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Banks are prioritizing innovation and technology adoption to better compete with fintechs, as highlighted by a Finextra and Virtusa study, which surveyed over 100 banking executives throughout North America, Europe, and the Asia Pacific region.
The digital customer experience was chosen as a top priority by 79% of respondents, highlighting how central digital technologies have become to banking operations.
- Cost-cutting was the second-highest priority at 46%, propelled by tech adoption and branch transformation. Banks are reducing costs by migrating to digital platforms like the cloud or adopting new tech like AI: Front- and middle-office AI applications could account for $416 billion of the total $447 billion estimated AI-enabled cost cuts, for example. JPMorgan Chase partnered with software company Persado to use its AI-powered tool to improve its marketing messaging, which could help the bank reign in ballooning expenses. Meanwhile, 36% of respondents said they're shutting down more branches — which are notoriously costly to operate — while just 6% are expanding their branch network. Another 36% plan to maintain their branch count but transform them. Some banks are taking a hybrid approach: Bank of America piloted humanless branches incorporating ATMs and video conferencing, while Citi debuted a branch with "Smart Banking" technology that features interactive digital services.
- Innovation is a top spending category among 45% of respondents. The study highlights that in the past IT spend was largely driven by regulatory compliance, with nearly 80% of spending used for mandatory items. Now, IT budgets are being reallocated to innovation around new products and services. This is evidenced by major US banks, which have astronomical tech budgets — Chase, Bank of America, and Wells Fargo had tech budgets of $11.4 billion, $10 billion, and $9 billion, respectively — that allow them to roll out advanced digital features that help attract customers.
More specifically, banks are spending more and more on application programming interfaces (APIs), cloud migration, and tech like AI to boost efficiency.
- Eighty-seven percent of respondents said their FI is evaluating or has already implemented APIs. The use of APIs in banking isn't new, but as the study highlights, it's being driven forward by regulations like open banking. Banks are also using APIs to onboard new solutions that can allow them to better compete with fintechs' offerings.
- Eighty-six percent of respondents have adopted cloud solutions.Banks of all sizes are investing in cloud technology, which could help them streamline services while enhancing security: Capital One has a multiyear effort to migrate its back-end software development tools and infrastructure to the public cloud, which it expects to result in "significant cost and efficiency improvement opportunities," for example, and Citizens Bank is investing $50 million to fuel its digital transactions and accelerate its migration to the cloud.
- The study highlights the use of AI in fulfilling compliance obligations. AI can reduce instances of false positives, which typically require human intervention and come at a high cost, for example. But on a broader scale, banks could use AI to transform the customer experience by enabling frictionless, 24/7 customer interactions across a variety of channels, which could be tailored to each individual client: Examples include the use of chatbots, voice assistants, AI in biometrics, and personalized insights.
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