What will banks' tech priorities be in 2024?

December 22, 2023 3:08 PM

Financial institutions are increasing their tech budgets and honing in on AI in 2024 following a rollercoaster year of bank failures, interest rate shifts and geopolitical unrest.

About three-quarters of banks and finance firms are planning to invest more in technology spending, according to recent research from Arizent, American Banker's parent company.

The research comes from a survey of 314 representatives, primarily made up of leaders, from banks, fintechs, credit unions and payment companies. About one-third of respondents are planning to increase their annual tech spending by 1% to 9%, another third expect a 10% to 19% increase and about 9% of respondents plan to raise their tech budgets by more than 20% from last year.

Here's what Arizent's research showed are the top tech priorities for financial institutions in 2024:

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Tech is shaping banking trends, not the other way around

Of all potential trends impacting banks, including shifts in customer behavior and macroeconomic changes, the most pressing one is emerging technologies. Two-thirds of respondents think AI, machine learning and blockchain will affect the industry the most in the next one to three years.

While shifts in customer behavior topped the list last year, many respondents this year—nearly half—were concerned with fintechs and tech giants changing the competitive environment, as some fintechs continue to grow and major tech companies increase their financial capabilities. For example, Apple and Google have continued to develop their digital wallets and payments products.

Shifting to a digital business model is also a major concern, with about one-third of respondents naming it as a rising trend.

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AI adoption is higher on the to-do list

AI shot to the forefront of technology chatter in 2023, and its trajectory doesn't seem to be slowing down. Almost half of respondents, 43%, listed AI and machine learning as a top tech spending priority, especially among large national banks and payments companies. Last year, only 24% listed the technology as a spending focus.

Financial companies think the top uses for AI are customer service and fraud prevention, although rollout is slow and development is difficult. For example, JPMorgan Chase started using large language models to detect fraud by examining patterns in emails for signs of compromise. Ally Bank piloted a program to transcribe and summarize customer service calls.

Still, about one-quarter of banks said they weren't sure of or didn't see a benefit to using AI. Banks listed a shortage of data scientists as the primary barrier to AI adoption, which is especially relevant for smaller banks. JPMorgan reported in May that it had hired 900 data scientists, 600 machine learning engineers and 200 AI researchers to execute its technology initiatives.

Three-quarters of respondents said that although AI will change the nature of jobs, it won't replace them, but 20% said many jobs will likely be replaced in the industry by the technology.

Data is still king

Around half of respondents said data and analytics are top tech spending priorities, similar to last year's survey.

Cleaning, analyzing and using data has been a focus for banks looking to create more personalized experiences for customers, market more efficiently and enhance productivity internally. Data and analytics are key to most banks' innovation strategies, according to Arizent research, and some banks have been managing data strategies through hiring. For example, Comerica tapped a former Meta leader to run "democratize data."

Many banks have increased their appetite for cloud technology, which can be used to pool large amounts of data in useful ways. About one-third of respondents listed cloud-based architectures as a top tech focus in the Arizent study. For example, U.S. Bank has amplified its upskilling for cloud platforms since its $600 million investment in Microsoft Azure last year.

Cybersecurity is a constant concern

As check fraud is on pace for a record year, fraudsters' use of AI is rising and ransomware remains a top concern, nearly half of respondents listed enhanced fraud mitigation as a major spending area for their tech budgets. Regulators are also continuing to develop and roll out guidance on cybersecurity, especially focusing on new threats introduced by AI.

Banks cite cybercrime as the biggest threat to their digital strategies, according to Arizent research. Companies have increasingly begun using AI for anti-money laundering activities, automating filters for phishing messages and using computer hackers to find bugs in their systems.

After the banking crisis in the spring, many banks also started increasing their risk management technology budgets, looking to spend more on in-house and in vendor contracts to monitor their balance sheets and quickly address any threats to their liquidity and operations, including fraud mitigation.

Mobile apps are never ‘done’

Having a mobile app is table stakes for banks these days, but one-third of respondents listed the technology as a spending priority for 2024. Functionality is assumed, but banks try to stand out through designs that represent their cultures, customized features for users and added services like gamified savings options and financial planning.

Research from J.D. Power shows that regional banks especially lag behind larger banks on their mobile app offerings. The survey found that tools like credit score monitoring and budgeting helped improve customer satisfaction. Banks that offer savings tools in mobile apps could also increase deposit volumes in a competitive environment.

At Ally Financial, customers who used its savings tool saved twice as much as customers who didn't. Wells Fargo developed a financial management tool in its app earlier this year to ease conversations between wealthy customers and financial advisors.

Financial institutions are focusing more on, and investing more in, UX and UI design, color schemes and individualizing experiences.

Truist launched a gamified finance app, which it acquired last year, in efforts to enhance engagement and savings among Millennials and Generation Z users.

However, Citigroup CEO Jane Fraser said in March, following the collapse of Silicon Valley Bank, that mobile apps were a "game changer" for facilitating the run on the California bank. She added that the speed mobile apps offered change the way companies and regulators can respond to bank runs.