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  • Writer's pictureW.B. King

Jack Henry Study Finds Top 2023 Investments: Digital Banking, Fraud/Security and Data Analytics

By W.B. King

Among findings in the fifth annual Jack Henry Strategic Priorities Benchmark Study is that 79% of all financial institutions plan to increase technology spending over the next two years. And of that figure, 35% plan to increase investments between 6% and 10%.

“Digital banking, fraud and security, and data analytics are the top three technology investments planned over the next two years,” the report stated. “Relative to banks, credit unions give outsized priority to investments in artificial intelligence (AI).”

Between January and March of 2023, the Monett, Mo.-based Jack Henry conducted an online survey of CEOs from 118 banks and credit unions across the U.S. with assets ranging from $500 million to more than $10 billion.

Lee Wetherington, senior director of corporate strategy at Jack Henry, and Jennifer Geis, senior strategy analyst at Jack Henry, were lead authors of the report.

Modernize Tech Infrastructure

For the third year in a row, the study found that fintechs remain financial institutions’ “top competitive threat,” but noted that fear has decreased since 2021.

“Banks consider ‘other community financial institutions”’ the second biggest threat, while credit unions point to ‘big banks’ as theirs,” the reported noted. “Banks also named wealth-techs and brokerage firms as important competitive threats in this year’s survey.”

Geis noted that the top priority in 2023 is technology that improves deposit retention and acquisition.

“That means options for automated savings and investments, the ability to receive real-time payments when FedNow launches, and shoring up deposit gaps among Gen Y and Gen Z with early-paycheck access and mobile-only account opening that doesn’t require funding upfront,” she said.

While Wetherington added that improving digital products and services has been the focus over the past few years, “the flux of both 2022 and 2023 has shifted focus down stack to modernize tech infrastructure in service of strategic agility and the real-time data analytics necessary to fight fraud, improve UX, and establish intra-day visibility into balance-sheet KPIs (key performance indicators), including and especially deposit inflows and outflows.”

Strategic Priorities

Over the next two years, the report found that growing deposits (43%), growing loans (41%), and increasing operational efficiency (39%) are the top strategic priorities.

“Forty-two percent of credit unions report leveraging data for strategic insights as their number one strategic priority, while 52% of banks report growing deposits as their number one strategic priority,” the report stated.

When it comes to top three tech spending segments, the earlier noted 79% of respondent plan to invest in digital banking, fraud and security and data analytics. Bank and credit unions respondents also have a desire to focus on the following three niche markets: business, demographic and professional.

“Eight-seven percent of respondents plan to serve a niche market – with businesses as their top priority. Of those that plan to target businesses, 78% are focusing on sole proprietors. Of those that plan to target a demographic, 71% are focusing on age-based segments,” the report continued. “Credit unions are more focused on demographic niches (52%), while banks are more focused on professional (46%), agricultural (44%) and more private banking (31%) niches.”

Fintech Partnerships

In an effort to embrace the public cloud, the report found that one-third of banks and credit unions plan to include a public, cloud-native core in their strategic plans within the next two years.

“Financial institutions with asset sizes of $500 million to $1 billion (45%) and $1 billion-plus (48%) are much more likely to have a public, cloud-native core in their plans,” the report found.

“As banks and credit unions become more knowledgeable of cloud technologies, they also acclimate to the incremental, de-risked migration paths that cloud-native components.”

Almost all financial institutions (90%) polled plan to embed fintechs into digital banking experiences over the next two years, the report stated.

“With 65% planning to embed payments fintechs – no surprise given the new payments rails coming online and open-loop, P2P alternatives maturing,” the report continued. “Credit unions are also looking to embed digital marketing and consumer financial health fintechs while banks are looking to fintechs for help with data collection and analysis.”

Regarding embedding lending in third parties, the report found that credit unions (38%) have a greater interest opposed to banks. Overall, 95% of the CEOs polled plan on enhancing lending solutions in the next two years.

When seeking fintech partnerships, the report found that CEOs use a mix of sources with their top choices being: peer referrals, industry associations, consulting services and core providers.

“CEOs are about 50/50 when it comes to embedding their financial services into non-financial, third-party brands, with payments leading the type of service they’re planning to embed,” the report stated. “But with less than 3% of U.S. financial institutions offer banking-as-a-service (BaaS) and regulatory scrutiny increasing, many CEOs’ plans may be more aspirational than fully realized over the next two years.”


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