The new year has begun amid a shift in tech spending by banks and credit unions to concentrate on best-in-class solutions that address security, fraud mitigation and process improvements, rather than a core system upgrade or enhancement. Most boutique non-core fintech solutions are built on cloud-based storage and software-as-a-service (SaaS) which offer greater flexibility, scalability, rapid and secure system updating, and robust user accessibility options. FIs increasingly look for solution providers that can integrate to their core system to solve urgent needs related to regulatory compliance and process improvements.
Leading up to 2024, the banking industry reported big increases in tech spending for compliance and digitization applications as investment in core banking solutions slowed. In July 2023 American Banker analyzed technology spend priorities based on survey data from bank and credit union leaders, as collected by Arzient in Dec. 2022. Core system modernization was ranked as the 7th tech priority, falling behind enhanced security (1st priority), fraud mitigation (2nd priority), customer onboarding (3rd priority), process automation (4th priority), digital payments (5th priority) and data collection (6th priority).
This points to a growing reliance on cloud-based software applications that meet acute needs to address growing security, fraud and back office process improvement demands fueled by an burgeoning expansion of digital payment types, banking solutions and new regulatory requirements.
In the survey, 63% of respondents reported Process Automation as an “Active tech spending priority,” ranking it 4th highest priority among the tech priorities evaluated in the report. During 2023, several large financial institutions reported focused investment in digitization and automation technologies. For example, Bank Automation News reported, BNY Mellon grew tech spending by 11% year over year, looking specifically towards digitization and automation technologies to “increase efficiency, drive down operational costs and improve customer service.” BNY Mellon’s Chief Executive, Robin Vince, stated in a Q2 2023 earnings call, “the bank is focused on digitally cleaning inefficient operations and planning medium- and long-term digitization efforts.”
The survey also revealed that 62% of credit unions and 49% of all banks do not plan to increase tech worker headcount during the upcoming year. This suggests that FI technology investments are concentrated on fintech solutions that update the organization's operational processes to increase worker efficiency and deliver more secure and enhanced customer banking experiences.
“A Deep Dive Into the Tech Priorities of the Banking Industry.” American Banker, July 10, 2023. https://www.americanbanker.com/list/a-deep-dive-into-the-tech-priorities-of-the-banking-industry
Trivedi, Vaidik. “BNY Mellon grows tech spend by 11% YoY.” Bank Automation News, July 18, 2023. https://bankautomationnews.com/allposts/retail/bny-mellon-grows-tech-spend-by-11-yoy/