OBSERVATIONS FROM THE FINTECH SNARK TANK
If you want to know which technologies will be hot in the banking industry in 2023, heed the advice of Deep Throat.
Sorry, but that’s not a porn reference. In the movie All The President’s Men, Woodward and Bernstein’s informant—whom they refer to as Deep Throat—tells them: “Follow the money.”
A new study from Cornerstone Advisors, What’s Going On in Banking 2023, follows the money and reveals where banks and credit unions will place their technology bets in this uncertain year.
Uncertain not just because of the economic conditions, but because of the vagaries of the organizational and technological environments in which banks operate.
Top Technologies in Banking for 2023
1) Conversational AI
It’s true that many consumers resist using chatbots, preferring to deal with a human. But have you been in a bank branch or called a bank’s contact center recently?
Eight in ten banks struggle to recruit new staff members. When they do find new employees, getting them up to speed on products and procedures is a lengthy process.
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The new reality in banking is that chatbots aren’t just for customer support. Increasingly, they’re for employees—and, in fact, they are the new employees.
Banks are increasingly deploying conversational AI technology to support employees directly—in effect, making chatbots a “member of the team.”
According to a report from Cornerstone Advisors titled The Chatbot Journey: Making Intelligent Digital Assistants Integral Members of the Team, chatbots are evolving into intelligent digital assistants which utilize machine learning technologies to be truly conversational and advice-oriented.
Credit unions are leading the way here, with one in four investing in chatbots and conversational AI in 2023.
2) Commercial Digital Banking
Commercial digital account opening and commercial digital loan origination systems are going to be big in 2023. Maybe.
In 2022, 23% of banks expected to select a new or replacement commercial digital account opening app. For 2023, that percentage increased a few notches to 27%. For commercial loan origination systems, 21% of banks plan to select a new or replacement app this year.
Compared to many other types of apps and systems, the demand for commercial digital account opening and loan origination is strong. But will it come to fruition?
In 2022, although 23% of banks expected to select a new or replacement commercial digital account opening app, just 10% actually did. And while 24% planned to choose a new commercial loan origination system in 2022, just 12% went through with it.
The expected demand for commercial digital tools is good news for vendors like nCino, Baker Hill, and MANTL. But the expected/actual gap indicates organizational issues that vendors will need to overcome to realize the potential spend.
3) Customer Relationship Management (CRM)
CRM is to financial institutions what new year’s resolutions are to the rest of us. At the beginning of the year, financial institutions vow to get their customer or member data in order, to do a better job personalizing customer communications, and to only make “relevant” offers.
Like our new year’s resolutions, it doesn’t take long for these dreams to fizzle out.
According to Cornerstone’s annual studies, each year since 2018, one in five financial institutions say they’re going to select a new or replacement CRM system. But—like our resolutions—it doesn’t happen. In 2022, 28% of credit unions anticipated that they would select a new CRM system, but only 8% actually did.
When it does get deployed, expected benefits are often not realized.
Bank and credit union executives may not understand how the CRM space has evolved over the past decade.
Increasingly, CRM is embedded (or diffused) into various applications like digital banking platforms, digital account opening and onboarding systems, loan origination systems, and other specialized apps (e.g, financial health and wellness).
As a result, many institutions will rethink “big bang” CRM approaches in favor of applications with embedded CRM functionality.
4) Real-time Payments
With the impending release of FedNow this year, financial institutions are girding up for real-time payments (RTP) in 2023. Three in 10 financial institutions plan to launch RTP this year, on top of the 18% of banks and 12% of credit unions that have already done so.
The top RTP use cases for banks include B2B payments, account-to-account (A2A) transfers, and expedited payroll payments. Among the credit unions, it will be A2A transfers, last-minute consumer payments, and recurring bill payments.
With declining non-interest income, financial institutions should be looking at RTP—and payments modernization more generally—as new sources of revenue. According to McKinsey Consulting:
“New revenue streams will be the primary source of return on investment in a modernized payments infrastructure.”
This doesn’t seem to be the case, however. An Accenture study found that just a quarter of banks cited revenue growth as the primary goal of their organization’s payments modernization program.
The result: We may not see as much adoption of RTP as planned.
Consumer advocates love the idea of “open banking” which, to them, equates to consumers owning their data (which is a way overrated idea, by the way). Open banking, however, is a lot more than that.
Open banking has become a hot topic in the banking industry because of the growth of fintechs who use APIs to draw data from banks to open and fund accounts and provide value-added services to their users.
Bankers, not surprisingly, don’t see this as a positive and have (privately) resisted the open banking tide.
Fintech partnerships are changing that. Partnerships have been top-of-mind for bankers over the past few years, however, and 2023 won’t be any different. About 70% of bankers said partnerships will be important to their strategies in 2023, driving investments and deployment of APIs.
Prior to this year, just 40% of banks had already invested in or deployed APIs. This year, however, 28% of banks plan to make use of APIs. Credit unions have, again, been leading the way with more than six in 10 credit unions already using APIs and another 18% planning to do so in 2023.
With the exception of the largest banks, most financial institutions know they can’t build everything, but many are finding out the hard way that they might have to be the ones to integrate everything.
As a result, they may end up investing as much (or more) in API people than they do in the APIs themselves.
Difficulty finding the right resources to build the needed bridges between systems and organizations might diminish the investment needed in this key technology.
Who Took the Money? Who Took the Money Away?
And as the Talking Heads song went on to say, “we’re being taken for a ride again.”
The banking industry is, indeed, being taken for a ride again—a ride in which great expectations for technology success fall short because of economic, operational, and organizational barriers and constraints. By the end of 2023, many technology project sponsors in banks and credit unions will be left wondering who took the money away.
Deep Throat’s advice was to “follow the money,” but it’s getting harder to figure out where bank’s technology dollars are really going.