What is the outlook for private banking in 2024? PBI has asked some of the biggest names in the sector for their opinions on the next twelve months. Will it be exciting? Will it be burdened by regulation? Will this be the best year for private banking since records began?

Phillip O’Neill, financial services director (Europe), Kin + Carta

Data is the enabler for better experiences – be it on app or on websites. The issue? Getting it. It is currently scattered and inaccessible. But once you do access it, then you will really start seeing the difference. We’re therefore going to see banks continue to invest in the safe exposure of this data, allowing them to create better customer experiences, utilising technologies such as generative AI in a responsible way to mine for insights in these data labyrinths. 

This is why 2024 will also be the year of the chief data officer, as it will be them that will beat the drum for this utilisation of this data across financial organisations and will ultimately empower the digital product teams in creating better experiences for their customers.

We are about to see the biggest transfer of wealth in generations (mainly through inheritance), and the people who are going to benefit most? Millennials.

This is also good news for banks, who will be focusing on wealth management a lot more in 2024. They will have the opportunity to sell new wealth management products to a thrifty generation with larger sums of disposable income sitting in their accounts. And when it comes to money gained through inheritance, offering guidance will be a key opportunity for banks. It’s where the traditional high street banks and building societies could really steal the march on neobank rivals, leaning into their reputation of trustworthiness and prestige amongst customers who are now thinking more long term when it comes to savings and financial security.

The FDA’s new Consumer Duty Act, which places the onus on banks to provide products and services that meet customer needs and offer fair value, means that 2024 is going to be the year when banking could be at its most personal.

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Challenger banks are outpacing competitors by using customer data to create personalised products and features that help customers to manage their money, mining their treasure troves of data about how customers manage, spend, save and borrow money to offer personalised products.

Thanks to AI, this could go even further. It offers the potential for banks to intelligently deliver a full suite of products, tailor-made to the customer’s intent, by using the data and metadata they already possess in a smarter way. This is elevating the banks’ position from selling events, mortgages, loans etc to selling life management.

Gregory Sichenzia, founding partner, Sichenzia Ross Ference Carmel

In 2024, interest rates will continue to dominate headlines, but this time because of their stabilisation and decline, which will create a more active IPO and capital markets climate, as well as a big boost to the overall economy.

The resurgence of the IPO market is clear, as activity typically increases when the cost of capital gets cheaper, which ultimately needs to be deployed. In 2024, I expect Stripe will be the company that opens the floodgates because all of the private venture capital money that’s gone into it over the past few years. If a deal with Stripe materialises, large caps will lead the way for opening up small caps.

We’ve already seen big companies performing much better. As I write this, stock markets in mid-December are hitting all-time highs. Right now, we see large cap companies (such as Amazon, Tesla and Google) succeed, and that will start to trickle down to smaller companies in the new year. This is due to investors making money in their portfolios off bigger investments, creating more risk capital available. History tells us when people start feeling more secure in bigger investments, the micro and mid-cap markets thrive.

Further, drops in interest rates also mean home buying will pick up again, which makes many bullish about real estate and broader capital markets.

All of this will result in more lending, which will affect the banking industry. People will be borrowing more money again because the cost of capital comes down. If no one is borrowing money, then they’re not making money. As JFK said, a rising tide lifts all boats.

Overall, we can anticipate that all sectors will improve in the new year. With interest rates and a presidential election year, I forecast a robust stock market and IPO market going into 2024.

Andrew Ward, chief executive officer, Aubrey Capital Management

The three global factors that will most likely affect our business in 2024 include a normalising of global inflation and interest rates, putting cash back in the pockets of ordinary consumers, thereby boosting the revenues of the sorts of companies in which we invest; the ratcheting back of inter-state conflict and the threat of such, creating more stability for trade to flourish and ordinary humans to live their lives, travel and spend hard-earned cash as they wish; and the sensible development and growth of AI (and other appropriate tech) that benefits modest businesses like ours, allowing us the scope to do more routine data processing (of various types) inhouse, thereby depending less on expensive near-monopolistic ‘providers’, ultimately allowing us to dramatically reduce fees and improve net returns to our clients.

