Forrester Research: 77% of Banks Execs Will Invest in Emerging Technologies in 2023
Forrester reports that, according to their Future Fit Survey, 2022, a whopping 77% of bank business and technology professionals are looking to increase their spending on emerging technologies over the next twelve months.
Emerging technologies could mean the difference between gaining, retaining, or losing competitive differentiation. Yet failure remains commonplace. Only a quarter of business and technology professionals whose organization has one or more central emerging-technology functions reported that 76% or more of the projects their organization undertook were successful.
Core Systems Must Be Addressed
In their coverage of the Forrester Future Fit Survey, The Financial Brand noted the opinion of Jost Hoppermann, a principal analyst at Forrester, who sees some downward adjustments to technology budgets happening, resultant of the Spring banking crisis and current economic outlook.
“There will certainly be a reshifting of spending,” he says. “Banks will need to do more with less. That means, with those limitations, that some areas will be neglected.”
Hoppermann expects the industry to make tech choices based upon what might increase customer engagement or efficiency, as is the general pattern amid budget cuts. He cautions that leaders must not bypass the main longtime drag on banking: legacy core systems that continue to creak along in the back end of the business.
Challenges for Banks to Upgrade Core System Technology
In an interview with McKinsey & Company, Mambu co-founder Eugene Danilkis comments on the difficulties in core technology transformation:
What we’ve seen historically is a lot of different decisions to buy, build, or customize in-house that created bloat around the core, to the point where it became numerous different services, functions, and capabilities all kludged together into one system. It made sense at the time because there weren’t many other choices.
What makes this change right now difficult is that you have a legacy system that’s very tightly coupled together. You think about changing one process, and you suddenly have a lot of other things that are closely integrated into it that then require a lot of change. Or a change around one system potentially puts a lot of risk around a different part of your technology. And a huge amount of any such project could simply be testing to be sure you don’t completely break everything with one new feature.
When asked by McKinsey & Company if companies should buy or build::
The answers to these vary case by case. It’s a philosophy that banks have to own the conceptual model and stack, taking responsibility for deciding which pieces are right for them, because the technical choices and decisions you make determine how you continue to innovate and differentiate in the market. Banks can’t simply trust one vendor to say, “Here is your whole stack,” because it’s impossible for any single provider, no matter who it is, to be able to provide everything you need to innovate and combine those pieces in a way that’s appropriate for your particular business as a bank.
Working with the Right Fintechs
Daniklis also notes that "curation of partners and technology to build an ecosystem that works for a specific bank is a huge part of the job and the challenge today."
We agree. Banks of all sizes work with partners like FIS, Fiserv, Jack Henry, Alogent, etc. to assist in upgrading their core systems or utilize their systems -- which already have the latest and greatest technologies.
This includes artificial intelligence and machine learning, where specifically trained models are utilized -- particularly in check processing automation and check fraud detection. This significantly cuts down on implementation steps, as the fintechs have already invested the time to integrate these technologies to their platform.
Furthermore, when new releases are available, banks are able to upgrade their systems seamlessly -- without the need for internal resources to perform the upgrades and integrations. This is particularly important for smaller and community banks which do not have the internal resources to take on such large projects.
We've noted previously that large financial institutions do have internal resources to develop technologies along with the management structure to institute major changes and hire the right people. Most other financial institutions, however, need to evaluate their internal resources and partner with fintechs that can help achieve modernization in all manner of payments. Each financial institution must evaluate their current core systems and set a path toward their goal.
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