3 key financial services trends and how to address them

A few years ago, Dan Schulman, the former president of Paypal said, “There’s going to be more change in the next five years in financial services than happened in the past 30.” This pairs well with the remarks of visionary CEO of JPMorgan Chase, Jamie Dimon: "The future belongs to those who can rise above the technology and master it.” These astute observations underscore the vital importance of staying abreast of the latest trends in financial services—and the challenges they have created.

A divergent economic landscape is impacting the ability of the financial services industry to generate income and manage costs. Higher interest rates, reduced money supply, more assertive regulations, and climate change are reshaping its foundational architecture. How banks operate and serve customer needs is decidedly different from just a few years ago. The impact of generative artificial intelligence (GenAI), industry convergence, embedded finance, open data, digitization of money, decarbonization, digital identity, and fraud have grown in 2024.

In this blog post, I explore three financial services trends that are the result of these change drivers and the innovations that can address them.

Financial services trend 1: Competitive pressure

Never has the financial services landscape been so competitive. Traditional banks face challenges from fintech startups and non-financial organizations that optimize loan approvals or offer “buy now, pay later” models. Fintechs and startups are seeing their advantages erode as traditional banks bring offers similar to their digital services online. To stay ahead, institutions and fintechs alike must focus on enhancing customer experience and deploying new business models such as embedded finance, open banking, and hyper-personalization. And, they need to invest in optimizing self-service.

Embedded finance is gaining traction

Embedded finance integrates banking, lending, investment, payment, and more into non-financial products and services. Companies use application programming interfaces (APIs) to link up with financial partners and offer these services to their customers. As a result, these companies can drive new revenue streams and create a seamless experience for both merchants and customers. For example, companies can integrate payment flows with other products like lending or insurance, and use customer data to build new experiences and increase brand loyalty.

Embedded finance is popular, and 72% of finance IT leaders believe that most financial products will be offered through non-financial platforms in the future. This trend presents opportunities for financial institutions to integrate their services into various customer touchpoints seamlessly.

Open banking is connecting possibilities, amplifying potential

Imagine effortlessly switching your checking account from one bank to another, without the usual headaches and paperwork. That’s the promise of open banking, which allows customers to authorize their banks to share their financial data with third-party providers, using application programming interfaces (APIs). It is upending the siloed nature of finance data by requiring standardized data formats and secure communication protocols.

In fact, the use of open banking is growing rapidly. Statista predicted that the number of open banking users were going to increase by an average of 50% between 2020. This year, that number is close to 64 million, 70% more than predicted.

Traditional banks, credit unions, and other financial service providers can use open banking to modernize their offerings and create better customer experiences. They can also collaborate with smaller technology companies to stimulate the development of new solutions, applications, and financial services based on open data. Plus, banks can unbundle large products and re-bundle them with more efficiency and customer-centricity.

Hyper-personalization is revolutionizing customer engagement

Hyper-personalization refers to a thorough and nuanced understanding of each customer's needs, based on real-time data and AI, and it is dramatically improving customer engagement. By delivering tailored services, products, and pricing, your bank or firm can reduce acquisition costs by up to 50% and increase revenues by as much as 15%. Through the strategic application of AI and machine learning technologies, you have the capacity to transform each customer interaction into a highly relevant, personalized experience.

Hyper-personalization in banking and financial services goes far beyond a simple "Hello, [Your Name]." Instead, it creates a banking experience that anticipates and addresses customer needs with remarkable precision. It can go so far as to share mortgage information before a customer actively begins a property search, or it can use algorithms to craft bespoke investment strategies aligned with individual risk profiles and long-term financial objectives.

Self-service keeps surging

Self-service experiences, such as mobile apps and chatbots, have been transforming how customers interact with banks for years. They are essential components of modern banking, offering customers more control over their banking transactions, reducing waiting times, and enhancing customer experience. Yet issues remain–customer service bots can only handle simple requests, applying for a credit card requires multiple channels, and fewer tellers mean longer waits for in-person banking.

The push to improve self-service is growing, however. Self-service kiosks are on the rise as are other alternatives to tellers, giving customers the power to carry out routine transactions. In fact, 87% of customers in the U.S. say they enjoy self-service kiosks, with 66% preferring them to human customer service. In addition, 20% of financial institutions have implemented drive-through or lobby video teller machines, and 17% have implemented non-video assisted self-service devices.

