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In the world of banking, the movement toward digital transformation is crucial for banks and credit unions to support the evolving needs of consumers. Cornerstone Advisors' 2022 report paints a picture of an industry at the crossroads of technological adaptation. At Mozrt, we acknowledge this transformation's challenges, recognizing that it's not just about adopting technology but fundamentally reshaping strategies to align with modern consumer expectations and industry standards.
Financial institutions are struggling to modernize, held back by archaic systems that are 30 to 50 years old and cumbersome red tape. While this has always been the case, it’s even more evident now that most banks and credit unions that have committed to digitization in some form have set the bar way too low. Modern, by their definition, is old news to the modern consumer who conducts transactions instantly online daily. What we’ve seen in past years are financial institutions trying to work from within, setting goals and gradually pushing towards modernization, or–alternatively–partnering with big players in the tech space to share the load. For too long, financial institutions have faced the decision of doing things the way they’ve always been done and losing customers or committing to drastic, expensive, slow, and incredibly difficult transformations.
Much of what we do is focused on supporting banks and credit unions in digitizing their systems with ease and efficiency. Here are some key facts and figures surrounding today’s journey toward modernization for banks and credit unions:
Fintech Partnerships and Evolving Priorities
A massive shift in priorities among financial institutions was noted in the report, specifically the increased emphasis on fintech partnerships. The surge in percentages—tripling for banks (from 5% to 15%) and growing for credit unions (from 9% to 23%)—proves that banks and credit unions are increasingly aware of their limitations and how impactful tech-focused partnerships can be. While tech adoption is slow among financial institutions, it’s clear that interest is growing, indicating a more tech-forward future for the institutions that are recognizing the potential impact of fintech partnerships.
Incremental Technology Spending
While a quarter of banks and credit unions planned to boost their tech spending by over 10% in 2022, the majority opted for modest budget increases between 1% and 10%. This deliberate and gradual approach toward investing in technology might inadvertently hinder swift technological advancements crucial for meeting consumer demands in today's fast-paced digital environment. A bolder investment strategy could accelerate the much-needed transformation.
Slow Embracing of Emerging Technologies
The delay in integrating emerging technologies like cloud computing, APIs, chatbots, and machine learning into operational frameworks is obvious. A considerable portion of institutions are either in early discussions or have yet to incorporate these innovations, showcasing a systemic hesitancy to embrace technological leaps that could significantly enhance operational efficiency and customer experiences. The slower uptake of these innovations might impede institutions' growth and contemporary clients' uptake.
New Systems Integration and Reluctant Progress
Despite acknowledging the need for modernization, institutions' pace in implementing new systems remains sluggish. Digital account opening and loan origination systems top the priority list, signalling recognition of the need for streamlined processes. However, the apparent sluggishness in execution reflects the challenges of transformation within legacy systems, contributing to a prolonged transition phase. A more proactive approach in executing these transitions is imperative to overcome the hurdles and expedite progress.
Digital Transformation: A Slow Journey
Credit unions took an early lead, launching digital transformation strategies before banks. However, by the end of 2022, the progression had been shockingly slow. Only 11% of banks and a mere 4% of credit unions hadn't initiated their digital transformation strategies. Moreover, only 5% of financial institution executives claimed to have completed or nearly completed these strategies by 2022. This delay in fully embracing digital transformation indicates institutions' complexity and challenges in navigating this transition. Further, it shows that while these things may be on their priority lists, they are struggling to carve out time and resources to actually do the work necessary. Unfortunately, few financial institutions have the experience or expertise to move toward digitization efficiently. This is why fintech partnerships are more crucial than ever.
An Appalling Pace of Progress
Institutions that started their digital transformation strategies in 2021 showcase a disappointing pace of advancement. A mere 11% are three-quarters of the way through, with an additional 3% nearing completion—depicting an unexpectedly sluggish pace that simply isn’t acceptable in today’s digital eta. This sluggish pace calls for a reassessment of strategies and approaches to expedite transformational efforts.
This slow pace in fully embracing digital transformation, evident in the slow adoption of key technologies and the gradual progress in executing strategies, poses a significant challenge for banks and credit unions. The disparity in advancement rates highlights a systemic issue impeding the industry's transition to a more digitally-driven future.
At Mozrt, as proponents of fintech innovation, we recognize the complexities and barriers financial institutions face in this transformative journey. We aim to collaborate with banks and credit unions, offering solutions and support that expedite digital transformation, paving the way for a future-ready financial ecosystem that meets the demands of the modern consumer landscape.