As it undergoes a core upgrade, builds on its digital banking services and continues to increase technology spend, Fifth Third Bank is targeting competition from fintechs and larger banks with a key advantage: its brick-and-mortar assets.

“Our objective is to go head to head with the fintech players, the large bank competitors that we have to deal with, and be very successful,” Fifth Third Chairman and Chief Executive Officer Greg Carmichael said Monday during the bank’s third-quarter earnings call.

“When you think about the fintech players that are out there … we’ve got the same capabilities, we’ve got our products like Momentum,” he said, referring to the $203.9 billion bank’s new digital banking service. “But we’ve also got 53,000 free ATMs, 1,100 banking centers and 10,000 service personnel that they don’t have, and we’ve got the core relationships.”

Launched in late April, Momentum Banking offers online account opening and savings and checking accounts, with features such as optional advances on direct deposits and instant funds availability on deposited checks.

The Cincinnati-based bank‘s technology and communications expenses for Q3 were $98 million, up 10% from $89 million in Q3 2020. Fifth Third also noted a $4 million increase from Q2 2021 in noninterest expenses, which partly went to marketing expenses for Momentum.

Increasing technology spend by about 10% year over year “is probably the right number for us; that’s not cast in stone,” Carmichael said. He noted that the bank is focused on positive operating leverage, which the tech spending will support.

“Some of that tech spend is going right to process efficiencies,” Carmichael said on the call. “We’re able to take out 200-plus additional people [as well as] branch closures and things we’re working on right now … that support that positive operating leverage, and we’ve continued to grow fees at a really robust rate close to 10% [continuous annual growth rate] over the last couple of years.”

Core upgrade

Carmichael alluded to the core platform upgrade Fifth Third is undergoing, shifting from a custom-core legacy system to the FIS Modern Banking Platform core banking solution.

“Think about the core platform modernization, [where] we talked about [being in] the fourth or fifth inning. I think of it more as a cricket test match,” he said, referring to test cricket, a form of the sport where two teams play a highly challenging match and endurance test that can last up to five days.

“It’s been going on, and it’s going to continue to go on for quite some time. We’re going to have to deal with that,” Carmichael said. However, he noted that system upgrades will be done “in a very systematic way” by geography and product lines, rather than a “Big Bang approach.”

“You’ll have dual system platforms that are going to run simultaneously till we get all markets, all products converted over, in the case of some of our major implementations coming up like our core deposit platform,” Carmichael said.

“But day-to-day, we should be a lot more efficient,” he added. “We should be able to bring more enhancements and a different case forward to our business; we should be able to continue to take out costs through our lead process automation and our investments in [artificial intelligence] technology.”

Fifth Third reported net income of $704 million for Q3, a 20% increase from net income of $581 million YoY. Total revenue for Q3 was $2.0 billion, 7% higher than revenue of $1.9 billion for Q3 2020.

Fifth Third [Nasdaq: FITB] shares closed at $45.59 at 4 p.m., up 3.78% from market open.