With a slowing economy and an anticipated rise in non-performing loans, the banking sector is hungry for solutions to stay profitable in an era of increased risk. Though the complex web of challenges nullifies any cure-all approach, a myriad of solutions can cushion any potential crisis and maintain healthy earnings.
At the heart of the answer is digital and data enablement solutions. Though the industry has embraced many data-driven solutions and platforms, the journey is not over, and the opportunities are constantly expanding.
What’s even better is that the following 2024 banking industry challenges don’t need to hinder your profitability. Here are the ways data can help banking and financial services institutions weather risk, revivify depositor confidence, and maximize profitability in a year forecasted by experts to see modest growth.
1.) Respond to Inflation
Since the pandemic, most countries worldwide have experienced the highest rate of inflation in decades. The combination of supply chain breakdowns, climate change, global conflicts, monetary policy, and corporate decisions has sustained those increased prices beyond initial expectations. Now, commercial, investment, and central banks are turning to data to mitigate this risk in the future.
For example, the European Central Bank is analyzing millions of diversified data points with AI-powered algorithms to evaluate the influences, pressures, and dynamics of inflation. They are using a range of real-time and historical data points—from public price data and corporate stats to bank supervisory documents and monetary policy—to uncover smarter and less disruptive inflation response policies.
This approach could bear fruit for more than just central banking institutions. When banks can anticipate inflationary events with greater foresight, they can, for instance, avoid certain bonds or securities with yields that would be almost guaranteed to slip.
What about here and now? By finding opportunities to automate tedious and repetitive manual processes, banks can increase their productivity and gross domestic product per hour worked to keep up with rising wages. Moreover, these maximized outputs can help to justify increases in employee and consultant wages, contributing to a healthier economy.
2.) Addressing Non-Performing Loans
Though the market last year dodged a predicted rise in non-performing loans (NPLs), more banks are preparing for a not-insignificant number of investments to sour. A Goldman Sachs analyst said that net interest likely fell 10% during the fourth quarter of ’23 and that more banks are now enlarging their capital reserves to lower the risk of instability or failure.
It’s the massive volume of debt worldwide that makes sophisticated algorithms an essential asset when lowering these risks. Banks have an opportunity to embrace AI prediction models that can help them profile possible NPLs and accelerate revenue recovery or restructuring activities. Artificial intelligence can even be used to evaluate customer behavior patterns and pair high-risk debtors with the right human agent who can negotiate the restructuring of their loans.
3.) Raising Customer Service
As the market grows in complexity and companies start to lean on advanced technologies, it can be easy to lose sight of what matters: the people supported by the banking industry. Right now, many of them feel underserved or ignored.
A recent sentiment survey from Rivel Banking Research found 32% of retail banking customers are willing to switch their primary bank. A key reason is reflected in declining consumer perception of banks’ customer service, which has dropped to 56% positive reviews. Fortunately, it’s possible to rehabilitate the increasingly negative reputation of bank customer service.
For starters, organizations across industries have seen results by pursuing data-driven customer engagement strategies. Using individual customer data pulled from omnichannel interactions as well as third-party data sources can help to create a 365-degree view of each customer. With this data stockpile, banks can automate engagement processes to rapidly answer questions, accelerate first-time resolutions, and even upsell or cross-sell them with banking solutions that proactively resolve their challenges.
Which leads into an important point: Some experts view the current climate of vulnerability as an opportunity for banks to introduce products that enhance financial stability. With 49% of consumers unable to handle a $1,000 emergency, there are opportunities to act as an ally and advocate for consumers. Using data and AI to identify consumers for financial education programs and monitor real-time conditions to strategically raise the APY on savings can encourage customers to keep their capital with your institution.
Stay Resilient Against the Top 2024 Banking Industry Challenges
Even with all this predictive power, there are still unknowns on the horizon that you’ll need to address. For every risk that financial organizations can see from miles away, there are black swan events that can completely disrupt the business world. As a result, there needs to be a culture not only of diligent observation but a foundation of high-quality data that stakeholders and analysts can review with ease and reliability.
Ready to overcome the top 2024 banking industry challenges? w3r Consulting knows the banking and finance sector and can help you prioritize the data and AI solutions to overcome them.
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