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  • Writer's pictureW.B. King

Finastra Survey Finds FIs Plan to Further Invest in AI, BaaS and Embedded Finance

By W.B. King


Nearly two-thirds (64%) of financial institutions polled in Finastra’s 2023 Financial Services: State of the Nation Survey have either deployed banking as a service (Baas) solutions or improved existing technologies over the last 12 months.


“BaaS and embedded finance have grown in significance over the last year, with financial services organizations adopting them in far higher numbers,” the report stated. “BaaS deployment has jumped globally by 37% year-on-year.”

The Lake Mary, Fla.-based Finastra, a global provider of financial software applications, including its FusionFabric.cloud platform, surveyed 956 managerial-level professionals at financial institutions and banks across the U.S., U.K., France, Germany, Hong Kong, Singapore, Saudi Arabia and Vietnam. The research was conducted by Savanta via an online panel from August to September 2023.


Despite an uncertain economy over the last few years, the report found that U.S. financial institutions are most likely to have fully resumed their technology investments already, with nearly 25% of financial decision-makers noting that that “normal investment levels in technology and digital banking” have returned.


“Those in the US (44%) are also much more likely than in all other markets to say constraints to investment have lasted less time than expected,” the report stated.


The survey also identified that U.S.-based FIs have areas of opportunity both in BaaS and embedded finance. “Eighty-four percent agree that consumers increasingly want their financial services embedded in context, indicating a widespread appetite for embedded finance.”


While artificial intelligence (AI) solutions deployed over the last 12 months was nearly identical to this time period in 2022 at 33%, the report noted that advances in AI are “expected to support the rise of BaaS and embedded finance going forward,” which, it added, will create additional value to these technologies.


“Financial institutions can leverage AI at the front end for a better customer experience in BaaS. Additionally, its use in embedded finance can support credit decisions and fraud detection, the report continued. “The growing importance of generative AI also stands out in the research. Seventy-six percent of U.S. respondents say their institution is interested in the technology, whether that means it is already fully implemented (19%), being researched or trialed (32%), or is something of interest yet to be installed (25%).”


ESG AI


Among other findings in the report was that 42% of respondents stated that they are either currently using AI or will in the future to assist in the collecting, processing and analyzing data for environmental, social, and governance (ESG) criteria classifications or decision-making.

Seventy-one percent of respondents, for example, stated that it is “important for the financial services sector to support ESG initiatives” and are actively seeking more engagement in this space.


“However, a higher total of 82% say that the financial services and banking sector is about more than just finance, and institutions have a duty to support the communities they serve,” the report offered. “This indicates a difference in how U.S. financial institutions view ESG as a whole versus direct local community support.”


Building on this premise and consistent with last year’s findings, the report also found that US -based FIs are particularly supportive of collaboration outside of their organization. “Eighty-six percent stating that the benefits outweigh its costs and that it has made business more efficient. Further, 88% agree that collaboration has been a driver for success, pointing to a significant embrace of Open Finance.”


Keeping a Keen Eye on Disruptors


Executives polled are notably concerned about disruptors in the industry. Eighty-seven percent stated that Central Bank Digital Currencies will “shape the future of payments” and 76% said the Metaverse “will soon disrupt the sector.” And consistent with the survey’s main findings, 81% agree that generative AI is the next big disruptor.


“Despite the challenging economic climate, it’s clear from our research that investment in AI, BaaS, and embedded finance remain key priorities for financial services organizations over the next 12 months, particularly as they seek to further enhance and personalize the customer experience,” said Finastra’s CEO Simon Paris. “We share the industry’s ongoing commitment to ESG initiatives, to collaboration around Open Finance, and excitement in using advanced technologies like AI to help deliver on the opportunities ahead.”



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