Alexandre Drabowicz, chief investment officer, Indosuez Wealth Management

Looking towards 2024, the massive amount of government debt will become a focal point of attention. At the time of writing, the US is running a deficit close to USD 34 trillion, costing it USD 1 trillion a year or 14% of the Federal budget. This is clearly not sustainable, and interest rates will soon find a ceiling, if they have not found one already. While the notion of a form of protection for equity investors through the so called “Fed put”, a new form of a Fed put this time on bonds might emerge. Whether it takes the form of Quantitative Easing (QE), Yield Curve Control (YCC) like in Japan, or emergency intervention like the Bank of England in 2022, central banks are never short of options, especially when it comes to stabilising financial markets.

The disinflation process is under way, but it won’t be linear. A return to low inflation is out of the picture, as institutions would prefer a continual fine dose of inflation. This is an inconvenient truth that central banks often avoid publicising. Indeed, “engineering a higher nominal GDP growth through a higher structural level of inflation is a proven way to get rid of high levels of debt”, according to market strategist Russell Nappier. Governments will have to engineer a level of nominal growth and of inflation that is consistently somewhat higher than interest rates in order to shrink the debt to GDP ratio. Since mid-2020, US nominal GDP growth has gone up by 40%. This also explains why developed market equities, especially in the US, have continued to perform well, as margins remain resilient and companies’ sales are tracking inflation, thus growing on a nominal basis and offering some form of inflation insulation. In essence, we have to move away from high inflation, avoid stagflation, and reach a reflation regime.

Matt Cox, General Manager EMEA, FICO

2023 kicked off the beginning of some major changes set to impact the fraud landscape, both from the regulators and industry in terms of approaches to fraud prevention itself, and I expect them to gather speed in the coming year.

A holistic approach to APP fraud prevention

Much has happened since scams, or authorised push payment (APP) fraud, hit our radar back in 2020.

The industry pivoted its primary focus on detecting unauthorised payment activity to the detection of scams. Innovative organisations like FICO developed sophisticated scam detection software to help financial institutions spot when a scam was in progress. There has also been an intense drive to educate consumers about the techniques used by scammers, particularly in the UK, reinforced by significant media attention.

But the scams industry has continued to boom, supercharged by the rapid rise of alternative payment methods — such as digital wallets, digital payments, bank transfers and cryptocurrency — enabling instant payments. Relatively new to the payments world, these cashless, cardless methods are already the most popular payment methods both online and in person.

Several countries are now rolling out new regulatory rules around data sharing to tackle APP fraud. Some countries, however, have focused on liability and reimbursement.

The UK, for example, has announced its new APP scam reimbursement requirements. The Monetary Authority of Singapore has published its proposal for a Shared Responsibility Framework. Both place a spotlight firmly on the organisations inadvertently receiving the stolen money into “mule” accounts set up by fraudsters for money laundering purposes.

These mule accounts have been growing, thanks to soaring levels of identity theft, synthetic identity fraud and first-party fraud. This has highlighted the need for strong application fraud controls and capabilities that can spot networks of mule accounts, not just detect scams.

I believe it’s only a matter of time before other countries start moving in the same direction as the UK and Singapore. This will drive a more holistic approach to scam prevention in 2024, with organisations tackling it from all angles, including both inbound and outbound payments.

A key consideration in this approach is the role consumers must play. While consumer education is crucial, it can only go so far. With fraudsters constantly refining their scams, they’re harder to spot. We must not underestimate how sophisticated and powerful the tactics used by fraudsters are. Consumers become so emotionally manipulated that they refuse to believe they have been duped.

With this in mind, I believe scam victims need to be treated differently to other victims of fraud at the point that a scam is taking place.

Currently, when an unauthorised payment is detected, it becomes the remit of the fraud team. The customer goes into a process for third-party fraud victims, but this process does not work when customers are in the midst of a scam.

