Despite the importance bank executives place on innovation, a significant number believe their banks lack the technology to invest in disruptors. Indeed, in a study released by Fenergo, the client lifecycle management software company, one of every five C-suite executives don’t think their bank’s technology allows them to invest in disruptive innovation.

Greg Watson, the head of corporate and institutional banking at Fenergo, spoke with Bank Innovation about some of the resistance to new technology he sees in his work. He also spent seven years at HSBC and has experienced some of these challenges firsthand.

Perhaps the biggest challenge when it comes to innovating, according to Watson, is the fear of regulations. “Don’t underestimate how nervous you would be when you’re in the seat of some of these banks,” he said. “When you’ve got that level of pressure about having to meet the commitments that are related to financial crimes, you’re ability to take enormous bets is limited.”

Meeting the high standards of regulators always takes top priority, and financial institutions end up putting technology upgrades on hold. The expensive cost of the original legacy software, some of which can cost up to $100 million, doesn’t make an upgrade any more appealing.

So what does convince most banks to ditch old software?

“The only reason they are able to do that generally is because of a change of management or some sort of seismic event,” Watson said. “Maybe that seismic event is something like a significant regulatory fine.”

Fenergo obviously benefits from financial institutions feeling that their software is outdated, so a certain amount of skepticism around this survey is healthy. However, Bob Meara, a senior analyst at research and consulting firm Celent, also notes there is a lack of technology upgrades at many financial institutions.

Celent’s work focuses specifically on financial services technology, and Meara has noticed one distinct trend. “Larger banks are way ahead of community financial institutions – and will likely continue to be,” he stated in an email to Bank Innovation.

In his work, Meara finds that community banks lack the big-picture view of larger banks and don’t notice the rapid technological changes happening. That is because, although community banks represent the majority of US financial institutions, they tend to focus solely on their own customers. “For many community bankers, perception is quite different,” he stated. “By the time they see these massive changes in their own client base, it may very well be too late for them to react.”

The Fenergo study, which surveyed 250 bank executives around the world, revealed other perceived shortcomings in banking when it came to innovation. In total, 67% of the executives say their bank doesn’t work with a regtech or a fintech to improve efficiency, and 33% don’t use technology to improve onboarding. The study also found that 74% of executives say data management isn’t prioritized.

Watson sees the biggest need for technology upgrades in compliance and financial crime prevention. He cautioned, however, against upgrading just one aspect of banking technology.

“It’s like whack-a-mole,” Watson said. “Done in isolation, it probably doesn’t do the job and check all the boxes.”