OBSERVATIONS FROM THE FINTECH SNARK TANK
In the movie All The President’s Men, Woodward and Bernstein (played by Redford and Hoffman) meet their informant in a parking garage and receive the following advice: “Follow the money.”
If you want to know which technologies are hot in banking, you should do the same.
Talk is Cheap
For all the talk and hype surrounding technologies like AI and blockchain, just a little more than one in 10 mid-size ($500m to $50b assets) financial institutions will invest in chatbots or machine learning this year according to a study from Cornerstone Advisors. What are these institutions doing? For the most part, they’re either talking about the technologies or the technologies aren’t even on their radar.
||Plan to invest
|Not on radar
|Source: Cornerstone Advisors survey of 305 mid-size banks and credit unions, Q4 2018
Follow the Money
What are the truly “hot” technologies in banking? They’re the ones that banks and credit unions actually invest in.
At the end of the past few years, Cornerstone has surveyed financial institutions to find out which technologies they plan to add or replace in the coming year. Here are the top five for 2019:
1) Digital account opening. Not only was digital account opening the most-frequently cited technology for addition or replacement, it was at the top of the list of technologies that banks plan to pursue fintech partnerships for. Some institutions may not get what they’re looking for, however. According to Cornerstone Advisors partner Terence Roche:
If financial institutions believe that digital account opening will be the driver of deposit growth, they may be disappointed. If their view of digital account opening is too narrowly focused on account opening and doesn’t include a hefty focus on digital marketing, contextual product offerings, data-driven campaigns, and a very tight, easy fulfillment process, then it won’t matter what investment they make. It won’t work.”
M&A developments in this account opening space–e.g., Jack Henry/Bolts, Temenos/Avoka, Q2/Gro Solutions, and a FIS/Zenmonics partnership–will have a big impact in 2019 and 2020.
2) Person-to-person (P2P) payments. Venmo and Square may get a lot of press regarding P2P payments, but banks (and credit unions) are the real leaders in the P2P payments race. Consumers moved a little more than $300 billion in funds to other people through their banks and credit unions in 2018, with Zelle accounting for about 40% of that. With nearly 230 institutions signed up–but only 60 currently offering the service–Zelle is poised to cannibalize the bank volume and overtake PayPal.
P2P Transaction Volume
SOURCE: Q2/CORNERSTONE ADVISORS
Banks aren’t resting easy, however. P2P providers still represent a threat to their core payments revenue.
When asked how likely they would be to use the P2P providers if they offered a general use debit card, 44% of Millennials said that not only would they be very likely to use a PayPal debit card, they might even make it their primary card. A quarter said that about Apple and Google, and one in four said that about Venmo.
3) Customer relationship management (CRM). Hardly a new technology, there has been a resurgence in investments in CRM among banks and credit unions over the past two years. This resurgence reflects a pendulum shift from “distributed CRM,” (i.e, CRM embedded in point solutions like digital banking, loan origination and account opening systems) back to the enterprise-wide deployments that were prevalent 10 to 15 years ago.
Does this mean that CRM is becoming a must-have in banks? Maybe not, according to Cornerstone’s Ryan Myers:
Despite an ever-growing list of compelling use cases, more clear paths to a legitimate ROI, and the drool-worthy automation possibilities, CRM systems are a luxury good. The only way this will change is if the recent wave of CRM implementations demonstrates such a convincing return that onlookers are forced to adopt. While that may very well come to pass, it won’t be this year.”
That’s for sure. The state of CRM in most financial institutions is abysmal. Few have a CRM plan that outlines goals and priorities established by the senior management team, or have a CRM scorecard with specific and realistic targets.
The pendulum may stay on the enterprise-wide deployment side for another couple of years, but if banks don’t get their CRM management practices and processes in order, the pendulum will swing back to distributed CRM.
4) New account/teller systems. According to digital futurist Brett King, author of Bank 4.0:
If there’s a place in the future for a branch to add some extraordinary value in engagement that’s viable, I’m all for that. But using branches to open accounts and do traditional day-to-day banking is not it. If you can’t deliver that in real time, you won’t survive.”
A lot of bankers disagree. The percentage of FIs planning to add or replace new account/teller systems doubled between 2018 and 2019.
While the level of investment in new account/teller systems does reflect banks’ continued commitment to the branch channel, it’s also driven by two other factors: 1) improving the in-branch account opening experience, and 2) integrating (or at least coordinating) the digital and branch account opening processes.
I’m betting new account/teller systems won’t be one of the hot technologies in 2021, however.
5) Commercial loan origination systems (LOS). Many community banks are looking to grow their commercial (vs. consumer) lending business by expanding beyond real estate into commercial and industrial (C&I) loans. To do so, they’re increasingly making investments in commercial LOS to improve their speed to market. They’ll need to–according to Cornerstone’s research, nearly seven in 10 financial institution executives think their commercial lending capabilities aren’t “future ready.”
The Assimilation of AI and Blockchain
So when will technologies like AI and blockchain crack the top 5 hottest technologies? Never.
Not because those technologies won’t be big, but because they’re not standalone technologies that most banks will invest in.
We’re in a phase of technology development where AI is being assimilated into the systems and apps that banks already deploy.
AI will become indistinguishable components of systems and tools like:
- Commercial loan origination systems. Machine learning and RPA will be used to identify potential commercial credit request needs, spread borrower financial statements, and validate credit due diligence items and perform vendor order execution.
- Account opening systems. Chatbots will become components of digital account opening systems–not just standalone, general customer support tools (like BofA’s Erica which has failed me the four or five times I’ve used it).
- CRM. Machine learning is already incorporated in a number of CRM systems to do things like transcribe and analyze sales calls, predict caller intent and reduce escalations with speech analytics, and analyze patterns in CRM and public data for predictive lead scoring.
This isn’t good news for the advocates of more regulatory control over AI, by the way.
The assimilation of blockchain phase isn’t quite upon us yet, but that will be the next wave.