Financial services trend 2: Core banking transformation and operating model simplification

Core banking transformation and operating model simplification have become critical priorities for remaining competitive in an increasingly digital landscape. This trend is driven by the need to overcome the limitations of legacy systems and improve business operations and workflow.

Modernizing core systems lowers costs and delights customers

Despite all the technological advances at their disposal, it's still common for financial services firms and banks to rely on legacy systems for core business functions. Yet, these systems are holding them back. Outdated systems often lack integration capabilities and require manual processes, leading to inefficiency and data silos. Research from McKinsey found that operating costs for banks using aging core systems were, on average, 10 times higher than those using advanced technology.

To keep pace with the expectations of their customers and clients, banks and other financial institutions must eventually face the tough decision of how to move away from a legacy setup. As a result, addressing aging core business systems with digital transformation should be among your top priorities. A next-generation core banking system allows you to operate with the speed and agility required in an increasingly fast-paced and complex world.

Process automation and generative AI can do wonders

Banking automation streamlines customer accounting, managing deposits and withdrawals, renewals, customer acquisition and retention, and more to increase efficiency and optimize customer experience. Process automation and the adoption of GenAI present significant opportunities for the banking industry. For example, by automating common banking flows and powering virtual assistants with GenAI, what were once answers to routine inquiries are turned into one-stop shops for credit applications, loan approvals, and so much more. In fact, these technologies could unlock an annual potential of $200 billion to $340 billion, primarily through increased productivity.

Regardless of where your organization is on its journey, incorporating process automation and GenAI unites diverse process endpoints and runs complex processes. Executing on this successfully can help your bank or financial services firm improve its efficiency, keep pace with modern compliance and risk management, and streamline the customer experience to gain an edge over the competition.

Financial services trend 3: Cybersecurity, risk, and compliance

As the financial services sector becomes increasingly digital, cybersecurity concerns are mounting. Cybercrime is projected to cost the world $10.5 trillion annually by 2025, a stark increase from $3 trillion a decade ago. Financial institutions must invest in robust risk management strategies while meeting evolving regulatory requirements.

The reliance on integrated digital solutions and third-party providers introduces new vulnerabilities, as fraudsters can exploit weak points in smaller vendors to access larger banks' networks. As reported by the IMF, GenAI can be exploited to generate more sophisticated phishing messages and emails or to present opportunities for malicious actors to impersonate individuals or organizations, leading to increased identity theft or fraud.

Banking on GenAI and low-code to rise above these trends

To effectively navigate these three industry trends, financial institutions can use generative AI and low-code. Enterprise low-code solutions, such as OutSystems, empower financial services firms and banks like yours to build customized, secure, and GenAI-powered digital solutions rapidly. By embracing OutSystems low-code, financial services organizations can streamline operations, automate core banking processes, and stay compliant with regulatory changes. Here are just three of many examples.

Delivering digital experiences with OutSystems

The OutSystems platform speeds up the delivery of new products and digital experiences while maintaining data security, and Western Union has taken full advantage. To accelerate application development, improve agility, and provide great digital experiences, the financial services company chose OutSystems to build digital customer experiences, back office, and workflow solutions. And in just 11 months, Western Union launched new digital banking services in two countries and are rolling out more now.

Automating core banking processes with OutSystems

Keybank had an RPA strategy to automate repetitive tasks and free its collaborators to do higher-value jobs. Yet, there were still a few gaps in KeyBank's end-to-end processing that needed filling with additional technology. OutSystems was one of the technology solutions that Keybank chose to address that challenge. Now, with the help of OutSystems, Keybank has moved to a hyperautomation strategy that prioritizes innovation.

Moving away from legacy with OutSystems

GarantiBank quickly learned how OutSystems makes it easier to modernize legacy technology, reducing risk, costs, and complexity. It adopted an agile development approach for core banking applications, modernizing and securely hosting end-to-end processes in the cloud. With OutSystems, the bank now has the agility needed to deliver fast and continuous process improvement to meet their customer experience, operational excellence, and digital transformation objectives.

Get ready to be on trend

By adopting low-code and AI technologies, your organization can effectively address the key trends of competitive pressure, core banking transformation, and cybersecurity challenges. This strategic approach enables institutions to enhance customer experiences, optimize operations, and maintain a competitive edge in the rapidly evolving financial services landscape.

Want to learn more? Visit our Financial Services page.