Fraud cases need to be directed to separate specialist teams — one for authorised payments and the other for unauthorised payments — and dealt with differently. Absolutely crucial to this is the integration of highly personalised customer communications into the workflow. The goal is to influence what steps the customer takes next. Communication must reach the customer at the right point, in the right way and contain the right messages. Otherwise, the scam detection capabilities that have been put in place become futile.

We work with organisations where we’ve inserted a series of multiple, highly personalised questions into the workflow at the point a scam is detected, delivered through the customer’s preferred channels. This approach has delivered extremely positive results with high engagement levels continuing through to the fourth message, enabling organisations to then transfer those customers to the specialist teams.

Breaking a siloed way of working – bringing fraud and originations together

Globally, synthetic fraud has become the fastest growing form of fraud, most popularly used in the creation of mule accounts. Fraudsters have found a hole in existing onboarding processes of financial institutions, created by a siloed way of working. Credit risks, fraud risks and adherence to regulatory requirements all go through extensive checks by different teams with separate systems and processes, with little communication or collaboration between them.

As a result, around 95% of synthetic identities are not being detected during the onboarding process and 95% of influential leaders in the field of fraud prevention are very concerned about application fraud. Internal pressure is mounting to ensure verification systems are strong so that synthetic identity fraudsters are rooted out before they strike.

Alongside the elevated risks and costs, this siloed way of working negatively impacts the customer experience. They are contacted multiple times for the same or similar information. Communication channels and authentication methods vary, and the overall experience is disjointed. The risks of abandonment and customer frustration are increased.

More organisations are beginning to see the integration of technology supporting real-time fraud detection with credit originations as a high priority (85%). Aside from enabling better detection of synthetic fraud, there are other significant benefits to breaking these silos – enhanced efficiency and a more cost-effective and customer-centric onboarding process. 2024 will see greater integration of these functions.

Private banking outlook on upstream polluters in 2024

Regulators have expressed a desire to address the wider eco-system, outside of financial institutions, that is enabling fraud. Known as ‘upstream polluters’, these are organisations unwittingly playing a crucial role in enabling fraud to exist.

Social media platforms, for example, will be a key target. Recent data from the UK suggests that 9 out of 10 purchase scams begin on social media platforms. They are enabling online shopping scams to grow, by allowing criminals to advertise fake online stores. Last year in the UK alone, £59.6 million was lost through these frauds.

Meanwhile companies that operate as domain registrars are enabling fraudsters to obtain URLs and set up fake websites, as well as payment portal services that enable fraudsters to take payments by card or by using real-time payment mechanisms. But in most countries there is currently no responsibility on these companies to check that they are dealing with legitimate businesses.

Telecoms will also come under the spotlight. Phone calls and text messages are key social engineering tactics used by criminals. People are tricked into believing their calls are coming from reputable organisations or known individuals, and giving away personal details.

While there is growing awareness of the role these organisations are playing in the soaring levels of fraud, Australia is the only country making progress with its imminent development of a co-regulatory code by the Australian Competition and Consumer Commission. This will force financial institutions, social media firms and telecoms to work together to combat fraud.

We may see greater regulatory focus on wider accountability in 2024.

From fraud losses to prevention tools and headcounts costs, the total cost of fraud across the globe has been estimated at $5.4trn. It’s a considerable challenge for the financial institutions that are subject to regulatory requirements, ethical considerations around AI and often complex legacy systems. The key to moving in time with the fraudsters is understanding what is on the horizon and 2024 looks set to bring some significant developments.

Ian Partington, CEO, Third Financial

In 2024, the investment platform sector is poised for significant shifts and challenges.

The major development will be the adviser-as-platform model gaining momentum and becoming a focal point of industry attention. Despite incumbent retail platforms downplaying its feasibility, several well-known adviser firms are actively exploring this model with a view to launch in 2024.

