Postgame with Amount: Experience FinXTech

Revolutionizing Banking: Insights and Innovations from Experience FinXTech 2024

Technology is an integral aspect of modern-day banking, and fintech companies have become crucial to a financial institution's success. This year’s Experience FinXTech agenda facilitated conversations around the relationship between fintechs and financial institutions - the implications of technology on the industry, key trends and challenges, and how to get the most out of today’s technological advancements. 

Here's a recap of the top three takeaways from the event that highlighted the future direction of technology in banking:

1. State of the Industry

The conference kicked off with a "State of the Industry" session that provided a comprehensive overview of the current landscape in community banking. Key points included:

• Macroeconomic and Regulatory Conditions: The economy has shown resilience, with no immediate signs of recession according to RSM’s recession tracker. However, recent macroeconomic data suggests a cautious outlook on rate cuts, with potential delays into the second half of 2024. The new neutral rate may run between 2.5% to 3% or higher. On the regulatory front, new proposals are influencing banks’ growth strategies, particularly regarding mergers and acquisitions. Institutions are also focusing on protecting themselves from various risks, including fraud and cybersecurity.
• Enhanced Customer Experience: The competitive advantage in banking now heavily relies on providing frictionless, 24/7 mobile app experiences for both retail and commercial banking. Banks are zeroing in on reducing process friction to improve the customer experience, with a particular emphasis on quick wins that provide speed to value and flexibility. Institutions are also developing new offerings to meet the evolving demands of different customer generations.
• Technology and Data Expansion: Banks are increasingly adopting automation, data analytics, and AI to drive efficiency and decision-making. To do this, they're leveraging both internal and external data analysis tools to drive behavior, enhance predictability, and automate processes. The trend towards low code/no code projects is shortening project lifetimes and reducing reliance on third parties. There is cautious adoption of generative AI and large language models (LLMs) to enhance productivity and reduce time-to-market for deliverables. Banks are leveraging data analytics to make real-time, data-driven decisions that improve institutional performance. These tools help uncover patterns and trends, enhance decision-making, and align finance and operations more closely.
• Workforce Dynamics: With a tight labor market, banks are devising innovative strategies to attract, retain, and organize their workforce while adopting automation to enhance productivity and achieve more with less.
• Embedded Financing: There’s an increased interest in Banking-as-a-Service (BaaS) and embedded financing to support customer acquisition and revenue expansion. 

By addressing these drivers, banks can better navigate the complexities of the current financial landscape and position themselves for future success.

2. Unveiling Key Banking Trends and Challenges

A panel featuring First Internet Bank, US Bank, and Atlantic Union Bank shed light on current banking trends and challenges:

First Internet Bank has always relied on partnerships for its technology needs, using hundreds of different fintech providers without having an in-house development team. They engage in SaaS and revenue-sharing partnerships, employing a Request for Proposal (RFP) process and conducting demos with potential partners.

US Bank partners with venture capital firms to discover fintech solutions, using around 40% enterprise tech from their partnerships. They emphasize defining partnerships through a network that identifies problem-solving companies. Business units have the autonomy to choose technology partners, supported by a streamlined selection and due diligence process, including sandbox environments for testing.

Atlantic Union Bank has a dedicated innovation area to address service gaps via fintech partnerships. They use a formal RFP and prioritization process, centralized decision-making, and a focus on avoiding redundant technology investments. This structured approach has led to significant operational improvements, including an 80% reduction in downtime through successful fintech integration.

Panelists also discussed why many fintech partnerships fail to significantly impact organizations. Misalignment between parties, a lack of end-to-end process understanding, and improper strategic alignment were cited as key reasons. Success stories, such as US Bank’s partnership with Atomic Financial for deposit switching, highlighted the importance of matching fintech capabilities with institutional needs.

3. Embracing AI

A dedicated panel discussed best practices for financial institutions looking to integrate AI. Here are the high-level recommendations:

• Start with a Use Case: Identify a specific use case, develop a strategy around it, and select technology that already incorporates AI to support this strategy.
• Low-Risk Projects: Begin with low-risk projects such as customer service enhancements or content generation to achieve quick wins and build internal support for AI initiatives.
• Partner, Don’t Build: Rather than building AI solutions from scratch, financial institutions are encouraged to partner with vendors who are already leveraging AI effectively.
• Data Integrity and Governance: Ensure that data integrity is robust with appropriate governance in place, given the rapid evolution of AI technologies.

Financial institutions must adopt a strategic approach to AI implementation to drive meaningful growth and efficiency. Leadership support is critical, with CEOs and CTOs playing a pivotal role in pushing AI initiatives that require retooling organizations and dedicating resources to data structuring, AI tools, and staff training. For effective AI adoption, it's essential to align AI projects with the institution's strategic priorities and ensure cross-functional collaboration for centralized decision-making and coordinated efforts.

Many banks, like Valley National Bank, have successfully set up cross-functional groups to lead their AI initiatives. These groups prioritize use cases, oversee vendor due diligence, and manage AI project implementation. They focus on technologies that enhance customer experience, build trust, and increase operational efficiency. The success of AI projects also hinges on starting small, identifying and prioritizing projects carefully, and managing risks associated with AI use.

The Future of Banking

Experience FinXTech 2024 underscored the transformative potential of technology and fintech partnerships in modern banking. Key insights included the importance of macroeconomic awareness, regulatory considerations, and enhanced customer experiences. Successful fintech collaborations, as demonstrated by First Internet Bank, US Bank, and Atlantic Union Bank, require strategic alignment, thorough due diligence, and a structured approach to technology integration. The discussions also highlighted the strategic implementation of AI, emphasizing a use-case-driven approach supported by robust data governance and executive leadership. As banks navigate the evolving financial landscape, prioritizing customer-centric strategies, leveraging data analytics, and embracing fintech partnerships will be crucial for sustained success.