Key banking technology trends to watch

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We’re fast approaching a new turning point for technology in the banking sector. We’ve already had revolutions in ePayments, online banking and app-based services. 

Neobanks have set new expectations with exceptional customer experiences, low fees, (nearly) instant service, and flexibility. And to their credit, traditional banks have largely kept up.

But new developments keep coming thick and fast. Digital services are now fundamental, leaving physical branches as an afterthought. Open banking keeps maturing, which lowers the barrier to entry for new fintech providers. And AI is developing faster than anyone is ready for.

The rate of technological change in fintech — and the emergence of innovative startups — means banks have no choice but to continue evolving. These are the six key trends I believe will drive payments and banking this year (and beyond).

6 banking technology trends for 2024

The following developments are particularly relevant to business banks — licensed financial institutions. While private consumers have seen huge advancements in recent years, most businesses still have the same relationship with their banks as ever. 
Companies need the funds and functions that banks provide, but dislike how long and complicated the process can be, specifically for small businesses. That promises to change. 

1. AI tools will begin transforming the banking model

Any list of banking trends for 2024 must start with artificial intelligence. AI looks to be a landscape shifter, with the potential to impact things as much as the internet, smart phones, and electronic payments. 

We’re on the cusp of a fundamental transformation. That’s not hyperbole — at Defacto we already serve more than 10,000 companies with a one-person customer service team. (Thanks to Intercom’s AI chatbot powered by GPT-4.)

Every bank wants (and needs) to be ahead of change. And most are already testing AI tools like chatbots and automated FAQs. 

But overlooked are the backend applications that could have a more profound impact. Banks dedicate significant human time and effort to essential but low-value tasks:

• Credit checks and risk evaluations
• Customer verification and KYCs
• Document authentication and parsing
• Internal controls

Machines can already perform all of these tasks more accurately and almost instantly. At Defacto, we can run credit checks and evaluate a client’s risk profile in 27 seconds. It requires no paperwork and gets smarter with every new integration that powers our underwriting. 

This offers a fundamental overhaul to the banking economic model. What were once huge operational burdens are now low-cost and rapid. 

In 2024, startups will continue developing algorithms and finding smart tech solutions. Banks only need to leverage these to keep their operating costs down.

2. Better experiences for SMB customers

Technological improvements aren’t just an operational win for banks. Customers too can expect better, faster services to come from more efficient banking providers. 

This is where neobanks have already reset the standard. It’s no longer acceptable to take weeks or months to open an account, send and receive money, or open a line of credit. Everything should be accessible online, on your phone, in an instant. 

In the consumer world, this is already the case. But small businesses face many of the same delays and complexities as ever. Business owners want the same fast, easy, bespoke services for their companies as they enjoy in their private lives. 

Those AI improvements we mentioned above promise to change this. When small businesses need access to capital, this should be fast and flexible, tailored to their specific challenges. 

And it’s completely achievable today. First, with more immediate risk assessments — more on this next. But everything from designing a loan package, to onboarding, to ongoing customer support can be (at least partially) automated. And they certainly shouldn’t require a meeting with a bank manager for every little update. 

The value added by SMBs in the EU alone is north of €4 trillion. The sooner banks understand and offer what growing businesses need — freedom, flexibility, and focus — the better they can serve this enormous market. 

3. Faster and fairer risk assessments

As noted above, some of the most painful steps in the bank-client relationship — for both parties — are also non-negotiable. Banks must collect documents, verify identities, and correctly assess risks before offering loans or other financing. 

But customers can be turned off by the level of scrutiny required, and the time these processes take. If a small business needs capital now, the prospect of treading water for three months for a factoring arrangement is hard to stomach. 

As a result, fewer short-term loans are requested (and given), which hurts both the borrower and the lender. 

But with recent technological advancements, risk assessments can be done incredibly quickly. We already have the tools to automatically search registers, authenticate documents, and create an initial financing offer.

At Defacto, we have algorithms that set an initial credit limit based on the information provided, and then dynamically increase this limit as the company grows or proves its reliability. This kind of financing service continually rewards the best customers, without any manual effort.

