With the rise of online banking and fintech start-ups, banks must harness emerging technologies in order to create their own digital ecosystems and keep pace with their competitors, according to a new report from Economist Impact, commissioned by Temenos.
The report, “Byte-sized banking: Can banks create a true ecosystem with embedded finance?” presents insights from a global survey of 300 executives in retail, commercial, and private banking. Notably, it found that new technologies will have the biggest impact on banks in the next five years – more than customer demands and evolving regulation.
More than 71 percent of survey respondents see unlocking value from artificial intelligence as a “key differentiator between winners and losers,” according to the report. Additionally, 75 percent expect generative AI to have an impact on banking.
“The use cases of AI in banking are plenty, from the front-end, such as greater customer personalization and digital marketing, to the back-end, such as customer fraud detection, product development and regulatory compliance,” the report says.
“In response, many big banks are beefing up their innovation teams with AI talent,” it adds. “JPMorgan Chase alone advertised 3,651 AI-related roles between February and April 2023, and 30 percent of job ads from European banks during that time period made reference to AI.”
Aside from AI, banks are also looking to shift their applications to the public cloud. Fifty-one percent of respondents agree that banks will no longer own any private data centers after moving to the public cloud.
Public cloud storage typically has lower carbon emissions than private data centers, so moving to the cloud is also helping banks to reduce their carbon footprint.
“If you do not have modern technology, younger generations will not bank with you, it doesn’t matter how long you’ve been around,” according to one bank CEO quoted in the report.
In a similar vein, 38 percent of banks foresee acting as a true digital ecosystem themselves.
“Banks need to tap expertise in new technologies like cloud and AI as well as collaborate with fintechs and technology companies to offer embedded finance as well as to build digital ecosystems,” said Kanika Hope, chief strategy officer at Temenos. “The case for the public cloud is becoming more apparent, 51 percent of respondents agreeing that banks will no longer own any data centers due to the move to public cloud in next five years. Environmental concerns have also joined the list of reasons – business agility, efficiency and security – why banks are accelerating the shift to the cloud.”