Top 2023 issues shape 2024

Not since the Great Recession has financial services seen a year as eventful as 2023. Rather than focusing on the rearview mirror, let’s consider how several major developments will likely play out for credit unions over the coming year.

Generative AI

It’s easy to overlook how rapidly artificial intelligence (AI) evolved in 2023. Although financial institutions were already engaged with AI initiatives via chatbots and predictive analytics, 13 months ago no one outside of tech circles had heard of ChatGPT.

When OpenAI attached a chat-based interface to its large language model and released a free version of ChatGPT in December 2022, however, it created a true “iPhone moment.”

Within weeks, the general public grasped the widespread potential application of this technology. Industry leaders like Google, Microsoft, Meta, and X raced to incorporate GPT into their offerings.

Meanwhile, ongoing interaction with more than 100 million active users enabled OpenAI to continually refine its underlying large language models.

Examples abound of ChatGPT answering queries with demonstrably false information (known as “hallucinations” to tech insiders), but much like voice recognition software of the early 2000s, accuracy is improving rapidly. Expect 2024 to be a year of further product refinement and intense debate over “guardrails,” whether through government regulation or industry self-policing.

Credit unions of all sizes should explore opportunities to leverage Generative AI for efficiencies in both revenue and expense processes. Credit unions should consider ChatGPT an “assistant” rather than a substitute, however.

For the foreseeable future, AI-generated output should never be communicated externally without human review.

This technology isn’t going away—the question is how it will be deployed.

FedNow and the path to instant payments

In July, the Federal Reserve launched its long-awaited FedNow instant payment rails. The early focus has been on adding endpoints (both financial institutions and middleware service providers) necessary to build scale in a two-sided market of payers and payees.

By that measure, FedNow is ramping up quickly, from 35 financial institutions at inception to 331 by year-end.

Expect another year of rapid growth in 2024 with volumes gradually following suit—albeit from a small base.

The Clearing House’s similarly positioned RTP network has been live since 2017 and remains on a solid upward trend, expanding its network from 299 to 481 financial institutions over the past year. Of those, more than 110 are credit unions.

The key takeaway is that instant payments are entering the mainstream and are on track to become an expectation among consumers and (particularly) businesses. Credit unions of all sizes should determine how they want to engage in this space (e.g., enabling receive-only or receive/send capabilities, connecting directly or through a middleware provider) and prepare offerings relevant to membership.

Interchange battles

On the legislative front, interchange battles raged anew—this time in the form of the so-called Credit Card Competition Act (CCCA). The bill is championed by Illinois Senator Richard Durbin, whose namesake 2010 amendment radically altered debit card economics.

The CCCA would apply much of the same logic to credit cards, requiring Visa/Mastercard-branded accounts to enable a second network as a settlement option.

The bill stalled in late 2023, but is highly likely to be revived in 2024 with vocal support from big box retailers—who stand to benefit from reduced processing fees. America’s Credit Unions strenuously opposes the legislation.

The law includes no requirement that merchants pass along promised savings to consumers, and multiple studies (including from the Richmond Fed) found no evidence that consumers received any benefit from the Durbin Amendment’s reductions.

Consumer-oriented sites like NerdWallet and The Points Guy have also cited the threat to popular card rewards programs.

The election cycle may impact timing, but expect this battle to reignite during 2024.

Two other items worth watching are in the hands of regulators and require no further lawmaker action: The Fed’s pending application of Durbin to further reduce debit interchange and the Consumer Financial Protection Bureau’s Section 1033 rulemaking on data sharing to enable open banking.

GLEN SARVADY is managing principal at 154 Advisors.