FIs Struggling With Old Tech, No Strategy in Innovation, Study Says
The vast majority of financial institutions are increasing their investments in innovation, but legacy technology, lack of a defined innovation strategy and other obstacles aren't making innovation easy, according to a new study.
The research, which surveyed credit unions, large banks, community banks and other financial institutions around the world, found that the proportion increasing innovation investment dropped from 84% in 2015 to 78% in 2016 and increased slightly to 79% in 2017.
“It is interesting to note that the number is relatively the same across all geographic and sizes of organizations,” the research noted. The number of smaller organizations in the 2017 study rose, yet the numbers remained consistent, it said.
However, many financial institutions appear to lack innovation plans or leadership. Half (50%) of respondents said their financial institutions did not have a clearly defined innovation strategy. In addition, 51% didn’t have a chief innovation officer or someone with a full-time job of working on innovation, though 12% said they planned to add one in the next 18 months. Larger financial organizations were more likely to have a clear innovation strategy, it found.
Financial institutions have to jump over several hurdles in the innovation process, according to the research. On average, according to the respondents, the toughest part of the innovation process is integrating systems. Dealing with legacy technology, as well as the time and cost to go from concept to reality were also big challenges. Budget constraints, culture, priorities and lack of skills followed.
Financial institutions also reported big challenges — and changes to those challenges — in the digital transformation work that often fuels innovation. In 2016, for example, respondents said the biggest barrier in this area was legacy technology, lack of unified vision and not enough skills and experience.
“In 2017, there was a shift in many of the digital transformation priorities, with digitizing processes for products and services being ranked as 5.35 on a 7-point scale. Reflecting the current cybersecurity environment, enhancing digital security was the second-highest-rated digital strategy, compared to being a mid-ranked strategy in 2016,” the report said. Improving the customer journey fell from its number-one position.
Big threats not limited to fintech
Established tech companies such as Google, Apple, Facebook and Amazon were significant competitive threats for half the respondents, according to the study. Fintechs came in second, with 48% of respondents considering them significant threats. Only 35% cited challenger banks and 34% said traditional banks were significant threats.
Larger organizations were more likely to say they plan to invest in blockchain technology, though smaller organizations did not see it as a major priority, according to the study.
Most advanced technology investments now focus on security, data analytics and open banking
“When financial services executives were asked about the timing of impact of various technologies, it was not surprising that the time correlated with the prioritization of investment. The technologies that are currently having an impact were related to cybersecurity (61% believed the impact was immediate), cloud processing (34%), advanced analytics (33%) and mobility/wearables (29%),” the study noted.
“Being a leader in innovation and emerging technology is no longer a luxury only for the big players. It is important for all financial organizations to make innovation and emerging technology a ‘core competency,’ with engagement throughout the organization (not just the very top),” the study said.