US financial institutions are well-positioned for innovation in BaaS, embedded finance, and AI, Finastra research reveals
- Annual global survey shows the US is leading the way in BaaS deployment
- Excitement around opportunities presented by technological and cultural change is high, with 89% of respondents indicating personal enthusiasm around this trend
Lake Mary, Fla. – November 27, 2023 – Finastra’s annual survey reveals that, despite global economic uncertainty, US financial institutions are primed to invest in artificial intelligence (AI), Banking as a Service (BaaS) and embedded finance, striking an optimistic tone for innovation.
The ‘Financial Services: State of the Nation Survey 2023’ finds that US financial institutions are among the most likely to have resumed their technology investments in full already, with almost a quarter of financial decision-makers reporting 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.
Decision-makers in the US are also excited about the opportunities presented by fast technological and cultural change within the industry today. Nearly nine in ten respondents (89%) are personally excited about the pace of change, while 83% are enthusiastic about the opportunities it will bring for their financial institution and 81% for the wider financial services industry.
Key areas of opportunity for the US lie in BaaS and embedded finance, with close to two thirds of respondents (64%) having improved or deployed BaaS in the last year, significantly more than in most other markets. 84% agree that consumers increasingly want their financial services embedded in context, indicating a widespread appetite for embedded finance.
This also indicates a gear shift, as it shows deployment and improvement plans have accelerated, marking 2023 as the year of action for BaaS in particular. Adoption is rising as financial institutions increasingly recognize its importance and wide-ranging use cases in a more fragmented financial services environment.
While US respondents stating they have improved or deployed AI in the last twelve months remains essentially flat with last year at 33%, advances in AI are expected to support the rise of BaaS and embedded finance going forward, adding value to these technologies. For example, 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 growing importance of generative AI also stands out in the research. 76% of US 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%).
The research, conducted from August to September 2023, canvassed the opinions of 956 professionals at financial institutions and banks across France, Germany, Hong Kong, Singapore, Saudi Arabia, the UAE, UK, US, and Vietnam.
Other insights from the US include:
- Creative use cases for generative AI: Collecting, processing, and analyzing data for ESG criteria classifications or decision-making is the most widely cited use case for generative AI in the US, with 42% of respondents stating they are either currently using AI for this purpose or planning to do so.
- Financial institutions are supportive of collaboration: Consistent with last year, organizations are continuing to look outwards rather than inwards.US respondents are particularly supportive of collaboration, with 86% 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.
- Differentiation between ESG and community support: 71% of respondents state that it is important for the financial services sector to support Environmental, Social, and Governance (ESG) initiatives and actively seek to improve 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. This indicates a difference in how US financial institutions view ESG as a whole versus direct local community support.
- The next wave of disruptions may be on its way, or is already here: Many financial institutions agree that more disruptions to the industry are coming, with 87% stating that Central Bank Digital Currencies will shape the future of payments and 76% noting that the Metaverse will soon disrupt the sector. 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 Simon Paris, Chief Executive Officer at Finastra. “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.”
Access the full report and findings here.
- A total of 956 professionals (at managerial level) in financial institutions and banks across the US, UK, France, Germany, Hong Kong, Singapore, Saudi Arabia, Vietnam and the UAE were surveyed. These financial institutions represent a gross total of around USD $33 billion in turnover over the last 12 months, employ approximately 2.4 million staff and have approximately 240 million client / customer / member relationships.
- As a result of rounding up percentage results, the answers to some questions might not always add up exactly to 100%. Respondents were also able to select more than one answer for some questions.
- Comparative analysis was made from results of a similar survey run by Finastra in August 2022 which was also conducted online amongst financial institutions and banks across the same markets, except for Saudi Arabia and Vietnam.
- The research was conducted by Savanta via an online panel (August to September 2023).
For further information, please contact:
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Finastra is a global provider of financial software applications and marketplaces, and launched the leading open platform for innovation, FusionFabric.cloud, in 2017. It serves institutions of all sizes, providing award-winning software solutions and services across Lending, Payments, Treasury & Capital Markets and Universal Banking (Retail, Digital and Commercial Banking) for banks to support direct banking relationships and grow through indirect channels, such as embedded finance and Banking as a Service. Its pioneering approach and commitment to open finance and collaboration is why it is trusted by over 8,000 institutions, including 45 of the world’s top 50 banks. For more information, visit finastra.com.