Transcription:
Janet King: (
So I'm Janet King. I'm the vice president of research for Arizent and American banker. Joining me today is Sue Laws, who's the Executive VP of the Americas for Temenos. So welcome Sue. Thank you for doing this with me
Sue Laws: (
Thank you very much for inviting me, Janet. I'm beyond excited to be here in Austin, Texas with you and our audience today for me, it's my first conference in person for over two years. Already enjoyed my first tacos, fix the breakfast this morning. So, let's get ready to rock and roll.
Janet King: (
That's great. Well, we are really excited to be here today and, sorry about that. I'm giving you guys a sneak peek. We're gonna be talking about some new research that we recently completed at American banker on building a future ready tech strategy. The research was conducted in the first quarter of this year among nearly 400 management level respondents across financial services, including 123 who are banking leaders from a mix of retail banks and credit unions of all sizes. Our goal in doing this research was really to understand what makes some banks better at leveraging technology than others. In doing so hopefully we're gonna be able to provide everybody here with some actionable insights into some of the factors that you should be considering as you look to develop a future ready tech strategy, that's capable of advancing innovation within your own organizations, driving business growth, and really keeping your organization from being left behind.
Janet King: (
So let's start by taking a look at the state of digital transformation and banking today. And I think what's really interesting is if, when you look at this curve, is that the industry sentiment on this is almost evenly split with about half of the banking leaders that we talk to saying that they're just really getting started on their digital transformation journey, or they've got a plan in place for some elements or areas of their business. So they're either nascent or developing. Then we had another, almost 50% who are kind of on that, more mature side of the digital transformation curve. They are actually implementing digital transformations in many elements or areas of their business with some measurable performance impacts, or they're already starting to see some strong growth from digital channels.
Janet King: (
If you look at that data across different types of banks, so if you look at global and national banks, regional community banks and credit unions, what we see is that those global and national banks are more likely to have hit the tipping point for digital transformation than some of those smaller competitors. So Sue, what I find really interesting about that is it suggests that at least half of the banks we spoke to are making solid progress or it seeing measurable performance impacts or can actually point to some growth from some of those initiatives. And it seems like good news, but I'm curious to know, in your opinion, if you think that the digital transformation efforts, most banks are undertaking are truly transformative. Are we still really just playing catch up?
Sue Laws: (
That's a good question. I mean, first and foremost, for me, digital is absolutely imperative for everyone. Those that have yet to begin their journey really run the risk of being left behind. Every financial institution out there has their very own unique strategy, so it's truly fair to say that one size does not fit all. We're seeing three main patterns of digital transformation today. The first pattern that we are seeing is, whereby a bank or a credit union is very much looking to put, a brand new pane of glass. So that channel experience for their clients, often it can be absolutely gorgeous with great capabilities, but the underlying backend is still batch. It's still an old legacy core. So for me, I very much refer to this as we're just putting lipstick on legacy. The second pattern that we're seeing a lot of in the market is whereby financial institutions are coming to market to look to deploy a brand new line of business.
Sue Laws: (
So they may be looking to say, do deposits first, putting that onto a modern banking platform integrated into their enterprise landscape today. Once they're up and running and live on it, they're then looking to do that land and expand. The third pattern that we're seeing is where, where banks are looking to stand up a brand new stadium next to the old stadium. So putting it on the side, this then gives them the ability to set up brand new digitized capabilities that full front to back without any handcuffs for maybe some of that technical debt that we're all carrying around and it enable them to prove out the technology and the capabilities. This very much underpins more of that build and then migrate across your existing customer base. But I think it's fair to say with that incredible pace of change that we're all seeing and if experiencing out there with that faster renovation cycle that need to be innovating more. We're all really in that once in a lifetime, once in a generation banking shift. I have to say it's in a really exciting time to be part of this industry.
Janet King: (
It is. Let's take a look at the role of technology then in that. Banks identified three goals as among their top goals for digital transformation. So it's improving the customer experience, driving business growth and delivering operational efficiencies. Notably technology is viewed as a key enabler to digital transformation for all of those outcomes, which I think, you know, really underscores the importance of crafting a strategy that, has an eye on what's next, so that you avoid investing resources towards a plan that's really not gonna serve your firm's long term needs. But according to our research, we also see that only one out of three banks believe that they are leading and leveraging technology to advance those digital transformation goals. Right? We have quite a few about half who identify themselves as sort of in the pack, sort of keeping pace with their peers and almost two out of 10 who are lagging in their use of technology.
