Where banks will invest their technology budgets for 2023: AI, APIs, CRM

OBSERVATIONS FROM THE FINTECH SNARK TANK

If you want to know which technologies will be popular in the banking industry in 2023, follow the advice of Deep Throat.

Sorry, but that’s not a porn reference. In the film 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 only because of the economic conditions, but because of the vagaries of the organizational and technological environments in which the 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 to a bank branch or called a bank’s contact center recently?

Eight out of ten banks are struggling to recruit new employees. When they find new employees, it is a long process to get them up to date on products and procedures.

The new reality in banking is that chatbots are not just for customer support. Increasingly, they are for employees – and indeed they are is the new employees.

Banks are increasingly using conversational AI technology to support staff directly – in effect, making chatbots a ‘member of the team’.

According to a report by Cornerstone Advisors titled The chatbot journey: Turn intelligent digital assistants into integral members of the teamchatbots are evolving into intelligent digital assistants that use 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.

By 2022, 23% of banks expected to choose a new or replacement app for commercial digital account opening. For 2023, this percentage increased a few notches to 27%. For commercial loan origination systems, 21% of banks plan to choose a new or replacement app this year.

Compared to many other types of apps and systems, demand for commercial digital account opening and loan origination is strong. But will it come true?

By 2022, although 23% of banks expected to choose a new or replacement app for commercial digital account opening, only 10% actually did. And while 24% planned to opt for a new commercial loan origination system in 2022, only 12% went through with it.

The expected demand for commercial digital tools is good news for vendors such as nCino, Baker Hill and MANTL. But the expected/actual gap indicates organizational problems that suppliers must overcome to realize the potential consumption.

3) Customer Relationship Management (CRM)

CRM is to financial institutions what New Year’s resolutions are to the rest of us. At the start of the year, financial institutions promise to get their customer or member data in order, do a better job of personalizing customer communications and only provide “relevant” offers.

Like our New Year’s resolutions, it doesn’t take long for these dreams to come true.

According to Cornerstone’s annual studies, every year since 2018, one in five financial institutions say they will choose a new or replacement CRM system. But – like our resolutions – it doesn’t happen. By 2022, 28% of credit unions expected to choose a new CRM system, but only 8% actually did.

When it is 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 dispersed) in various applications such as 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 built-in CRM functionality.

4) Real-time payments

With the imminent release of FedNow this year, financial institutions are giving up on real-time payments (RTP) by 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, there will be A2A transfers, last-minute consumer payments and recurring bill payments.

With non-interest income declining, financial institutions should look to RTP – and payment 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.”

However, this does not appear to be the case. An Accenture study found that only 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 use of RTP as planned.

5) APIs

Consumer advocates love the idea of ​​”open banking,” which to them equates to consumers owning their data (which, by the way, is an overrated idea). However, open banking is much more than that.

Open banking has become a hot topic in the banking industry due to the growth of fintechs that use APIs to pull data from banks to open and fund accounts and offer value-added services to their users.

Bankers, not surprisingly, do not see this as positive and have (privately) resisted the open banking flow.

Fintech partnerships are changing that. However, partnerships have been top-of-mind for bankers in recent years, and 2023 will be no different. About 70% of bankers said partnerships will be important to their strategies in 2023, driving investment and deployment of APIs.

Before this year, only 40% of banks had already invested in or implemented APIs. This year, however, 28% of banks plan to use APIs. Credit unions have once again led the way with more than six in 10 credit unions already using APIs and another 18% planning to do so by 2023.

With the exception of the largest banks, most financial institutions know they cannot build everything, but many are finding out the hard way that they may have to be the ones to integrate everything.

As a result, they may end up investing just as much (or more) in the API human beings than they do in the APIs themselves.

Difficulties in finding the right resources to build the necessary bridges between systems and organizations can reduce the investment needed in this key technology.

Who took the money? Who took the money?

And as the Talking Heads song went on to say, “we’re being taken for a ride again.”

The banking industry is in fact being taken for a spin again – a spin where high expectations for technology success fall short due to financial, operational and organizational barriers and limitations. By the end of 2023, many sponsors of technology projects in banks and credit unions will be wondering who took the money.

Deep Throat’s advice was to “follow the money,” but it’s getting harder to figure out where the bank’s tech dollars are actually goes.

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