emerging technologies, FinTech, and financial services.

Join our mailing list to be the first to know about industry news, Opus updates & upcoming events

    Please read our Privacy Notice to know how we protect personal data