Outdated Technology Preventing Banks from Investing in Disruptive Technologies

The rise of fintech and regtech startups has opened up new possibilities for the finance industry, shaking up traditional ways of thinking and completely reshaping financial services as we know it. New technologies, such as big data analytics and artificial intelligence (AI) can completely transform financial institutions, increasing efficiencies and improving client life cycle management (CLM).

However, not all banks are getting on board. A recent survey showed that legacy infrastructure is preventing one in five banks from investing in new, disruptive technologies. Many banks are feeling left behind in the midst of technological innovation. The lack of investment in new technology, coupled with maturing infrastructures, creates barriers to digital transformation. Instead, banks end up stuck with old, manual processes, which negatively impacts operational efficiency, client experience and, perhaps most urgently, a bank’s regulatory compliance positioning. And it negatively impacts the bottom line too; banks can end up spending 80 percent of their budgets on maintaining and upgrading legacy technology solutions.

The same study also showed that 33 percent of those surveyed have not invested in any technology to improve client onboarding at all, despite almost every single respondent (99 percent) agreeing that underinvestment in technology directly impacts client onboarding and retention.

Big Data Analytics and AI

For the banks experimenting with new technologies, big data analytics and AI are proving most popular. Big data enables large and varied data sets to be mined for hidden patterns, unknown connections, new market trends and customer preferences. The outcome helps financial institutions and other firms to make more informed business decisions and better tailor products and services to customer requirements.

When it comes to know your customer (KYC) procedures, AI can speed processes through intelligent document scanning, sifting quickly through a vast array of external data sources, and then create a risk profile that it will keep current throughout the client life cycle. In anti-money laundering (AML), AI can not only reduce the slew of false positives, but also enhance alerts with additional data and potentially recommend next steps.

The Way of the Future

The potential gains from bringing these technologies together are enormous. By investing in these new technologies, financial institutions can have a flexible, scalable, information-based endoskeleton, which will enable them to change and evolve instead of being stuck inside a hard shell of legacy technology.

By tapping into APIs, financial institutions can build powerful customer ecosystems without the need for a complete “rip and replace” of older systems. It can also integrate with new fintech and regtech offerings, which can feed off and enrich the data flowing around the system, finding solutions that are beyond the capacity of older systems. To build this ecosystem, the most logical way of connecting systems is with a suite of powerful, secure and well-documented APIs.

Despite the fact that financial institutions can improve operational efficiencies by partnering with fintech and regtech providers, 67 percent had still not taken that step. Collaboration with disruptive regtech and fintech providers is a crucial move for financial institutions seeking to automate the flow of data and streamline compliance processes while digitally transforming customer experiences.

There is no questioning the fact that financial institutions must adapt and innovate or be left behind. The prevalence of decades-old technology makes this process less linear than one might imagine. To keep up with a digital-first client base, financial institutions must take a hard look at their technology stack and see how they can work with it – or rather, work around it. A flexible, configurable digital solution with a strong client-centric focus can help bridge the gaps and enable financial institutions to transform how they do business and maintain their competitive edge.