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In Challenging Times, Banks Cannot Afford to Defer Tech Investment

  • Current conditions may make banks conservative with tech investments
  • AI is emerging as a vital tool
  • Banks will need to stay up-to-date with AI in order to remain competitive

The Financial Brand asked Pal Krogdahl, director of technology strategy and advisory services at digital banking platform provider Samlink, to share his valuable advice regarding banking technology.

Faced with pressure on margins and loan portfolios, many banks will be tempted to rein in costs by postponing major new investments in technology in 2024. But Samlink's Pal Krogdahl argues that the gaps between customer-facing platforms and legacy backends cannot be papered over for much longer and falling behind on "banking everywhere" will prove disastrous in the long run.

Just a few of Mr. Krogdahl's insights:

  • Banks face a challenging economic environment in 2024 with rising interest rates boosting profits in the short term but potentially leading to loan defaults if growth slows.
  • Furthermore, banks cannot afford to defer critical technology investments, as legacy systems inhibit their ability to adapt and compete in an increasingly digital landscape.
  • Embedded finance is fragmenting customer relationships, so banks need to partner and offer services through other providers' platforms rather than trying to control everything themselves.
  • Artificial intelligence will increasingly transform banking over the next decade, so banks should start experimenting now to understand its impacts and opportunities rather than reacting later.
  • Specializing in targeted segments and prioritizing excellent customer experiences tailored to specific needs may be more important than scale for many banks going forward.

Technology Updates to Core Systems

Many legacy systems are integrated in some manner with the core platforms being utilized by banks. As previously noted by Steve Naudé, managing director of foreign-exchange fintech Wise Platform, many core systems were not able to integrate with external providers, essentially blocking innovation. Fortunately, things have changed over the past few years.

Maybe five years ago, one of the major blockers was banks’ core systems and their ability to integrate with external providers. It’s much, much easier for these institutions today to plug third parties into their systems and to integrate with external providers. That underlying complexity of the systems you’re integrating into becoming simplified is a game changer. The ability for banks and others to do these kinds of partnerships is maybe not a sexy, exciting, emerging technology, but that foundational change is having far more impact than we see day to day.

With the new ability to integrate third party technology into core platforms, banks need to know that the vendor with whom they partner is crucial to finding success. As noted by Charles Potts, Independent Community Bankers of America executive vice president and chief innovation officer:

In truth, the answer comes down to finding the right partner. And you’ll want to maximize each step in the innovation journey, including the fintech evaluation process.

For banking leaders, there will be many obstacles -- and even push back -- from investors and internal influences who will question whether the investments in technology are wise decisions in these trying economic times. However, delaying these types of investments will only hinder the future of each bank. Identifying outdated technologies, creating a comprehensive plan to replace them, and vetting vendors to find the right partners will result in the best bang for your buck.

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