How to rethink banking tech consolidation in 2024 for the best ROI

As we push into 2024, financial services strategists are asking: What new pressures do banks need to prepare for? And how will banks balance the instinctive drive to belt-tighten with the need to grow in a decelerating economy?

Two new stressors: increasing loan losses and growing regulatory scrutiny

We’ll see the same disruptive forces continue to cause stress for banks in 2024: high interest rates, reduced money supply and slower macroeconomic growth. However, two new stressors will present additional pressure.

First, a wave of new regulations and regulatory scrutiny—launched by the banking crisis of early 2023—will land in the coming months. Banks will be incentivized to prioritize bondholders over depositors, paying higher interest rates that will eat into profitability.

Second, banks will face increased fraud and loan losses should the credit card and lending bubbles burst over the next year. With consumer credit card debt at an all-time high and rising at the fastest rate since the great financial crisis, we’re due for a loss cycle. While most banks are in a better position to handle loan losses than they were in previous loan loss cycles, these losses will add pressure that will shape strategies for 2024.

Tech consolidation must prioritize systems of action

Most banks will have little difficulty finding redundant systems or tools for the same data sets—and sometimes even the same use cases—in their tech stacks. Consolidation is pretty much guaranteed to produce cost savings. But to realize value and ROI from their tech spend (no matter how efficiently consolidated), banks must focus on building lean, modernized tech stacks around the critical link between intelligence and action.

That’s where I see the big gap in the typical bank tech stack. It’s not hard to find tools that gather customer data. In fact, most banks now have more customer data than they know what to do with. Analytics tools keep getting more practical and user-friendly, so banks can gather and segment customer data faster and more easily than ever. But the missing link is connecting the analytics-powered customer intelligence with action: creating and delivering hyper-personalized communications to the right customers at the right time and at scale. If you can’t bridge that gap, you won’t see the true value of your data, hard work or tech investments.

Overall tech spending will increase

Analyst reports confirm the anecdotes: despite the slowdown and concerns, most banks feel like they’re on solid footing—and they’re not slowing their tech spending. A recent survey conducted by Bank Director found that 83% of respondents said their bank’s technology budget increased over the last year—with 15% of that budget dedicated to new initiatives.

Bank leaders recognize that keeping a foot on the gas pedal of tech transformation is the only way to meet rising consumer expectations, keep up with fintech disruptors and stay one step ahead of competitors.

But growth-minded banks also see the opportunity to accelerate through the downturn by doubling down on tech transformation—a strategy that both McKinsey and Gartner advocate. The goal is to continue investing and innovating to build a new competitive advantage while their peers are cutting back.

AI is exciting, but banks should take a crawl-walk-run approach

Where will banks focus their tech spend in 2024? Bank leaders clearly want the answer to be Artificial Intelligence (AI), as 7 in 10 banking executives say AI will be the most important technology over the next decade. I think they’re right: AI is poised to completely change how our industry operates.

For marketing and sales in particular, generative AI (GAI) tools have obvious and tremendous potential to enable new levels of personalization at scale. Banks will use GAI to generate hyper-personalized messages to every customer—in seconds.

But most banks aren’t ready for that

The challenge is that GAI is an engine that needs rich fuel: customer data. GAI won’t magically solve messy and siloed data. Moreover, we can’t (yet) give GAI tools raw data and expect them to spit out personalized messages. Humans still need to refine the inputs if we want GAI to provide the best outputs.

Banks with AI on their minds should start much simpler: building a solid foundation of basic personalization. That means getting all relevant customer data in one place, building out basic customer profiles that include a few consistent, actionable fields that can drive meaningful personalization and prioritizing action at scale: beginning to build out automated journeys that deliver the right message at the right time. Because even when GAI can deliver personalized messages, banks can’t depend on manually identifying when and where to send those messages.

Putting together the building blocks of centralized data, actionable insights and automated journeys will put banks head and shoulders above their peers. And that advantage will not only deliver measurable value today but also set the stage for success with GAI and other AI tools.

Without that simple foundation, banks will shell out big money for a shiny, high-powered engine—but the gas tank will be bone dry.

Here’s the upside

First, don’t be overwhelmed by gloomy forecasts. We’re not facing the doom many predicted a year ago. We’re still anxious, but the majority of banks have shown they’re on solid footing.

Start small and start simple. Break tech consolidation into manageable goals: centralize all your customer data and build out actionable customer profiles. Put the simple building blocks of personalization in place by connecting intelligence to automated action. That way, you’ll have a clear path to reach your customers, and you’ll be ready to give AI the fuel it needs when the time is right.

James White is general manager of banking at Total Expert.

A version of this article first appeared in the BAI December Executive Report: “2024 Banking Outlook.”