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A semi-annual survey of banks conducted by Baird has shed light on the heightened growth expectations for 2024 compared to the industry average. The survey findings were revealed in the Baird Equity Research Morning Report, which was published on Friday.
Positive Growth Projections
Baird’s survey of 40 banks and credit unions for its Initial 2024 Core Processing Survey illustrates the prevalent positive growth expectations. The survey indicated that this year’s spending growth expectations average approximately 4.3%, surpassing the typical range of 2-5%.
Analysts remarked, “Respondents consider the current environment fairly healthy with a median answer of 6.5, on a scale of 1-10.”
In addition, about 75% of respondents expressed an anticipation to utilize more core services in the near future, or a combination of core and ancillary services. Significantly, spending growth expectations are at the higher end of the typical range.
Factors Driving Growth
The growth trend is attributed to several key drivers, including inflation escalators, the increasing necessity for digital solutions among banks, and the shift from traditional branches to technology-oriented solutions.
Furthermore, the survey revealed that the primary areas of anticipated spending among respondents include online and mobile banking, cybersecurity, loan origination, contactless credit and debit cards, and infrastructure/connectivity.
Technological Shifts
Analysts pointed out that the growth projections also take into account “a little deceleration from the 4.5-5.6% expectations during the past couple of years,” noting that this was slightly below the 5% mark seen halfway through the survey. This decline is attributable to the acceleration of technological shifts within the industry.
The current interest rate environment was rated at 6.5, on a scale of 1 through 10, with 10 being the healthiest.
Anticipated Adoption of FedNow
Moreover, the survey observed the adoption of FedNow, an instant payment service developed by the Federal Reserve. While 2% of the respondents admitted to not having implemented FedNow, 34% expressed plans to implement it soon or are already using it.
Baird analysts believe that these implementations will contribute positively to core processing revenue growth, serving as a tailwind for the industry.
Provider Preferences
The survey also inquired about the anticipated reliance on core providers versus ancillary providers over the next three to five years. It revealed that half of the respondents expect to rely more on core providers, 25% plan on using more ancillary services, and the remaining 25% anticipate using a combination of both.
Stocks with Promising Growth
Additionally, Baird identified stocks with anticipated year-over-year organic constant currency revenue growth in 2024. These included:
- Fiserv Inc. (FI) – more than 7% growth
- Jack Henry & Associates Inc. (JKHY) – more than 8% growth
- Fidelity National Information Services Inc. (FIS) – more than 3% growth
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