More fundamentally, any bank that becomes known as the fastest or simplest lender has a huge advantage. Business owners just want to be free to focus on company success, and banks have always been seen as a roadblock here. 

4. More integrations & embedded systems

Perhaps the greatest hurdle for banks in embracing new technology is development. Upgrading services is hard, and product development is yet another operational cost. So most choose to prioritise their core offerings which are typically the most profitable — for now. 

But when new innovations make traditional banking processes seem painful and outdated, standing pat isn’t a long term strategy.

The good news is that you don’t have to develop things from scratch. Thanks to open banking, embedded services and APIs, banks can incorporate new services faster than ever. This even includes offerings that are typically seen as less profitable - such as SMB loans and financing.

The overheads are now so low that banks would be foolish not to open up. Where you once would need months (or years) to build an online-only credit service, for example, you can now embed one that’s already built. 

Better yet, these can be white labelled and branded just like the rest of your services. You’ve essentially outsourced product development to the tech innovators, and can adopt their discoveries faster than ever before. 

5. Instant payments will begin to replace business card transactions

In February this year, the European Council and Parliament passed a law requiring payment service providers to enable instant credit transfers between EU businesses, at no extra charge. This is a relatively technical directive that could have pretty large effects on the way businesses spend. (The UK has a Faster Payments scheme)

The new rules come in response to an awkward status quo: 

• Merchants like the fact that card payments give immediate proof of funds. But the fees are typically high, and credit cards aren’t suitable for large transactions. 
• Bank transfers enable high payment values. But there’s always the risk of default and delays, and businesses have to factor in weekends and public holidays. 
• Cross-border transactions transfers are also an issue, as every country has its own payments system. Transactions get stuck at borders, even within the Eurozone. 

A reported €200 billion is stuck in collections and reconciliations on any given day. This meant big business for Visa and Mastercard — the vast majority of B2B payments flow through these two providers to ensure fast and reliable closure. 

But with this change, SEPA Instant Credit Transfer (SCT Inst) payments in and out of Europe could become the norm. We already see examples of instant refunds being offered at supermarkets, and faster insurance claim payments for consumers. 

And why not credit lending next? If payments can be instant, then surely access to funds should follow. This will help treasurers ensure that working capital is available and deployed optimally. 

Banks and payment service providers will be required to ensure payments flow instantly. Planning and implementation of this service should already be underway. 

6. More transparency in services & pricing

Trust is vital for all things finance. But customers are wary and have grown to expect hidden fees and secret clauses in bank contracts.

Obviously banking services aren’t free, and fees keep the lights on. But if they come as a shock or surprise to customers, this jeopardises the long-term relationships this industry relies on. 

The real issue here is a lack of transparency and an unclear pricing schedule. Consumers and businesses are demanding lower fees. At the very least, they want to understand what they’re paying for. 

First, you must find ways to keep fees low. And as we’ve seen throughout this piece, modern technologies can help you do just that. More AI, more automation, and lower R&D costs should be just what the industry needs. 

Second, you must be more transparent on pricing. Hidden fees and surprise interest rates are a short-term gain but can only hurt in the longer term. 

What’s really better for the bottom line, a quick upsell or a returning customer who requires no sales and marketing, and limited support costs? The answer should be obvious.

A little progress promises big results

It’s hard to know exactly where we sit on the banking technology journey. But if even the past 20 years are an indication, the rate of progress will only get faster and faster. What feels like huge leaps today will be commonplace tomorrow. 

Banks are keen to adapt, and the opportunities are seemingly endless. AI tools can already automate many of the slowest, lowest-value steps in the workflow. These include risk assessments, credit checks, document collection, and internal approvals. 

Automating these steps leads directly to higher customer satisfaction and better unit economics. 

Which in turn opens the door for more (lower-profit) clients. When the time and costs of onboarding and managing clients are minimal, you can scale into industries that were previously not worth it. 

And it doesn’t even have to be hard. Open banking APIs and smart integrations let you incorporate innovations easily. Whether you offer third party services to clients or white label them as your own, there’s no need to build from scratch. Collaborate and incorporate are the watch words. 

Staying ahead of changes is really just a question of embracing them. Let’s keep exploring what’s possible in this vital sector.