Janet King: (
I think that reality is really significant because you can see here that the banks who are getting it right are outperforming their organizations on key digital transformation goals. So this light blue bar here shows you banks who are in that top 30% who are leading in their use of technology. The dark blue in the middle are those in the 50% in the pack. And then the ones who are laggards are in the light blue. So the folks who are really have figured out this technology strategy are really much more effective at advancing these key goals than some of their peers. So Sue, what do you think might be holding banks back from more effectively leveraging technology and support of these digital transformation goals?
Sue Laws: (
So I think one thing we need to be cognizant of today is that banking is no longer just happening in banks, it's happening throughout our daily lives. and I think one of the things holding banks back is thinking like a bank. We really need to be thinking like that the end consumer. A good friend of mine, who's actually here today, he shared with me a phrase many years ago and I've never forgotten it, but people don't wake up in the morning saying, I want to take a five year debt. They wake up saying, I want to buy a car. So it's such a different fundamental mindset and what the client and consumers are looking for. They're looking for banking, that's simple. They very much want it to be relevant. They want it to be human.
Sue Laws: (
They want it to be hyper personalized, but they want it now at the point of need, and that is where there's such a shift in the dynamics of the way in which banking is very much needed today. I mean, point of need takes us into that embedded finance play, we'll talk about that a little bit later on, but I think what's truly important is that we all need to be thinking about a platform for the future that enables us to be able to really lead with how we're going to deploy and utilize the technology we're all out there looking to purchase.
Janet King: (
Yeah, it's a tall order. It's a lot to consider, which I think brings us to the central question of this research, which is really what makes some banks better at leveraging technology to advance digital transformation than others. And at a high level, I think it's about having the right inputs. The right inputs into your decision making are more specifically leveraging the right practices to really future-proof your tech strategy. So in this research, we ran a regression model for all the data nerds out there, you'll find that exciting. and we found that there were five factors that were really key to success, and you can see them here, right, having a fully defined strategy, enabling data, access for decisions, taking care of all your security and privacy practices, having a consumer oriented technology orientation, and finally focusing on core more modernization. and what we found is that while all five factors matter, in the efforts to more effectively leverage technology, having a fully defined strategy carries more weight than some of the others that we looked at here.
Janet King: (
Now, we certainly don't have time to dig into all of these factors today in our 30 minutes together. But I do wanna point out that banks trail and a couple of these key drivers, having a fully defined strategy, enabling data access for decisions. And in some point there are some to some degree tech orientation as well. so that means more specifically, like when you think about a fully defined tech strategy, it's making sure that you have your technology priorities aligned with your key digital transformation priorities. So you're making investments that are aligned with where you want to go, that you have as assigned metrics, not only to measure the ROI from that technology, but metrics for success and given employees responsibility for, driving those metrics forward. It's also about data unification, right? Making sure you don't have data silos and you have one center of one source of truth for your customers, and providing access to those data sets so that your employees can make decisions that matter and you can personalize experiences and everything else. Then scalability is the last one around tech orientation. So making sure that you're investing in scale out architectures and resources, virtualized servers cloud as a service platforms that really give your business that agility to scale.
Janet King: (
And then finally Sue before, I get to your last thing is, why does it matter? Right?
Sue Laws: (
It matters because these banks that are doing this well again are outperforming their peers and that's super important.
Janet King: (
So let's go back to my question, which is that the research shows that larger global and national banks are generally more likely to be taking all of these steps. We saw that as compared to regional and community banks and credit unions, but overall, I think there's some interesting patterns here, right? None of these percentages are higher than 60% and most of them are hovering around 50%. So what stands out to you in these findings and where do you really see opportunities for banks take action?
Sue Laws: (
Okay. So I think as you rightly said it certainly all comes back to strategy. We absolutely need to have a clearly defined strategy of who we are, where we want to be in a plan to get there, but it's also fundamentally important to make sure that as we are making those conscious decisions, that we make sure that we've got a platform that's going to enable us to pivot because the speed of which the market is changing and evolving, we need to be able to react as the priorities and the market demands change too. so there's with this platform it's always gonna have to be, it's gotta be robust. It's gotta be API open APIs. It needs to be highly scalable, which fits into the data there at 50% percent, the importance of that, it needs to be event based.