Consolidation across the platform market is likely to continue as larger players seek economies of scale to drive up margins or to gain access to leading technology from emerging players.

Regulatory scrutiny will intensify, not because of new rules but because the FCA is becoming much more aware of the vital role platforms play in delivering good outcomes for investors. The FCA’s focus on vulnerable clients is evident, and the expectation is that the regulator will want to set an example by targeting those that are behind the eight-ball on this.

In terms of staffing, the platform industry is not expected to face challenges in recruitment. But there will be a major recognition that, while AI and technology are advancing, a significant role for human input remains, especially in adviser-facing roles.

Private equity is gaining prominence, with wealth managers witnessing a shift in demand towards this asset class – further fueled by the present government’s enthusiasm for more ‘everyman’ ownership of private assets. This presents challenges and opportunities, as private equity poses unique risks and regulatory considerations for advisers and platforms alike.

Michael Strobaek, chief investment officer, and Christian Abuide, head of asset allocation, Lombard Odier

In 2024, investors must balance the lingering effects of high interest rates leading to slower growth, against welcome disinflation, and the risks around geopolitical tensions.

Despite recent progress, the path to a soft economic landing remains challenging. The historical evidence argues against ruling out a recession, but we do not expect to see a severe US downturn this time. After a dramatic 2022, bonds have remained volatile in 2023. Peaking yields and slowing growth would be positive for high quality fixed income in 2024. It would also lend some support to investor risk appetite, and equity markets, but we expect material volatility in the first half of 2024.

High interest rates should remain in place at least through the first half of 2024. The European Central Bank may be the first to cut interest rates mid-year, with the Federal Reserve (Fed) following suit in September 2024. The global economy should then start to benefit from lower borrowing costs. If inflation proves sticky, or strong growth persists, that scenario would be at risk and put bond and equity valuations under pressure. Meanwhile, restrictive financial conditions and slowing growth will continue to add pressure to indebted corporate borrowers, including some governments. We think bonds represent one of the strongest risk-adjusted opportunities in what we expect to be a volatile 2024.

Equities’ performance in 2023 was strong, but also exceptionally narrow, as a few names accounted for almost all of the S&P 500’s gains. Granted, corporate earnings were under pressure, and experienced a mild recession. We think there is room for some recovery as results stabilise, making US stocks a core portfolio holding for next year. Valuations are now above long-term averages and markets expect an earnings expansion of around 12%, plus as many as five US interest rate cuts in 2024. We see fewer rate cuts and lower earnings growth of around 6%, along with some improvement in profit margins and broadly unchanged valuations. Positive equity returns are a typical feature of late-stage economic cycles, but this is often accompanied by higher volatility.

Monetary policy and economic growth will remain key drivers of financial markets in 2024. However, we do not underestimate the risks from geopolitics, energy, strategic competition between the US and China, and a high-stakes, highly-polarised US presidential election.

Our investment strategy continues to manage these various challenges, actively taking advantage of the investment opportunities as they arise.

Julia Khandoshko, CEO, Mind Money

In the landscape of banking trends for 2024, a notable shift is taking place—a transition from a customer-oriented approach to an enhanced client-centricity, underscored by a renewed focus on developing human capital.

In the previous stage of banking system evolution, the primary emphasis was on crafting client-oriented financial products. The challenge laid in curating a product line that best catered to evolving customer needs. However, as the clients and their requirements changed, the model underwent a natural evolution. Presently, nearly all banks operate under a client-oriented paradigm, readily sacrificing a portion of profits for the sake of fostering long-term relationships with clients. Rather than developing products in response to client needs, the focus has shifted to addressing customer requests promptly.

International banking conferences now echo a crucial transformation—a move from a customer-oriented approach to a refined version of client-centricity, maintaining a focus on client needs but doing so with increased effectiveness. While previously addressing client needs necessitated an ecosystem and reliable CRM, the upcoming leap mandates the convergence of three vital factors: technology, business processes, and, notably, comprehensive staff training.

