MONETT, Mo. – Not surprisingly, a new survey of bank and credit union CEOs said they plan to invest more in financial technology over the next two years. The same survey also revealed additional plans for investments and focus in the near future.
The CEOs were surveyed as part of Jack Henry & Associates’ third annual Technology Capabilities Assessment. More than 130 bank and credit union CEOs responded, reflecting the strategic priorities for a wide range of community and regional financial institutions across the U.S., the company said.
More than 75% of respondents reported plans to increase investments in financial technology over the next two years, with over 30% of respondents in the $1- to $5-billion asset range planning to increase investments by more than 10%, according to Jack Henry.
Responses to Threats
“As the country recovers from the COVID-19 pandemic and behavioral shifts solidify, financial institutions are adapting their strategies and operating models to retain relevance and loyalty,” Jack Henry said. “Respondents ranked enhancing digital offerings, loan growth, and improving customer and member service as the top three strategic priorities over the next two years.”
The increase in technology spend is also in response to new and emerging threats, the company said. Respondents ranked net interest margin compression, fraud/security, and failure to innovate as the top three concerns for their institutions over the next two years. These concerns are evidence that agility, collaboration, and open technology are necessary for banks and credit unions to meet the challenges ahead.
The Priorities
Here’s what executives said about their technology plans and priorities across specific business lines:
- Open Banking. As open banking continues to evolve rapidly in the U.S., almost half of the respondents were not familiar with the growing use of open APIs to embed banking in third-party settings as well as to embed fintech into bank and credit union digital experiences. Of those already in the research and planning stage, 87% plan to execute an open banking strategy by 2023, according to the Assessment.
- Digital. Leaders continue to express urgency and heightened interest across most digital capabilities, the Assessment found. While 45% of CEOs report having already deployed personal financial management (PFM), the same percentage of CEOs don’t yet have plans for newer consumer financial health tools like credit score monitoring and financial literacy resources. Of those in the research and planning stage for consumer financial health tools, 75% will deploy a solution by next year.
- Payments. Faster-payment use cases continue to multiply, and more than half of respondents aim to enable real-time payments by next year. According to the Assessment, while payment hubs stand out as a key priority for 46% of CEOs, newer distribution models such as Payments-as-a-Service (PaaS) are just beginning to gain traction. Given PaaS is the fastest growing form of embedded finance, PaaS represents both a sizeable opportunity and threat for financial institutions.
- Lending. Digital end-to-end loan origination and automated prequalification/loan approvals ranked highest among CEOs for both deployment and research and planning, according to Jack Henry. While CEOs reported loan growth as their second highest strategic priority, few are investing in modern, digital lending capabilities such as underwriting with alternative data sources and automation of both renewal management and exception tracking.
- Core. While there is still some confusion about the distinctions between private and public cloud-based cores, when contemplating a migration to a cloud-based core, almost all bank and credit union executives (94%) want a full-service core that includes both deposit and loan capabilities, the Assessment found.
The Bank/CU Advantage
“Coming out of the COVID-19 pandemic, we’re more confident than ever in the community bank and credit union advantage,” said David Foss, board chair, president and chief executive officer for Jack Henry. “All institutions are being challenged to rethink business strategies and determine how to serve customers and members efficiently and effectively in more digital, yet connected, ways. To fill these gaps, it will be critical to collaborate with technology providers that value openness, partnership, and user-centricity. Over the next two years, expect to see a proliferation of not only embedded banking and payments but embedded fintech backed by personal service at the moment of need.”