Sue Laws: (
It needs to be, DevOps enables. You need to have that developer community. It needs to be upgradeable. So there's a whole raft of things that we really need in there to basically underpin this and ensure that through this platform that we have that single source of truth so that we're not having to go out to multiple applications to find out who's my customer. What products are they actually holding for us? We can have everything, everything collapsed and consolidated. But if we take a look at scalability, we're seeing a massive industry shift to cloud. everyone's understanding there's a clear and concise need to be able to deploy all those cloud, cloud systems and applications today. And one of the real main benefits of this is being able to really benefit from the efficiency, the scalability, the security, and the responsiveness that get comes with the cloud.
Sue Laws: (
This for me also leads into another element that came into some of the data, which was around ESG. It's surprising how many banks out there today are really wanting and needing to be proactive so that they can be monitoring and measuring what their carbon footprint is. As an absolute minimum, that's over and above those that are looking to make sure they're able to, create investment portfolios that rely to their client's assets. So there's so much technology out there and for us to be able to leverage that together, is really the only way for us to be effective in delivering the right capabilities for our clients.
Janet King: (
Yeah, I totally agree, and we're seeing the cloud really pop in a lot of our research, especially like growing confidence around public cloud platforms and a real acceleration around multi-cloud environments. So it's been really interesting to watch that, which kind of brings us to the next point, which is where are banks really leaning into technology, right? What's on their technology roadmap. And, I think at a high level, what we're seeing is that eight out of 10 banks, which is not represented here, but eight out of 10 banks said that they were going to increase their technology spend in the coming year. So there's definitely a healthy appetite for tech spending right now. We also see that fully two thirds think that they are taking the steps necessary to modernize their core. That was a consistent sentiment across banks of all sizes, but we are specifically are they actually placing their technology bets and you can see some of that here, right?
Janet King: (
It's cloud-based architectures, it's master data management solutions, content services. those are some of the things that leaders tend to be investing in more broadly, as well as rapid application development, AI and machine learning and robotic process automation. So again, those banks, if we go back to the beginning, who said that they are really more effectively leveraging technology, and we can see that they're getting better outcomes, they are leaning into a lot of these technologies. So I'm kind of curious to get your perspective on this data and in what you think banks should be leaning into to really make sure that their future proofing their strategy.
Sue Laws: (
So I truly believe that the banks that are really digitizing that whole stack are the ones that are very much leading in the industry today. and what I'd like to do is really give you an example of the importance of digitizing that whole stack. I'm gonna just go back to if, remember what we said earlier about what the customer's looking to, to receive from us. They want it to be simple. They want it to be relevant. They want it to be hyper personalized, and they want it to be at that point in need. So imagine Janet, you go into a home Depot store, and you swipe your debit card. You decided to buy your husband that ride on mower. So as you're swiping that debit card at that point of sale, there's so many things that are going on, but one of them is a call out to the underlying core and it's actually trying to making sure that you've got sufficient balances for that transaction.
Sue Laws: (
Then real time application can be then emitting an event out of the core, leveraging some of those data streaming from the like, you know, a Kafka or Essos taking it out, and then placing it into a data lake. When it's in the data lake, we should be running AI over that. AI gives us the ability to be reading thousands and thousands and thousands of lines of data, which is good that we are agreeing with what Jody said in his session earlier. It's what you do with that data. That is incredibly important. So as you've got that AI running over at the machine learning, it's also recognizing that Janet's just made a transaction at home Depot. Look, we've got a campaign over here where we're offering clients with a credit score like Janet has the opportunity to have a home improvement, installment loan line of credit.
Sue Laws: (
Now, what we want to do is be serving that as a real time event, back up to the channel of choice, which for you, Janet, just so happens to be your mobile phone. And before you've completed your transaction at that point of sale, you get that real time alert, which says, "Hi, Janet, we see you just made a purchase at home Depot. Would you like to click here? You are preapproved for a home improvement line of credit by accepting terms and conditions. The monies would be available instantly in your account." So that's really pulling all that technology together whilst at the same time, giving you, that hyper personalized touch.