While we’ve embraced the active use of AI for technical support in financial services, the human and business process facets have yet to align with the principles of client-centricity. The pivotal banking trend for the upcoming year transcends technological advancements; instead, the spotlight turns inward to realign the internal workings of employees.

The prevailing approach in 2024 will be to sustain customer focus while extending the same level of consideration to employees. Banks and financial companies poised to adapt to this paradigm shift are set to make a qualitative leap towards client-centricity. Notably, at the scale of large enterprises, this paradigm shift remains largely unexplored. The primary challenge for fintech and the banking sector is establishing effective processes with ordinary employees. It is imperative for financial entities to create a client service framework for their employees, enabling competently trained staff to elevate client service to the next quality level. The successful navigation of this transition will be the hallmark of industry leaders in the coming year.

Matt Guthrie, partner and head of Ogier’s Private Wealth team in Guernsey

The changing face of the next gen will continue to ask fundamental questions of advisers in 2024, in terms of how best to communicate with them and how to approach wealth planning and asset protection strategies. The picture overall now is one of far greater complexity. In terms of nationality and geographical spread, for example, the reach of the next gen is becoming increasingly diverse.  Then there is the added complexity of gender and family make-up. It offers both the potential for a greater mix of family members and heightened scope for the blurring of boundaries when it comes to family stakeholders. Advisers will need to be increasingly alive to those dynamics in 2024.

Diversity of interests among the next gen means that often values and visions are not always aligned across generations. Absolutely crucial is for these issues to be discussed between families and their advisers, so that advisers can take a holistic view and advise their clients as a coordinated family entity. Equally, education will become an increasingly important part of the adviser responsibility in 2024 – both in relation to the next gen, so that they can understand their role better within a family context and the complex world they live in; but also in relation to the current generation, so they can gain an appreciation of the hopes and aspirations of the next gen and gain confidence in their abilities.

We are beginning to see enquiries to our Dubai office on the use of hybrid structures using DIFC foundations to hold assets within the UAE and Guernsey and Jersey foundations to hold assets situate outside of the region. The ability to link the two solutions together appeals to the next generation of clients and their international outlook for the family wealth.

Daniel Harman, CEO and co-founder, Darksquare Capital

I think the financial mood in 2023 has very much been focussed on cost cutting and saving money, with the cost-of-living crisis dominating personal financial headlines.

It has also been a difficult year for fundraising when compared to 2021/22 which I think has pushed more Fintech’s (and startups generally) to focus more on early profitability rather than the traditional VC model of chasing growth at all costs.  

If we get a decrease in rates and an uptick in the economy in 2024 I think we’ll start to see more funding rounds close at higher valuations as VCs look to deploy more capital. I don’t think we’ll get back to the highs of 2021, which is probably a good thing, but I’d expect to see more investment in 2024 vs 2023.  

In terms of end users, I think consumers have been very much focused on cost cutting in 2023, led by high inflation, high mortgage rates and high energy prices. Hopefully we’ll see all 3 of these factors improve in 2024, which should leave people with more disposable income to spend and invest.

More disposable income will present fintechs with more opportunities, particularly in the investment and payments space, I think we’ve seen that start to play out already with Google taking a significant stake in Monzo this month. Within fintech, I think the investment and payments space will be interesting to watch as customers begin to be more aggressive with their spending and investing habits.

Tracey Lochhead, corporate partner and bank and financial institutions sector leader, Linklaters  

Whilst M&A in some sectors have struggled throughout 2023, as tricky economic headwinds have prevailed throughout most of this year, asset management M&A has increased, with a number of deals including some high-value deals getting away. This activity looks set to remain throughout 2024 and beyond.

The sector continues to be ripe for consolidation over the next few years due to a combination of market volatility, high-interest rates and pressure on fees together with increased compliance costs. Deals are being driven through necessity with increased costs and fee pressure, as well as the opportunity increase asset types. Technology is also being embraced by asset managers seeking the competitive edge whether through big data, AI or blockchain and this can also drive strategic M&A.

