April 14, 2024
Andrew Harris

Funding challenges, constricting markets and the emergence of new, innovative money management tools will create challenges and opportunities in the banking industry this year. As economic headwinds intensify, consumers and financial institutions alike must
remain nimble to navigate these effectively.

As we look ahead, these are the hurdles and opportunities that will shape the banking industry in 2024.

Lending landscape evolution

While consumer borrowing options will likely expand significantly in 2024, the challenge lies in the lack of cash flow going into fintechs and the ability to lend. As funding dries up and investor scrutiny intensifies, many fintechs could face significant
financial pressures.

VC funding for fintechs was already
halved in 2023 compared to 2022, and the fallout of this may include a wave of consolidation, with weaker players being acquired or forced to wind down operations. The lending market will likely be a victim of this. Banks with charters that are securing
their own deposits will rise, while fintechs relying on outside funding may start to struggle.

Unfortunately, this trend could lead to reduced choices for consumers in the lending space. The buy now pay later (BNPL) industry, which has seen remarkable growth in recent years, may face disinvestment as financial institutions reassess their lending priorities.

This potential contraction in available credit options could be detrimental to consumer lending accessibility. With fewer options, those already struggling to take out loans may turn to unsafe or predatory options like payday loans.

Reduced savings rates lead to financial insecurity

The reduction in consumer saving is a broader problem that has significant implications for consumers in 2024. Before the COVID-19 pandemic, the savings rate in the U.S.
hovered around 8%. However, the onset of the pandemic led to a spike in savings rates, reaching the high teens. Now, due to factors such as inflation, higher borrowing costs, and the return of student
loan repayments, the savings rate has
plummeted to around 4% – the lowest it has been in a decade.

With smaller safety nets, consumers are more vulnerable to unexpected expenses, such as medical emergencies, car repairs, or job losses. This lack of a financial cushion can lead to a higher reliance on credit cards, payday loans, or other forms of high-interest
debt, potentially perpetuating a cycle of financial instability.

Rise of smart banking tools and finance apps

Amidst these challenges, banking and finance apps leveraging advanced technology are expected to play a pivotal role in helping consumers navigate their financial journey in 2024. These apps not only aid in saving money but also facilitate the creation of
emergency funds to deal with unforeseen expenses. As consumers grapple with reduced savings buffers, the importance of these tools cannot be overstated.

We are already seeing increased demand for tools geared toward enhancing financial literacy among consumers, which will only increase as economic hardships continue.

In addition to personal finance management, smart banking tools are also revolutionising the way consumers interact with their financial institutions. Conversational banking, facilitated by chatbots and virtual assistants, allows for seamless and natural
communication, providing customers with quick access to account information, transaction histories, and even basic banking services.

As the demand for these solutions grows, we can expect to see increased collaboration between traditional banks, fintechs, and technology companies. Open banking initiatives and APIs will enable the seamless integration of third-party applications with existing
banking platforms, creating a more comprehensive and user-friendly financial ecosystem.

The banking landscape this year will be defined by significant disruption, with tightening lending conditions, fintech consolidation, and a growing emphasis on smart money management tools. As economic pressures mount, consumers are facing reduced borrowing
options and diminished savings, heightening the need for financial literacy and innovative banking solutions. Ultimately, the industry’s ability to adapt and leverage technology will be crucial in navigating these challenges and empowering individuals to achieve
greater financial stability.

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