With digital demand and tech awareness rising sharply, banks should keep new disruptions in mind as they strike a balance between legacy processes and new automations.

Automated lending and cloud-native capabilities are chief drivers of transformation in U.S. retail banking, but some areas continue to lag. As fintechs and challenger institutions disrupt business functions, including deposits and open payment networks, banks have been slow to adapt, Peter Sidebottom, senior managing director at global IT consultancy Accenture, told Bank Automation News.

“I think large financial institutions — and financial institutions in general — are reticent to be an outlier in a regulated environment,” Sidebottom said. “It’s always hard to be the first mover on some of these innovations and that’s something that fintechs have really helped.”

While elevated profiles and massive asset sizes may prevent banks from being first to market in risky innovation areas, consumer demand and shifting financial ecosystems can facilitate market uptake of these processes.

“When consumers see the convenience of real-time balance checks or using their device to actively manage finances, as opposed to having to wait for batch changeovers in payments and deposits, you’ll start to see real take-up,” Sidebottom added.

Open payment networks

The gap between Europe and the U.S. in open and real-time payments is not surprising, as market fragmentation stretches back to the foundations of the U.S. banking system.

“The structure of the US market, particularly when it comes to regulatory and banking structure, has always been fragmented, and that goes back to the founding of the country,” Sidebottom said.

Top-down intervention into banking and payment systems, like those in China and the Middle East, has not been enacted in the U.S., slowing adoption of real-time and open-loop systems between providers.

However, recent developments have enabled change.

“We see many companies taking individual initiatives, with some even collaborating across the ecosystem,” Sidebottom said. Embedded payment infrastructures have also taken root, Boyce Adams, senior vice president at accounts payable fintech AvidXchange, told BAN.

“Embedded payments enable payment processing within a singular software solution, streamlining the customer experience in secure manner — something buyers are looking for.”

Sidebottom predicts a major player to take the open networks leap, with the market following close behind. Although banking is an “inertia” market with strong resistance to change, a large institution embedding its processes and payments into an open financial ecosystem will rouse mass adoption.

“There’ll be a large card company or bank that will start the drive toward open systems,” Sidebottom said. “Others will follow fairly quick, because consumer and company benefits are significant.”

Deposits and cash flow

Many banks have found a niche in digital lending solutions, adopting the space as an innovation pipeline while losing sight of deposit and cash flow.

“We saw lots of innovation in the last five to 10 years in the extension of credit,” Sidebottom said. “This includes loyalty programs, credit card designs and affinities and buy now, pay later (BNPL). However, there has been almost zero innovation in product or experience in the way that you manage your deposits and cash flow.”

Sidebottom expects banks to follow the lead of institutions like $3.75 trillion JPMorgan Chase and fintechs like Wealthfront and Personal Capital, taking advantage of rising interest rates to provide high-demand deposit, savings, and investment capabilities.

“A rising rate environment is a disruptive force, and we will see much more innovation and adaptation by the banks and challengers who want to get into the space,” he said.

Bank Automation Summit, taking place March 1-2 in Charlotte, is the first and only event to focus solely on automation in banking. The event will feature the brightest minds from across financial services on intelligent automation strategies and deployment. Learn more and register here for Bank Automation Summit 2022.