The financial services sector has demonstrated its ability to successfully navigate unprecedented levels of uncertainty in recent years

From real estate to insurance to investment management to banking and capital markets, financial services organisations around the world responded with remarkable resilience and adaptability to the pandemic, near-term geopolitical and economic challenges — the war in Ukraine, the Gaza–Israel conflict, inflation, supply chain disruptions, and the possibility of regional or global recession — assisting people, organisations, and governments in regaining their footing.

How can leaders in the financial services industry handle the road ahead? They can use the lessons they have learned to handle challenges and identify opportunities, such as concentrating on talent, technology, risk, regulation, and purpose.

There will be opportunities to help shape the future, one in which profits and purpose are inextricably linked. Financial services leaders can be poised and ready to move the industry forward.

In the sixth issue of Cyprus 4.0 for 2023, we look at the key strategic trends and opportunities expected to drive Cyprus’ financial institutions through 2024 and beyond.

Industry experts agree that 2024 is going to be a landmark year for the financial services sector, with the influence of artificial intelligence (AI) permeating every aspect of the sector – from revolutionising customer service to reshaping financial management tools and streamlining back-office operations.

Since its inception, AI has had a profound effect on how businesses, especially those in the banking and financial sector, operate and provide services to clients. The incorporation of AI into banking apps and services has made the industry more customer-centric and technologically relevant.

AI-based technologies are now assisting banks in lowering costs by enhancing productivity and making judgements based on data that a human cannot comprehend. In addition, innovative algorithms can detect fraudulent information in a matter of seconds.

AI in banking uses deep learning technology and natural language processing (NLP) to read new compliance requirements for banks and improve their decision-making process. Even though AI cannot replace compliance analysts, it makes their operations faster and more efficient.

When it comes to customer service, AI is undeniably an efficient communication tool that provides 24-hour assistance. Chatbots powered by AI can handle most routine banking operations, such as balance enquiries and fund transfers, among others, reducing traffic from other channels such as call centres and internet banking and offering a high ROI in cost savings.

AI, machine learning, and blockchain implementations are also affecting the future of fintech by enhancing effectiveness and bolstering security. Digital currencies, ‘buy now, pay later’ models, mobile payment solutions, smart contracts, neobanking, and RegTech are also emerging as convenient and secure alternatives for customers, shaping that future.

With an unprecedented emphasis on sustainability and Environmental, Social, and Governance (ESG) aspects, financial institutions are aligning their decision-making processes with green initiatives. This means supporting investments in areas such as renewable energy, recycling, and carbon footprint reduction.

The emergence of sustainable financial products empowers customers to feel confident that their funds contribute to environmental and social well-being while accruing interest in bank vaults.

Green finance will gain traction in 2024, with an emphasis on providing green investment options to investors. Green bonds, sustainable mutual funds, and ESG-focused exchange-traded funds (ETFs) will be developed by financial institutions. These investment vehicles will channel funds to environmentally beneficial projects, renewable energy initiatives, and socially responsible companies.

Green investments will not only meet the growing demand from environmentally concerned investors but will also help build sustainable infrastructure and technologies. The financial services industry will play a critical role in expediting the global transition to a low-carbon economy through these channels.

In 2024, digital currencies and cryptocurrencies will be back on the financial services radar. According to Bernard Marr, a world-renowned futurist, influencer, and thought leader in the fields of business and technology, over 130 countries are said to be looking into the use or acceptance of central bank digital currencies (CBDCs), “while Bitcoin’s rebound from its 2021 meltdown has piqued the interest of innovators and investors.”

“Outside of CBDCs, the crypto space is still a wild west, therefore we can expect more action towards governance and regulation of those who conduct business there,” he said.

Although the future of cryptocurrency in 2024 is a landscape defined by unprecedented growth, maturation, and integration, the industry must remain vigilant in addressing challenges such as security, regulatory compliance, and environmental impact to sustain the trust and confidence of its diverse user base.

While still in their infancy, blockchain and distributed ledger technology (DLT) have the potential to revolutionise a wide range of financial services, from cross-border payments and trade finance to digital identity and anti-money laundering compliance. Further experimentation and deployment of these technologies in diverse use cases will occur in 2024.

Relatable applications include blockchain being used to facilitate faster and cheaper cross-border payments, benefiting both businesses and consumers. Blockchain-based trade finance platforms will streamline the process of issuing and managing letters of credit, reducing costs, and improving efficiency. Finally, enabling the development of new financial products and services, such as decentralised finance (DeFi).

These emerging banking and financial services trends not only promise a transformative journey, but also highlight the critical balance between innovation and responsibility, laying the groundwork for a future in which finance is not only more efficient and customer-centric, but also more ethical and inclusive.

Referring to Cyprus’ economic outlook, Finance Minister Makis Keravnos said the economy is projected to expand by 2.9 per cent in 2024, compared with an estimated 2.4 per cent in 2023, while in 2025 and 2026 GDP growth is projected to amount to 3.1 per cent and 3.2 per cent, respectively.

“Inflation is expected to be limited to 2.5 per cent in 2024 and continue its downward trend in the coming years,” he said.But he noted that “we recognise the fact that the coming years are estimated to be quite difficult for the global economy and the Cypriot economy as well, while in the medium to long-term a new era of challenges is expected and will be marked by phenomena of de-globalisation and changes required by the green transition, climate change and high energy prices.”

He also referred to the conflict in Gaza Strip, which strengthens uncertainty, with the government assessing the situation constantly and proceeding with additional measures and initiatives.

From emerging technologies to shifting global dynamics, staying ahead of the curve is essential for the island’s financial services sector’s growth and stability. Adaptability to this dynamic landscape will likely determine its resilience and competitiveness.