Accelerated Digital Transformation and Business Benefits in 2024: Interview with Peter Lemon

In an interview with Fintech Review, FICO‘s Peter Lemon discusses the rapid digital transformation in finance for 2024. We delve into the anticipated progression of digital transformation in banking this year, as IT teams transition to becoming innovators and revenue generators. There is a shift towards enterprise-wide technology to improve agility and customer service. As well as the increasing application of AI in financial services for risk management and personalized experiences. And the expected growth and challenges of Open Banking. A lot is happening. Let’s dive in.

To what extent do you expect digital transformation to advance in 2024?

The big change in 2024 is likely to be how IT teams will become revenue makers and innovators, improving business agility and enhancing the customer experience through more personalised services. This will be achieved as banks in EMEA shift towards an enterprise approach to software and technology to replace legacy siloed systems.

This transition is gaining momentum as CIOs and CTOs recognize the advantages of an enterprise-wide decision platform built on microservices and common capabilities. It is enabling quicker responses to business needs and reducing IT maintenance costs.

In 2024 it’s likely that more financial institutions will recognize the benefits, joining the trend to remain competitive. There’s also likely to be a focus on spreading benefits across various banking functions as IT leaders are beginning to understand the necessity of unlocking business growth through a transformative technological approach.

Given the significant strides in AI made in 2023, how can we expect this momentum to continue into 2024, specifically within the financial services sector?

Financial services are increasingly using AI to manage risks, combat money laundering, and offer personalized customer experiences. This trend is expected to continue growing. These advancements aim to address both broad and specific risk scenarios while improving service customisation.

Financial services providers are increasingly open to using AI within credit risk management and AML, and AI is already widely used in fraud prevention systems. In the credit risk area, we expect more firms to take a blended approach between AI and more traditional risk modelling technologies. This approach ensures the necessary clarity and transparency, increasingly crucial due to regulations like the UK’s Consumer Duty. It maintains the required explainability in this field.

AI also has the potential to drive hyper-personalised customer experiences, which are increasingly becoming the norm as customers’ expect to be treated individually.  However, it does not just bring benefits to customers, it also helps with cost reduction and revenue growth – a Gartner survey has shown that brands risk losing more than 1 in 3 of their customers if personalisation is poor.

How much further can we expect open banking to become deeply ingrained?

According to Open Banking Ltd, there were 11m payments made in July 2023 in the UK alone, with 7m regular users of Open Banking and in excess of 1bn API calls. We expect the usage of Open Banking payment technology such as pay by bank to continue to increase as more merchants adopt the technology and consumers see the benefit of using it.

Open Banking’s growth into 2024 hinges on three key elements. First, regulatory support must push its adoption. Second, service providers need to invest in development. Lastly, consumers must see its value and start using the technology. Each element is critical for success.

In Europe, the recent EU consultation on PSD2 is likely to conclude there is a requirement for the standardisation of Open Banking APIs. That has been the case in the UK for some time. This will increase Open Banking usage. The European Banking Authority has already called for it and banks themselves see the value in it. They know that they could be locked out  of sections of the Open Finance ecosystem if providers can’t connect to their API.

Even with advancements in technology, payments still require enhancement. To what degree will minimising payment friction be a priority for Financial Institutions in 2024?

In the worst-case scenario, inappropriate friction in the payment process elevates the risk  of customer attrition. The best-case scenario is that it will restrict customer adoption. Both have serious consequences for  financial institutions. It’s critical, therefore, that institutions put  this issue  front of mind.

However, it’s important to remember that not all payment frictions are bad, and some are necessary to prevent fraud, but there are ways to reduce them safely. For example, utilising biometrics will speed up the necessary authentications. Storing previous payment data for re-use or making use of Open Banking connections to facilitate payments to third-party financial institutions will also smooth the process.

What other trends related to digital transformation do you predict for 2024?

The top trend for banks in EMEA and the forecasted trend for 2024 is the shift towards an enterprise approach to software and technology to replace legacy siloed systems. The other main trend we expect to see is that digital transformation and Open Finance will further dismantle traditional competition boundaries in the financial services and e-commerce. Examples to date include Apple entering the “buy now, pay later” market and bought a UK Credit Bureau in 2022. Telecoms now offer micro loans and handset financing. BT is moving into electrical retail. Natwest has launched APIs for sharing customer data with third parties, allowing for data provision, verification, and updates. As more data becomes available and digital transformation improves technical flexibility, this trend is likely to accelerate in the future. These advancements promise to enhance how we leverage information and technology.

For banks, quickly using new data sources is vital to break down data siloes and see customer activity clearly. Adopting an enterprise-wide software and customer management strategy is key. This will also bring capabilities like real-time data use, machine learning, and social network analysis.

Companies leading in customer-focused management are set to benefit as digital shifts and Open Finance change competitive norms. They will leverage new chances as these trends redefine market rivalry.