Five Key Trends Transforming the Future of Banking

Insights from the American Banker Digital Banking Conference

Bounteous x Accolite recently sponsored the American Banker Digital Banking Conference in Boca Raton, FL.  At the event, we were able to dive into the latest trends, challenges, and opportunities shaping the future of banking. Here, we examine some key takeaways.

GenAI: A Central Theme

Generative AI (GenAI) was a dominant topic throughout the conference. Leveraging this innovation to its maximum potential requires less of a technological transformation and more of an enterprise-wide mindset shift. Organizations must focus on building a comfort level with change, rewiring their structures, deciding where to play, and moving beyond ad hoc use cases to build scalable capabilities.

“For every $1 spent on tech, it takes $1 in change management.”
- Sathish Muthukrishnan, Chief Information, Data and Digital Officer, Ally Bank

Ally Bank's innovative approach with its Ally.ai platform exemplifies this shift. Ally.ai is a proprietary, cloud-based system that allows the bank to integrate any AI capability, including GenAI, large language models and traditional AI into business operations at an enterprise scale. It also incorporates the specialized human touch and robust data security protections essential for a financial institution. Muthukrishnan also emphasized the importance of evangelizing the power of this technology and involving governance and control groups early on to balance innovation and risk.

“The strategic risk of NOT using generative AI is greater than the operational risk of USING it.”
- Chief Risk Officer, Ally Bank 

The backbone of Ally’s AI program is built on three non-negotiable principles:

1. Enhancing employee productivity
2. Providing human intervention
3. Protecting identifying information

Ally has more than 450 GenAI use cases in the pipeline, with the majority originating from outside the IT department. Examples include call summarization and transcripts in the contact center, faster first drafts for the marketing and XD functions, and report summaries for investor relations staff, reducing tasks that typically take four to six hours to a few minutes. To prioritize these use cases, they consider three key questions: 

1. How do we show real return on investment?
2. How do we differentiate ourselves with the spend?
3. How do we make internal transformation easier?

Additionally, Ally conducts optional AI days with their employees every four to six weeks, dedicating four hours to discussing recent advancements, challenges, and internal use cases, ensuring continuous learning and adaptation. The goal is to eliminate the fear and anxiety of AI taking over jobs, and, instead educate employees and empower them to experiment.

Muthukrishnan ended his talk with the following questions that financial institutions should ask internally:

• What are your non-negotiable principles?
• How will you use AI to deliver value to your company? 
• What’s your AI Playbook to educate and empower your people?
• Are you courageous enough to make it happen?

Anuj Shah, Head of AI and Intelligent Automation Center at PNC Financial Services, stated that the bank is moving beyond use cases to building capabilities—such as summarization, ad hoc data extraction, analytics, and intelligent routing—that can be used across the organization. Most of PNC’s time is devoted to testing, establishing guardrails, and monitoring accuracy.

The Rise of Embedded Finance

Embedded finance is a significant trend that is revolutionizing the banking landscape. As Oscar Gonzalez, VP, Senior Digital Product Manager at Citizens Bank, put it, "What online banking did to branches, embedded finance will do to online banking." The traditional bank login may become obsolete in the not so distant future, with users preferring their system of choice for banking needs.

“Banking is something you do, not somewhere you go. What online banking did to branches, embedded finance will do to online banking. People will bank with their preferred application.”
- Oscar Gonzalez, VP, Senior Digital Product Manager at Citizens Bank

Gonzalez highlighted the high-yield Apple savings account as a good example of embedded banking in retail. In addition to offering users a high interest rate, the savings account allows Apple Card holders to automatically deposit their cash-back rewards into the account, simplifying the process of saving. Apple controls the UI— where balance inquiries, transfers, deposits, and withdrawals are performed within the Apple Wallet— while Goldman Sachs powers the backend. Many users are unaware that their account is technically with Goldman Sachs, not Apple. The account has seen rapid adoption, reaching more than $10 billion in deposits within the first four months of its launch in April 2023.

Gonzalez cited Citizen’s own ERPConnect product for treasury management as an example of embedded finance in business and commercial banking. Enterprise resource planning (ERP) software providers NetSuite, Sage Intacct, and Business Central control the UI while Citizens powers the backend. Balance inquiries, transactions, account reconciliation, wires/ACH/Check payments, A2A transfers, and Positive Pay are all done within the ERPs. Citizens offers three models to support the embedded banking channel for their business and commercial clients: FDX API via account aggregators, ERP connectors, and client-facing APIs:

Monetization of embedded banking is primarily achieved through customer acquisition and retention by offering efficiency and a superior customer experience. Embedded banking generates revenue in four primary ways:

• New client acquisition
• Deepening existing client relationships
• New digital products
• Usage fees

As a result of this new distribution channel, Citizens Bank is seeing a strong increase in client deposits and a high degree of stickiness. One client stated, “I don’t know how I would live without this. Account reconciliation is done automatically without the need to rekey information.” Add-on features such as account verification and automatic remittance advice serve as additional revenue streams.

