Revisiting our 2024 Predictions

Back in January, our team weighed in with their predictions for 2024, covering everything from emerging technologies to regulatory developments. Now, over halfway through the year, we’re revisiting these predictions to see what’s changed and what’s remained on course. Here’s a few of our predictions and updates on how these trends are unfolding in the industry. To see the original list, visit our January article.

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Contributors:

Carey Ransom, Managing Director

Brandon Oliver, Principal Investor

Katie Quilligan, Investor

Jake Fuchs, Investor

Pam Kaur, Head of Bank Technology

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Revisiting our 2024 Predictions

Prediction: A major trend that will shape the community banking industry in 2024 will be further bank (and CU) consolidation that should have taken place in 2023, but did not for various reasons. Secondly, there will be a disbursement of talent across the banking landscape as those displaced from SVB, FRB and Signature find new homes. Banks that land these employees will hopefully see a real impact to their cultures around innovation starting in 2024.

Update: As consolidation in the space continues, it is fascinating to see the role of regulators as wave after wave of consent orders roll through. Not only are we trying to level-set how banks will work with any third party vendors, but we are also seeing lobbying groups for community banks pushing regulators on the M&A front. Specifically, why on earth are regulators allowing credit unions to acquire community banks, and who does that combined entity actually answer to in the end?

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Prediction: An emerging trend that will significantly impact the community banking sector in the near future is community banks increasingly exploring the journey to becoming BaaS providers, transforming financial services into a back-office utility that powers various operations.

Update: BaaS banking is still fascinating to follow, especially as we watch the Evolve and Synapse partnership unfold. We are still seeing banks interested in pursuing the space but now with an even higher level of caution, as expected. With this, what will be interesting to see is how these banks redefine their community or customer demographics. This practice will ultimately determine the niche service offerings in BaaS banking or embedded finance that are most relevant to that bank’s customer base and may be pursued as a starting point.

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Prediction: Lending-as-a-Service will have the greatest impact on community banks in the next 3-5 years. The next generation of customers is expecting to bank 100% digitally, so banks that do not offer digital banking need to quickly address this; banks will also need to leverage third party partnerships to more frequently get in front of those customers where they are. By offering LaaS opportunities, banks can be seen by the customer as a transaction is taking place but avoid the hassle and larger expense of directly marketing to the customer. 

Update: LaaS and embedded finance will have a major impact on how banks continue to thrive in the future. Customers are no longer making financial decisions based on branch proximity or after seeing a billboard, but rather based on ease of access. Through LaaS and embedded lending, community banks can continue to be the backbone of their communities, they just may not need to be the face anymore.

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Prediction: In terms of regulatory changes and compliance, banks will need to closely monitor the guidance coming out of the various regulatory bodies as it pertains to the adoption of artificial intelligence and machine learning. The opportunity for AI to improve banking processes, and create a more efficient market, will be largely dependent on the scope of the regulations to come — “the devil is in the details,” as they say.

Update: Earlier this summer, the US Department of Treasury sent out an RFI (request for information) on the “Uses, Opportunities, and Risks of Artificial Intelligence (“AI”) in the Financial Services Sectors.” Comments are due August 12th – it will be interesting to track any updates that come on the back of this RFI.

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Prediction: Banks will need to ensure their teams understand the requirements around 3rd party (and 4th party) vendor relationships to a tee. These partnerships will continue to be scrutinized by regulators in increasingly great detail, and just checking a box will no longer suffice. Banks should also understand how their 3rd party vendors are tracking their own vendors, to avoid any extended 4th party relationship risks.

Update: With the amount of consent orders that came out this year, 4th party risk is a rising issue. There were recent reports of regulation reaching as far as requiring vendor management on 5th party risk – banks are increasingly held responsible for what these vendors are doing on their behalf. Appropriate third, fourth, fifth-party, etc. risk management programs must be established.

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Prediction: To stay competitive and adaptable in the long term, banks will need to be very intentional about hiring in their c-suite and beyond, ensuring candidates are adaptable to change, experienced with various types of technologies, and committed to fostering a culture of innovation. Hiring decisions should prioritize candidates who actively embrace innovation and change as a strategic decision - not because they had no other choice. 

Update: The push for hiring and building a more innovative bank culture remains the top priorities  for a bank trying to stay competitive. BankTech, in partnership with Getro, recently launched a BankTech PortCo + LP job board to answer this need.

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New Predictions for the Second Half of 2024

Brandon: The second half of 2024 is going to feel a lot longer than just 6 months. I’m just kidding, but I think you can catch my drift. Between the election, Fed decisions, consumer credit markets, CRE portfolio issues, and further regulatory crackdowns, it’s easy to understand why any bank of any size would want to go into hibernation until things are perceived to be sunnier. I would argue that it’s perfect timing to push forward on your strategic vision for your institution. We have never had a better understanding of how regulators are looking at third party vendor partnerships (albeit still not being perfect). We are one day closer to year-end and executive strategic planning sessions. Those sessions should coincide with more clarity on some of these larger macroeconomic hesitations. My advice is to have a rough plan in place for outcomes over the next 4-6 months and push forward with the one that makes sense when you are ready before year-end. Doing nothing is a decision, but it benefits no one - not you, the organization or your customer base.

‍Katie: As banks continue to face a challenging growth environment, it’s the right opportunity for banks to lean into creating a culture that embraces innovation and continuous change; no matter the results of the election or if interest rates decrease, there is no going back to how things were. Customers continue to demand more from their financial institutions, expecting to bank where and when they want to (and it’s not in the branch from 9 - 5 PM). If they don’t like what they see (or they don’t see the bank at all where they’re looking), they will leave or likely never even consider the bank. Focusing on innovation, not just for innovation sakes, but with a north star on providing the high-tech, high-touch experience the customer actually wants will be key. 

Carey: I’ve seen more banks start to plan for the years ahead and acknowledge that it’s time for them to start growing again, no matter the interest rate, political or regulatory environment. As they’ve survived the whipsaw of the past few years, they feel emboldened to more intentionally approach their markets and customers with the “high tech and high touch” story and win business from high value mid-market businesses. I’ve also seen a renewed interest in more modern consumer banking solutions as banks want to attract and retain a younger generation of customers.

Jake: There’s a famous Ernest Hemingway quote, “it happens slowly then all at once” – I’ve found myself using this quote more times than I care to admit recently. It feels apropos for our current macroeconomic situation, generally, and the state of the banking industry, more specifically. We’ve witnessed a slow build-up of economic pressures over the past few years and markets seem to be in limbo as they await the results of the election and the Fed’s signaling on when rates may come down. As such, I expect banks to continue to focus on their core business (namely managing deposit and loan growth) and use the remainder of 2024 to lay out the strategic plans for a big 2025.

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BankTech Ventures is a strategic investment fund focused on investing in early-stage bank-enabling tech companies that support the future of the community banking industry, ultimately helping community banks become more resilient, innovative, and better serve their retail and commercial customers.

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