Janet King: (
Great experience!
Sue Laws: (
Great experience! I mean, gone are the days of the spray and pray the mass mailing. It has to be hyper personalized at that point of need. And through this, we go back to the three key, benefits that everyone's looking to improve on, which is that customer experience growing your revenue, and then also, reducing all those inefficiencies. As you grow your business, you'll then need the underlying technology to be cloud, to scale up and scale down. So it's a full circle.
Janet King: (
Right now. The bank knows more about me and all the things I need to buy to go with my riding mower that my husband is very excited to have. So father's day is coming up. I guess I should be thinking about that. So it kind of leads us to our last point, which is around how banks are getting there. And when we were putting this presentation together, we were talking about how banks are being assembled, how we're assembling banks for the future, and found that such a great idea. The data really talks to that because it shows us here that, you know, if we think about just technology for a minute, those leaders again are much more likely to be investing in cloud and as a service solutions, but they're also much more likely to be both building and buying, to get the right pieces in place to really accelerate that digital transformation, right, 78% or almost eight out of 10 said they were going to increase their investment in building in-house solutions.
Janet King: (
But you also have 60% who are merging or acquiring ownership in a vendor or tech partner, 55% who are partnering with, or investing in Fintech's. We've got, you know, 53% who are emerging or acquiring ownership in a company that has a more advanced tech stack than theirs. So they're buying other companies in their space to get that technology edge. Then finally, you've got fully six out of 10 who said that they are divesting of things that no longer work, right. So it's really a 360 degree kind of right, they're building, they're buying they're divesting. I think it's really fascinating. Sue, what are your thoughts on that whole build versus buy approach?
Sue Laws: (
There's always gonna be banks that want to build, firmly believe that there's obviously software and capabilities we should be looking to buy and are saying, if we look down there at the 75% in that buy, increasing our level of spend on cloud based applications, really feel we should be looking at, where we're looking to buy new modern banking platform capabilities to ensure that they're supporting composable banking. And what we mean by composable banking is really taking those enterprise banking capabilities and then being able to package them into consumable services. The benefit of this is that they're able to be consumed and deployed significantly faster, so great benefits to everyone there. But in addition to the consumable side is the fact that they still also need to be extensible so that we can a be enabling the banks and financial institutions still to go out there and do some of their own building to maybe to differentiate.
Sue Laws: (
The other advantage of this is by leveraging composable banking, it's enabling the banks themselves to become master of your own destinies. What we mean by this is that there's the element that you're just paying for what you need, you subscribe to only what you need, and then you have more time and more dollars to be spending on innovation. If we really open up the platform and talk about that open API capability and we see on the slide about how we're all looking to be partnering, or maybe acquiring Fintech's, going back to, it's not just the banks that are offering banking capabilities. Now we need to be able to readily consume some of those really cool capabilities that are coming from the Fintech's to provide those and embed them into the journeys, put them into our distribution services so that we can be having our clients take on more banking capabilities, going back to taking care of the clients and growing their revenues. and I think for me, when you start to put all these building blocks together of what banking is now looking like, that's where I truly believe that the banks of the future are going to be assembled and not built.
Janet King: (
I love that my favorite line. We have a few more minutes I think. I know we're running a little off schedule, but I think we have a few more minutes. So any final thought Sue, before we wrap up today?
Sue Laws: (
So final thoughts, with everything going on in the financial services industry today, I think there's two words. None of us in this room will ever be uttering and those are I'm bored.
Janet King: (
Are you sure?
Sue Laws: (
I think if I was gonna wrap probably where I would just say is if you enjoyed what you heard, I would like to learn more about composable banking, AI, XAI. My name is Sue you'll find me on stand 501 with Temenos, if you didn't, my name is Dave and I'll be in the bar later drinking max marks.
Janet King: (
In looking for people to pay for the bar bill. Right. Well, thank you so much for joining me today and thank you to Temenos for sponsoring this research and thanks for all of your attention. You can find the full research report here@americanbanker.com. So please go look for that. After today's session and Sue and I will be available, and like she said, she'll be at the Temenos booth, I'll be wandering around. So if you guys have any questions, feel free to seek us out at any time during the event. And I hope, your first day goes really well. So thank you again.