Navigating Cloud-First Banking

According to the 2024 Cloud First Banking research developed by Arizent and American Banker, cloud banking continues to gain traction, with expenditure expected to rise in the coming year. This initiative aimed to understand the drivers behind cloud investments at banks, where banks’ cloud strategy is headed, and the obstacles hindering effective deployment.

Virtually all (98%) of the 181 bank leader respondents have specific goals driving cloud investments. The top five objectives are:

1. Productivity and efficiency gains
2. Better operational resiliency
3. Reduced operating costs
4. Increased agility and speed to market
5. Improved data security and cybersecurity

Delivery of measurable value for increased agility and speed to market is lower than delivery of other, similarly prioritized objectives for cloud investments. Despite the benefits, 97% of FI respondents face challenges in leveraging cloud computing, with concerns over security, data privacy, and protection cited as the most common. Addressing these concerns is crucial for the successful implementation of cloud banking strategies.

Providing an Omnichannel, Personalized CX

We are moving into an era beyond digital, where the integration of digital and non-digital experiences is essential. According to a 2023 Accenture study, 66% of American customers still want to see a brick-and-mortar presence from their financial institution as it confirms the bank’s stability and availability. The survey revealed that customers appreciate branches for infrequent yet significant tasks, such as seeking advice and opening accounts. “Leaders at the big banks believe branches remain the key ingredient to drawing in new consumer and small-business clients, even in an increasingly digital world,” says the Wall Street Journal.

“66% of consumers in the U.S. like seeing branches in their neighborhood.”
- Accenture Banking Consumer Study

To effectively compete with disruptive fintech companies and achieve sustainable growth, banks must improve their ability to meet customers' unique banking needs in ways that align with their lifestyles and preferences. Providing a seamless and integrated experience across all channels—whether it's the bank's website, mobile app, branches, or phone, messaging, or email support—ensures that representatives have a complete view of the conversation history, maintaining context and continuity in every customer interaction. The key to securing lasting customer relationships lies in blending the best of digital and physical touchpoints to offer personalized service. However, many financial institutions still face challenges in implementing true omnichannel banking. Those that succeed in building strong relationships across various channels will unlock significant value.

Overcoming Deposit Acquisition Challenges in Community Banking

In this elevated interest rate environment, community banks and credit unions are struggling to acquire deposits to meet loan demand. Intense competition has forced these institutions to increase their offered deposit rates to attract and retain funding. Wholesale funding sources such as brokered deposits are seen as less favorable and regulators are taking a harder look at contingency funding plans. To add insult to injury, smaller financial institutions with competitive rates have difficulty generating visibility due to leading rate comparison sites like Bankrate, NerdWallet, and Investopedia being cost-prohibitive. 

“Deposit acquisition is the biggest pressure point in community banking.”
- Howie Wu, head of product at Seattle Bank and CD Valet

While consumers may think that they are receiving a completely impartial listing of the highest rates for each type of deposit account on those comparison sites, in reality those directories are dominated by megabanks, digital banks, and fintechs that can afford to pay for top billing. These sites are essentially pay-to-play aggregators utilizing what’s euphemistically called an “affiliate marketing” advertising model.

Frustrated by a lack of exposure on comparison sites and getting outbid by larger players on Google ads, Seattle Bank decided to take matters into its own hands. In late 2022, the community bank with more than $800 million in assets launched a free rate comparison service called CD Valet. The consumer website and mobile app collects CD rates of banks and credit unions and does not accept advertising dollars to push certain choices to the top. Time will tell if the endeavor has staying power, but CD Valet has advanced to the point where it displays on the first page of organic search results for “best CD rates”, just below Bankrate and Nerdwallet. 

The Value of Business Adaptation 

Bounteous x Accolite was honored to be a sponsor of the American Banker Digital Banking Conference where a spotlight was shown on the critical role of GenAI, the transformative potential of embedded finance, the strategic importance of cloud banking, omnichannel personalization, and the ongoing difficulty of smaller financial institutions to acquire deposits. As the banking industry continues to evolve, staying informed about these trends and adapting to them will be essential for financial institutions to thrive in the digital age.

Contact us for more information regarding Bounteous x Accolite’s capabilities and solutions within the banking industry.