Banks Are Confident - and Cautious - About Technology Innovation
May 20, 2024

Fred Fuller

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Amid economic disruption, fintech competition, and other headwinds in recent years, banks have had to quickly adjust to the demands of the market. This adaptation is often reliant on having the right technology infrastructure in place.

Industry attitudes toward the situation tend to be positive, with 80% of retail banking leaders saying that their technology is ahead of their competitors. However, they still recognize areas where improvements can be made. This finding comes from Endava's new Retail Banking Report, which looks at banks' current and future strategies to meet customer demand and explores their plans to address external factors affecting the industry.

The main takeaway from the report is that retail banks are prioritizing AI, data analytics, payments technology, and core system upgrades to improve the experience of their internal and external systems.

Additional insights from the Retail Banking report include:

Customer centricity: 85% of financial institutions prioritize improving the customer experience, recognizing its importance for acquisition and retention. More than 70% are doing this by increasing digital capabilities and payment offerings.

AI investment: 50% of banks are investing in AI within the next year, making it the top category of those evaluated. The financial sector is excited about the potential of AI to create new efficiencies across internal infrastructure and customer-facing products, with applications such as fraud detection, customer service, data analysis, and investment management.

Data analytics: Close behind AI, banks are focused on data analytics, with 45% of respondents indicating they are investing in this area. Leaders continue to see the value of data to improve customer service, strengthen security and risk management, personalize products, and attract new customers.

Payments upgrades: Upgrading payment gateways and adopting new payment rails are top priorities, with over 75% of organizations ranking them as high-priority initiatives. Upgraded payments technology allows banks to offer customers instant money transfers and timely bill payments, which fosters loyalty and reduces attrition. Additionally, it gives them the ability to increase revenue from current payment volumes.

Core modernization: To accommodate these technology priorities, banks are focusing on updating their core banking system. 75% of those surveyed feel they need to modernize their cores, with large numbers embracing cloud-based solutions. The core system is the backbone of a financial institution, impacting everything from application performance management to in-person customer experience. The benefits of a modern core often include lower operating costs, wider range of products, increased efficiency, enhanced security, and improved retention.

Financial institutions currently operate in a demanding and volatile marketplace requiring them to adapt quickly to shifts in consumer preference and external pressures. It's clear from the report findings that banks of the future will capture sustainable market share by focusing on customer preferences and ensuring alignment between their back-end systems and front-end, client-facing operations.

To ensure they are keeping up with the changing market demands, leaders can leverage technology to quickly roll out new offerings like AI assistants and real-time payments. When a bank creates a better user experience, they're encouraging customers to take advantage of more of their products, creating a more profitable and loyal customer base. The organizations that will succeed are those who can use technology to meet these rapidly evolving consumer demands, while demonstrating ongoing resilience and adaptability.

Fred Fuller is EVP, Global Head of Banking and Capital Markets, at Endava
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