2024 Banking Outlook: AI advancements, digital currency dilemmas, and regulatory changes
As we approach the end of what has been a tumultuous year, it is essential to take stock of what the future holds for the banking industry in 2024. What opportunities are on the horizon? What risks do banking executives foresee? And most importantly, what progress can we expect in areas like cannabis banking and open banking?
One technology that has been gaining significant attention in the banking industry is artificial intelligence (AI). Despite the challenges faced by banks this year, AI has been a boon for those working in the field. In a recent survey by CCG Catalyst, a staggering 69% of banking executives expect AI to be the most influential technology in the next 5-10 years. This is followed by banking-as-a-service (BaaS) at 42% and digital currencies at 32%. More than half of these executives also see AI as the biggest opportunity for the coming decade. Major banks are already utilizing generative AI to optimize their bank-office workflows.
However, AI is not without its risks. According to the same survey, 44% of banking executives believe that AI represents the biggest risk for their banks in the next decade. On one hand, AI promises to personalize financial products and optimize their delivery. On the other hand, it also provides opportunities for fraudsters and bad actors to exploit the system. As tools like generative AI become more accessible, bad actors can easily create fake identities and even use AI tools to impersonate consumers, making it difficult to differentiate between malicious and genuine requests.
Another area of concern for the banking industry is digital currencies. While some see the potential benefits of technologies like Bitcoin, there are concerns about the threat they pose to the traditional financial ecosystem. The fear of missing out (FOMO) has led many to develop plans for implementing central bank digital currencies (CBDCs). CBDCs enable consumers to hold accounts in legal tenders rather than liability, which is the case with traditional banks. This may cause consumers to prefer CBDCs over banks, as central banks cannot default on their obligations. Additionally, the volatility of other digital currencies like Bitcoin has caused considerable uncertainty about their stability.
One industry that remains largely ignored by banks is the cannabis industry. Despite legal sales reaching $25 billion last year, businesses in this sector struggle to access banking services. Only 4% of banking executives report providing cannabis banking services, while 19% have no plans to do so in the future. The lack of federal regulatory clarity is the main deterrent for banks. However, the Senate is expected to vote on a cannabis reform banking bill soon, which could pave the way for better access to financial services for legal cannabis businesses.
When it comes to open banking, the US has been lagging behind European countries and the UK. However, that may soon change with the Consumer Financial Protection Bureau (CFPB) expected to propose a rule change regarding open banking in October. This change will make it easier for customers to switch financial service providers by allowing them to share their financial data with fintech companies. Banks in the US are ready to take advantage of regulatory clarity, with 17% willing to provide open data access through third parties, and 48% showing interest in working with select third parties to increase data access.
The banking industry has not been immune to challenges this year, with bank failures eroding some of the trust that had been built since the 2007-2008 financial crisis. As we look ahead to 2024, it remains to be seen whether these aftereffects will continue to reverberate through financial institutions. With an election year on the horizon, regulators are likely to quicken their efforts in areas such as open banking, bringing much-needed clarity to an industry busy rebuilding itself after a storm.
In conclusion, 2024 holds both opportunities and risks for the banking industry. While AI presents significant potential, it also comes with its share of challenges. Digital currencies, particularly CBDCs, are causing concerns about their impact on the traditional financial ecosystem. Cannabis banking remains largely untapped due to regulatory uncertainties, but progress may be on the horizon with potential legislative changes. And finally, the US is catching up with the global trend of open banking, with the CFPB expected to propose rule changes that could revolutionize the way financial services are accessed and shared. The banking industry must navigate these opportunities and risks to ensure a successful and resilient future.
