Priorities for Financial Services in 2024

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It is the time of the year when we do a bit of crystal ball gazing to predict the key technology trends in financial services in the new year. This is based on IBM research and our conversations with clients and industry analysts.

While the economic outlook for 2024 looks better than last year, geopolitical uncertainties can be a derailment factor. Rising cross border tensions can drive price rise and delay the interest rate reduction trajectory. 2024 will also have another unprecedented event which will further stir the climate of uncertainty – elections across 40 countries, including UK, US and India with more than 4 billion people casting their vote.

This backdrop of uncertainty will drive business leaders in financial services to focus on cost reduction initiatives like estate simplification and process improvement. Any strategic investments outside of cost takeout will be limited to regulatory or customer experience related programs. The following five areas are a priority for technology in financial services:

Digital: There is no uncertainty about the continued focus on digitisation in financial services. Top banks have already invested significantly in digitisation and have caught up with the neo-banks. Their focus now will be on hyper-personalisation, a strategy aimed at tailoring banking experiences to individual needs. Based on the vast trough of customer financial and spending data and exploiting the power of AI, leading banks will aim to provide more personalised customer service including pro-active nudges and offers. Tier 2 banks, asset managers and insurance companies have more catching up to do. Their focus will be on building the core digital platform and creating the basic digital customer journeys. They have the opportunity to leapfrog by applying key lessons from the digital journey of the top banks like investing in digital garages that bring business and technology together and building a digital engagement platform with a repository of digital journeys that can consumed across multiple channels.

Cloud: Cloud adoption in financial services will reach an inflection point in 2024. Most financial services organisations have one or more cloud landing zones and already have material workloads on cloud. Many will want to move to the next level with clear data centre exit or simplification plans leading to scaled migration to the cloud. Modernisation of legacy core platforms to the cloud is also picking up especially as Gen AI-assisted code discovery and migration makes the value equation in modernisation more palatable. Finally, as cloud workloads grow, it is time to watch the cloud bills! This will increase the demand for industrialised cloud operations underpinned by automation, instrumentation, and optimisation of cloud workloads.

Cyber Security: The impact of cybercrime is estimated to hit $10.5 trillion by 2025 (this is higher than the GDP of Germany and Japan combined!). Cyber criminals are becoming more effective as they arm themselves with new technology such as AI and Quantum. In the next 12 months we would expect to see 50% of all cyber threats powered by AI, and a significant increase in their effectiveness. Quantum Computing can crack most of today’s encryption keys in hours or close to real-time (this would take millions of years in today’s most powerful computer), exposing current security approaches to significant risk. In what is a continuing technology arms race, financial services firms will continue to invest in cyber-security. Investment will be aimed at remediating legacy infrastructure for security vulnerabilities as well as enhancing threat detection and response by using AI. Companies are also starting to conduct Quantum risk assessments to identify and protect their most critical data assets.

Operational Resilience: All financial services firm must get ready to demonstrate to the regulators by March 2025, that they can remain within impact tolerances when under stress for their important business services. This includes services provided by critical third parties including cloud providers. As firms move material workloads on cloud, there is increased pressure from regulators to prove their ability for stressed exit from cloud. There is huge amount of work required to identify important business services, do the service chain mapping, conduct scenario testing and remediate systems. This will continue to remain a key investment area in 2024 and 2025.

AI: Financial Services firms will continue to adopt AI in 2024 based on both the huge promise it presents and the fear of losing out. The focus of AI adoption will start moving from hype to reality, from many experiments to doubling down on a few initiatives to deliver value. We see huge value from AI in customer service, colleague assistance and legacy application modernisation. Implementation of AI in these areas will scale in 2024. AI adoption will also drive investments in improving data quality, lineage and governance.

In a year of economic and geopolitical uncertainty, one thing that we can be more certain about than ever before is that technology will play a huge role in transforming financial services. And there is no better time to be working in financial services technology.

For more information on IBM’s Financial Services offering, please visit  https://www.ibm.com/consulting/financial-services