Banks plan to make significant increases to their tech spending in 2025, according to research released this month by American Banker. Top priorities include security and fraud improvements, data analytics, AI and continuing to move applications to the cloud.
The banking industry has its eyes on new technologies such as artificial intelligence, distributed ledgers and cloud computing. Of the executives at 212 banks, fintechs and credit unions surveyed in American Banker’s
More than 80% of respondents planned to increase their investments in technology next year, according to American Banker’s research, and nearly all plan to at least maintain their current level of investment. There are a wide variety of areas banks will be putting tech resources into next year, including digital payments, mobile apps, core banking system upgrades and cloud-based services.
Enhanced security and fraud mitigation combined were the
“Everybody is talking about enhanced security and fraud mitigation,” said Savana president Emily Steele. “Every executive, every bank, every credit union, every fintech that we’re talking to, it is the top topic when they are assessing our technology and all of their technology. There isn’t a conversation that I have where those two topics are not brought up.”
The other tech topic many bankers are contending with is
AI is seen as a critical tool in mitigating fraud and money laundering, according to American Banker survey respondents, but AI adoption is being held back by budget challenges (46%), difficulty with implementation (41%), model governance issues (39%) and time to implementation (38%).
American Banker’s research indicated that credit unions and community banks are the most sensitive to budgetary concerns regarding AI implementation. Large banks are the most concerned about governing their models properly, and regional banks are most worried about the difficulty of implementation.
Markham said that among Capco’s clients, budgetary concerns have been less of an issue when incorporating AI than internal risk and control functions.
“They’re wanting to make sure that they’re doing it the right way,” Markham said. “They’re protecting their customer information. The fear was, ‘Hey, we’re going to use AI but all of our client information has to be sent somewhere. We don’t want to have that be external.’ I think there’s still some of those growing pains that we’re seeing. With the budgetary component, we don’t see that as much of a hindrance.”
Increasing spending on data and analytics systems is the foundation of incorporating successful AI models into banking systems, according to Markham.
Good data and analytics are “the precursor to having an AI tool be successful,” Markham said. “A lot of those are acting on structured and unstructured data. Having that be in place with clean, complete and non-erroneous data, so that whatever model you choose or pick operates against that properly, is an evergreen challenge.”
Even for smaller community banks that aren’t yet investing in AI, improving their data analytics provides benefits to current operations.
“Risk and control models are largely built on some of those datasets,” Markham said. “Cross-selling and upselling is usually a big component for those organizations. Understanding your client demographic, what products are resident, all of those things come from having good analytics and tooling to understand what your client segmentation looks like. If you don’t have good data tooling and analytics, it’s hard for you to create a model of that single view of the customer to best serve them.”
Cloud-based architecture was a top tech spend priority for 33% of survey respondents, and some banks are turning to third-party fintechs to deploy cloud-based digital banking systems.
“Pretty much every financial institution that we interact with across the board, from the small financial institutions to the large ones, have some cloud capability or journey or implementation,” Markham said. “Even if they have a legacy system on premises, their own data center and their own applications, we’re seeing those organizations have certain components be hosted in the cloud. It could be a lending platform, originations platform, a polycloud, using multiple providers or most of their cloud tenants for their core applications, or they’re using some fintech that has their own cloud infrastructure and then you have communications and interactions through that.”
For digital banking and mobile apps, a lower tech spend level among survey respondents did not come as a surprise to Markham.
“It’s kind of an evergreen spend,” Markham said. “We’re seeing a lot more clients treating their digital channels, their digital banking footprint, and their mobile applications as living products that constantly need updates — new features added, new capabilities, new experiences, new security enabled, those types of things. So there’s always going to be tech spend in that space.”
Steele agreed with the research showing lower tech spend priorities for mobile apps.
“With mobile apps I would expect that trend to be lower, because we’re thinking as an industry that tech is much broader than just mobile,” she said. “It’s really about self-service, regardless of how you as a consumer are getting to that data. We know that anything we’re developing for self-service has to work in any way that you’re accessing it, whether on a mobile app or a desktop or an iPad.”
But she expressed surprise that “back-end interfaces” weren’t a higher priority in the survey results.
“One of the top things we’re hearing is, ‘We have to figure out this concept of integrating our systems so that they’re all talking, we can get to true omnichannel banking and a 360-degree view, and we can ensure compliance is adhered to and the right guardrails are in place in our financial institution,'” Steele said. “We are hearing improvement of banker experience and efficiency in integration as a top priority.”