ETR Insights presents an interview with the VP & Manager of Data Analytics for a large financial services enterprise, who describes an uncertain pace of technological investment within finance. Any economic recovery will be closely tied to the commercial real estate sector's performance, with attention on how businesses adapt to persistently high interest rates. They touch on inflation's impact on banks, shifts in resource recycling, and significant software price increases, and note the potential of generative AI to augment work and improve skill sets, though they are skeptical AI will entirely transform the industry. Our guest highlights the critical role of real-time streaming analytics in risk management; the conversation includes insights into cloud adoption challenges, security trends focusing on fraud prevention, and the role of low-code vendors in shaping business application development. Read on for more on security best practices within finance and regulatory challenges associated with using AI for customer support.
ETR survey data indicates 3.8% anticipated average IT spending growth in 2024, though our guest remains cautious, noting ongoing increasing interest rate risk in the banking sector and longer approval times for investment or holds on new application features, excepting risk management. “Anything related to risk management, there's an expansion.” Within the cycle, banks are negotiating staff cuts or reassignment and the reallocation of IT resources within organizations. “There are certain areas contracting and others expanding; it seems about flat to me in that regard.”
Economic recovery hinges on the performance of the commercial real estate sector. “It's been residential real estate in the past, but a lot has changed from COVID with commercial real estate.” How businesses react to persistently high interest rates will be telling. Moreover, our guest anticipates increasing wages due to a workforce contraction following COVID-19. “Demographics have moved. The ripple effects of that, between the business closures, will the rents go up or down? Will the entrepreneurs that own those buildings be able to innovate and drive revenue differently in a different way? I don't know.”
Inflation. Inflation affects banks’ net interest margins. “It is the driver of our revenue.” Our guest notes a shift towards more recycling of resources, though the trend is not necessarily significant. “Whereas in the past maybe we'd retire and then purchase something more modern, I'm not seeing that as much.” They’ve also observed meaningful price increases for software, occasionally at odds with increasing competition between vendors. “When I say meaningful, 5% is going to be expected, but I've been seeing 15% increases on various platforms, which can be a big stretch especially on the bigger price platforms.” They do not expect pricing to drop, though rate increases may slow as inflation catches up. Finally, there is a desire across the sector for more scalable and consolidated resources in the cloud, driven in large part by increasing regulatory acceptance of cloud computing.
International Conflict. Ongoing international conflicts have had relatively predictable repercussions on banks’ business. “We've seen different wars or disputes, geopolitical events that just make things unstable. [However], it's mild restrictions on average, compared to what they were in the past. It's really our domestic customers doing business internationally that we're looking at, needing to monitor and enforce whether they're staying compliant with the law.”
Anticipated 2024 Industry Trends. “In the industry that I'm in, a big part of what will drive what's possible versus what's desired is going to be regulation.” In particular, our guest is a strong advocate for generative AI as a tool to augment work, improve skill sets, and facilitate job transitions, reducing the need for traditional mentorship and retraining. “I think that's a slightly different perspective on general-purpose AI. A lot of companies are asking, ‘How can we integrate this into our products, or our customers can ask questions, we could reduce call center time,’ and things like that. It's still questionable whether that will be as helpful relative to the cost of implementation. I think it's internally, with the way staffing can be more agile in their skill sets.” They point to potential regulatory challenges in using AI for customer support, expressing concern over possible inaccuracies in AI responses. While there has been some use of generative AI internally within the bank, it remains tightly controlled. “You never know what someone enters in there, and if they enter something that they shouldn't about one of our clients, you've got to protect that.” He adds that real-time streaming analytics will play a critical role in risk management, particularly in promptly addressing issues like fraud, software bugs, and zero-day vulnerabilities.
Our guest is broadly supportive of cryptocurrency and imagines it could have tremendous ROI long-term, but acknowledges the current gap in infrastructure and technological development required for adoption in businesses. “I'd say that's at least ten years out from even considering potentially broad adoption.” Ongoing prosecution of fraudulent cryptocurrency activity dominates the headlines, but long-term could prove beneficial. “It's setting that floor, that foundation to protect people by having these convictions. I think that will make banks more amiable to considering it, because they will now know the rules that they need to follow to support it.”
Overhyped Trends. “Well, can I contradict myself? Generative AI.” While generative AI will offer significant value, expectations of it leading to general artificial intelligence or causing mass layoffs are overblown. Drawing a parallel to how tractors transformed but did not eliminate farming, our guest believes AI will enhance human productivity without replacing human roles entirely. Referencing another fading trend, this IT veteran sees the metaverse as little more than a different gateway to existing solutions that will not significantly transform finance.
Standout Vendors. As a category, low-code vendors enable business analysts to develop applications themselves, reducing dependency on expensive coders; understanding the business is crucial in application development to avoid costly revisions. “Based on what I've seen, the best approach is to let the business units do the development, then let central IT do all the refinement and sort of industrialization of it, to make sure that it's secure and all those things. Then you get the best of both worlds.”
Our guest praises Microsoft's proactive stance in adopting AI technologies, their focus on creating value over short-term profitability, and their strategic partnerships and market presence. At the same time, our guest thinks some of Microsoft’s offerings “need a little more love and attention that they haven’t touched in a decade.” Microsoft’s low-code offering is perhaps one of those areas; Power Automate, while Microsoft has “made it simple,” cannot compete effectively with leading tools in the market against tools like “Alteryx, Saviynt, Matillion, Encore, Creatio,” and so many other low-code and no-code products. And though they don’t consider it best-in-class, our guest advises employees to learn how to use Power BI. “Learn it because every organization will have it. You're on Facebook or whatever social media you like because your friends are, not because it's your favorite platform.”
ETR Data: According to data from ETR’s January 2024 Technology Spending Intentions Survey (TSIS), Microsoft Power Automate leads the Robotic Process Automation sector in Pervasion and Net Score by a wide margin, followed by UiPath and Automation Anywhere. See also the ETR Observatory on Process Automation, which tracks these vendors and others.
Cloud Adoption. This bank’s cloud adoption is currently below 30%. Our guest appreciates the maturing security feature and significant cost savings from cloud migration, yet pitfalls are plentiful, especially regarding the choice of vendors. They are fortunate to have lowered their costs, primarily via Snowflake, though acknowledge that for many companies this is not always the case. “There's a cost of migration; that's usually the biggest expense. Then they find out they selected the wrong vendor, and now they're stuck with that vendor. Maybe that vendor wasn't the most effective from a cost standpoint.”
Security Trends. Fraud has grown into a multi-billion-dollar concern; the main culprits are social engineering and unauthorized access to account credentials. The industry's strategy has shifted from trying to prevent fraud to reducing its impact, focusing on real-time data monitoring to quickly detect and halt breaches. Our guest advocates for using security tokens. “I have seen [a token] broken once in my whole career. It's been a great security measure.” They also encourage tailoring financial activity limits to individual behaviors, which may involve setting thresholds that trigger additional verification steps for larger transactions.
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Enterprise Technology Research (ETR) is a technology market research firm that leverages proprietary data from our targeted IT decision maker (ITDM) community to provide actionable insights about spending intentions and industry trends. Since 2010, we have worked diligently at achieving one goal: eliminating the need for opinions in enterprise research, which are often formed from incomplete, biased, and statistically insignificant data. Our community of ITDMs represents $1+ trillion in annual IT spend and is positioned to provide best-in-class customer/evaluator perspectives. ETR’s proprietary data and insights from this community empower institutional investors, technology companies, and ITDMs to navigate the complex enterprise technology landscape amid an expanding marketplace. Discover what ETR can do for you at www.etr.ai