Whilst the M&A outlook is positive for the sector, people do need to be especially organised as they head into deals. The deal timeline is longer with a wider gap now between signing and closing as the process becomes more complicated due to increased compliance obligations and continued scrutiny of the financial services and antitrust regulators. For a successful asset management deal it is essential to get the people piece right. It is important that advisers understand the business and how to bring different parts together to support a successful deal.

Myles Milston, co-founder and CEO, Globacap 

In the first half of this year, the US had its lowest IPO volume and value since 2015, Europe had its lowest amount of listings since 2009, and IPO activity on the UK main market and AIM saw a 31% drop in deal numbers. Over the last 20 years, the number of listed companies in the US has fallen by half, and the UK is not far behind. 

IPO activity will eventually rebound, but it won’t be the same dominant force it once was. There’s a new, increasingly attractive alternative to the headaches, sky high fees and risk of an IPO that Arm and Instacart will know better than most, given their recent choppy debuts – private markets. 

The increasing ability of venture capital, private equity, and recently family offices to deploy vast pools of capital and a growing private market AUM, estimated to be $22.6trn, means that companies of all sizes can compete on even footing with those in the public market.  

In addition, the expansion of secondary liquidity has removed one of the main advantages of being public. The rapid acceleration of technology in private markets is resulting in the infrastructure and efficiency for execution and settlement becoming comparable to public markets.   

As a result, firms are staying private for longer. From 1980 to 2021, the median age of a technology company going public was eight years. In three of the four calendar years between 2018-2022, the median age was 12 years. Public firms are actively delisting with more companies taken private than listed via IPOs in the first half of the year in the US.

Over the past decade, private markets have grown at double the rate of major developed public markets and have increased capitalisation by 170%. This looks set to continue into 2024 as private markets continue to increase funding, boost liquidity and adopt technology which is closing the efficiency gap to public markets.

Gary Durden, partner & managing director, CRC-IB

The scale and deployment of US clean energy has historically hinged upon tax equity incentives. 2022’s Inflation Reduction Act created several new policy additions designed to further the industry’s growth, including: new and extended tax credits for emerging and established technologies, credit adders for projects meeting certain criteria, and notably, a mechanism to transfer credits. “Transferability”, which allows project sponsors to sell generated tax credits directly to select buyers, is arguably the biggest innovation in sustainable energy project finance, and it’s an important tool for advancing the energy transition.

Tax equity supply was ~$18bn in 2022, and it’s estimated that over 50% of this supply was provided by JPMorgan, Bank of America, and Wells Fargo – the biggest “legacy banks” in the sustainable energy market. As transferability develops as a complement to traditional tax equity, these banks will likely continue to provide a consistent volume of tax equity, and they are already exploring credit purchases as well. Rather than choosing one vs the other, we believe that these legacy banks will opt for a “hybrid offering”, in which traditional tax equity is used together with the transfer of credits. This offering should allow the legacy big banks to expand their supply of tax credit investments.

Increasingly, large corporations, including many Fortune 1000 firms, global and regional banks, insurance firms, and other players, are looking to purchase clean energy tax credits. Corporates who previously were doing a few tax equity deals per year or were purchasing clean power and renewable energy credits are now exploring large transfer deals under a more comprehensive decarbonization strategy. Companies new to tax credit investing are working with advisors, aggregators, or their banking relationships to become comfortable with an investing strategy. There is a smaller learning curve for purchasing tax credits versus often-complex tax equity partnerships, allowing market participation to diversify rapidly.

Based on forecasts of technology buildout, the annual demand for tax credit capital could exceed $90bn by 2029, largely driven by emerging technologies like carbon capture as well as enhanced tax credits for solar, wind, and storage projects. This forecasted demand is almost five tmes the total tax equity supply in 2022. Tax capital supply will have to increase exponentially, and transferability is key to unlocking the necessary supply to bring us closer to a low-carbon world.