Balancing Caution Across Today’s Banking Trends

Innovation is key to staying competitive in today’s banking environment. It’s easier than ever for consumers to switch banks, so bankers need to offer innovative products and services that keep consumers engaged.

CCG Catalyst recently published its newest research New Frontiers in Banking 2024: Balancing Caution and Excitement to help executives better understand peer perspectives on different innovation areas. CCG Catalyst surveyed C-suite executives across the U.S. about their attitudes in today’s banking innovation environment.

Here are a few key takeaways from the report: 

Technical Readiness and Expectations

Forty-four percent of C-suite executives ranked their bank as generally prepared technologically for the future, while 31% said they will likely outpace their competition. The vast majority of banks feel confident in their technology’s ability to handle the next 5 years.

“It’s prudent for bankers to grasp the technology practices they should reinforce and changes they should make,” the report read. Banks need to stay committed to innovation and continue to prioritize relationships to evolve with the changing times.

So what does the future of technology look like? Respondents cited artificial intelligence (AI), Banking as a Service (BaaS), and faster payments as the top 3 trends that represent the most opportunity for their bank in the next 5 to 10 years. And, AI is by far the frontrunner — 71% put AI in the top three while only 35% said BaaS. 

Interestingly, open banking was mostly considered a risk by respondents. But, that may come down to the word “regulation” included in the question. Forty-three percent placed open banking regulation in the top 3 risks for their bank versus just 11% who said it was an opportunity. According to the report, “...respondents likely dread compliance. Open banking also poses an opportunity, but with regulatory pressure, it may not feel that way.”

 What’s Next for Open Banking

Open banking strategies across U.S. banks and credit unions face one of the biggest regulatory changes in years for the financial industry. The final Section 1033 rule is due to drop at any moment. It will create more clarity around consumer data rights and standardize the use of consumer-permissioned financial data, which creates an even greater need for a comprehensive technology strategy surrounding data. The report shows that most financial institutions are exercising caution in their methods. A small fraction (16%) say they are committed to providing open data access to third parties while 50% say they are interested in working with select third-party partners. Another 9% say they are waiting for regulations to be published. 

But, according to the report, “soon, banks won’t have a choice about open banking. Those who have no strategy must move quickly to develop one.” Open banking is here to stay — and can bring significant opportunities to unlock the power of data to create better experiences for consumers. The time is now to start building an open banking strategy and getting ready for 1033. 

Is AI Hype Leveling Off?

While AI was the top area most respondents called out as an area of opportunity, the report also shows interest in leveraging AI tools has pulled back slightly from last year. The percentage of respondents who were “very interested” fell from 57% to 42%, while those “somewhat interested” rose from 19% to 28%. 

That said, 21% also say they are already leveraging AI tools. As we look ahead, there are tremendous opportunities with AI but also risks to consider. The report says, “advances in AI, meanwhile, and its reach into banking applications introduce potential risk and compliance issues in addition to substantial opportunities. Bankers are aware of risks and risk mitigation related to vendor management. But at this stage, few likely have a firm idea of what specific AI-related risks are.”

At MX, we believe across all of the risks and rewards that AI can bring, it starts with being able to utilize consumer-permissioned financial data and business intelligence to mitigate the risks and maximize the opportunities. As financial services companies embrace AI for a multitude of use cases, they must also become a truly data-driven organization. 

Conclusion

Across CCG Catalyst’s findings, a common trend was that industry professionals should be — and are — cautious today, especially when it comes to new technology. The report closes with one solid piece of advice to combat the uncertainties of today’s banking environment. “Study new business models and technologies carefully before pursuing them, build your organization to execute successfully on innovation strategies, and set appropriate guardrails.” We’ll add one more to this — focus on how you are connecting to, enhancing, and leveraging data to drive more value from these new technologies.