New report looks at need for innovation among financial institutions

A new report on innovation in the financial sector found that establishing a tech-driven organizational culture is imperative for financial institutions for survival.

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A key finding of the report, conducted by Arizent, the parent company of trade publication American Banker, is that fintech and startup investments and acquisitions are on the rise in the financial sector. In fact, it is one of the most common innovation programs currently in use as 31 percent of banks reported that they have a fintech or startup investment program compared to 13 percent saying the same last year.

“Banks are recognizing the need for strategic alignment, which goes beyond just tech adoption,” Janet King, vice president of research at Arizent, said. “This means financial institutions need to shift toward a tech-driven organizational culture — one that prioritizes innovation, aligns it with technology and leverages fintech collaborations.”

Additionally, only 40 percent of banks strongly agree that their organization’s technology roadmap is aligned with key areas of innovation. This could be a potential missed opportunity for many banks.

Despite substantial investment in technology and innovation programs, a gap persists between some of the technologies that financial institutions see as critical and the tech they have actually implemented.

Respondents also said that culture and resourcing are the primary barriers to innovation at financial institutions. In fact, two in five cite limited resources as the primary block for efforts to drive innovation.

“Addressing this shortcoming demands a fundamental shift in company culture,” King said. “Deliberately pursuing mergers and acquisitions, fintech investments and joint ventures can be a successful strategy, but it requires the organization to be ready to collaborate effectively in these new relationships.”

The data comes from an online survey conducted in July 2023 of people who work for financial institutions – that is, credit unions and banks, not financial technology companies — and insurance companies or carriers. A total of 179 U.S.-based respondents completed the survey, of which 110 were financial institutions and 69 were insurance companies or carriers. Of the 110 financial institutions surveyed, 77 percent were banks and 23 percent were credit unions.