Technology advancements and hurdles in banking relationship management in 2024
In 2024, the banking sector is witnessing a dramatic transformation as relationship managers evolve into strategic advisors, powered by AI and data analytics to enhance client engagement. This blog explores the intersection of technological innovation in banking, the economic and regulatory challenges faced, and the dynamic role of relationship management in driving customer-centric growth.
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As the banking sector navigates through 2024, it faces a market environment marked by technological innovations and economic complexities. Amidst this backdrop, the role of relationship managers (RMs) has become increasingly pivotal. The emergence of generative AI and data analytics has transformed RMs from traditional service providers into strategic advisors, or 'client whisperers,' who utilise advanced tools to deliver personalised advice and foster deeper client relationships. They are now expected to interpret complex data and leverage AI-driven insights to anticipate and meet client needs with unprecedented precision, thus playing a crucial role in customer retention and satisfaction.
This transformation is taking place against a challenging economic environment, with banks contending with supply chain disruptions, geopolitical tensions, and the aftereffects of early 2023 shocks that have compelled a reassessment of banking strategies as outlined by Deloitte’s 2024 Banking and Capital Markets Outlook. Despite these challenges, the integration of technology in client relationship management presents significant opportunities for banks to enhance their customer engagement and operational efficiency.
Technologies shaping modern banking relationship management
One of the most significant shifts in 2024 has been the rapid adoption of generative AI (Gen AI), with banks expected to see productivity rise by 20–30% and revenue by 6% as predicted by Accenture. This calls for a rethinking of work and talent, moving towards a synergy between human and AI capabilities. The integration of AI across banking operations promises personalised financial products and optimised delivery.
“As we enter the Age of AI, many bankers feel the same sense of awe that their counterparts did a quarter of a century ago as they stood on the verge of the Digital Age.”
Relationship management (RM) has taken center stage in the banking sector, with personalised engagement becoming the hallmark of modern banking. A Personetics’s 2023 study indicated that about 60% of banking customers were open to switching providers that offer better money management capabilities as per their individual needs. This data underscores the increasing need for banks in 2024 to provide tailored solutions based on customer behaviours and preferences.
While Gen AI garners attention, its applications in customer-facing processes will be limited until validated for impact and bias. Meanwhile, applied AI flourishes, improving operational efficiency, risk management and customer engagement. Banks are now leveraging AI to analyse customer transaction data, understanding behaviours to anticipate needs in real-time and provide these tailored solutions, as seen with RBC's AI-powered tool NOMI Forecast.
Moreover, virtual assistants like Bank of America's “Erica”, handling over 1.5 million customer interactions per day, and Wells Fargo's “Fargo”, are becoming more intelligent and proactive, offering personalised financial insights to customers. This transition from reactive to predictive assistance is a significant step towards enhancing customer engagement and satisfaction in the industry.
In addition to AI, other technologies reshaping the banking RM landscape are blockchain technology, through DeFi and smart contracts, promising to significantly streamline key processes like cross-border payments and trade finance. An illustrative example of blockchain's potential to revolutionise banking processes is Cygnetise, which has utilised the technology to digitise the management of bank mandates (or authorised signers). This innovation addresses a historical pain point for banks and their corporate customers, allowing for real-time updates of signatory lists, thus minimising processing risks and delays, and enhancing the overall customer experience.
Embedded financial solutions, on the other hand, are integrating banking services directly into non-financial platforms, creating seamless user experiences. Quantum computing, although still emerging, is also being eyed for its potential to revolutionise financial modeling and risk assessment. Open banking is expanding, with the US catching up to European countries, fostering collaboration and competition and leading to a more diverse financial landscape.
Amid these advancements, RMs are expected to become adept at navigating digital platforms, employing their skills to manage customer relationships effectively in the digital age. Their role is increasingly about balancing the need for personalised customer service with the capabilities provided by advanced technological tools, acting as the human element that complements the efficiency of AI and machine learning.
Kleinwort Hambros Bank reduces 95% of time spent on managing authorised signatories
Hurdles facing banks in 2024
The banking industry's journey through advanced technological innovation is not without its hurdles. One of the primary challenges is managing the cost of deposits in an environment where interest rates remain high. Elevated rates, while boosting net interest income, also push funding costs higher, squeezing the margins that banks can earn on their products. The rapid pace and steepness of current rate cycles have particularly heightened deposit costs, a pattern observed globally. Banks are thus caught in a bind, needing to balance the attraction of deposits against the cost of servicing them.
Another considerable hurdle is the constant flux in the regulatory landscape. Banks are required to navigate through an ever-evolving set of rules and compliance requirements, which can vary significantly across jurisdictions. This necessitates a dynamic approach to risk management and operational adaptation, often requiring significant investments in legal expertise and regulatory technology.
Furthermore, the integration of AI in banking, while presenting numerous opportunities for enhanced efficiency and customer service, also introduces new risks. Concerns centre on the ethical use of AI, the potential for perpetuating biases, and the management of sophisticated fraudulent schemes enabled by AI technologies. According to a recent research by CCG Catalyst, over 40% of banking execs think AI will represent the biggest risk for their bank in the coming decade. As AI becomes more advanced, banks must ensure that their use of such technology remains transparent, secure and compliant with emerging regulations.
Digital currencies pose another layer of complexity. The volatility and regulatory uncertainty surrounding cryptocurrencies and the potential introduction of central bank digital currencies (CBDCs) threaten to alter the financial ecosystem fundamentally. These digital assets challenge traditional banking models by offering alternative transaction methods and value storage, potentially diminishing the role of conventional banks in the financial system.
The combination of high interest rates, regulatory changes and the disruptive potential of AI and digital currencies creates a multifaceted set of challenges that banks must address. Success in this environment requires a delicate balance of innovation, risk management and strategic foresight.
Despite these challenges, the focus remains steadfast on customer-centric strategies. And RMs, equipped with advanced technological tools and an understanding of changing market dynamics, are at the forefront of this transformation. They are not only responsible for managing customer relationships but also for driving innovation within their institutions.
Conclusion
In conclusion, the banking industry in 2024 is a testament to the power of technology in reshaping customer relationship management. By embracing the evolving role of relationship managers and integrating cutting-edge technologies, banks can address the hurdles they face, forge stronger customer relationships and secure their position as innovative leaders in the financial world.