October 18

Another earnings cycle, another opportunity to peek behind the curtain and see how the biggest US financial institutions are thinking about their technology strategies. While Q3 has been a mixed bag for bank earnings overall so far, execs touted their tech progress and investments as bright spots – and hinted that the economic climate might provide opportunity for acquisitions.

Big banks love to snap up technology firms to help them launch new features or become more efficient, and there could be a buying spree on the horizon, according to Morgan Stanley: 

The $1.4 trillion-asset bank expects a “washout” of fintech valuations followed by a wave of consolidation, CEO James Gorman said during the Q3 earnings call. Answering an analyst question about potential M&A, he commented on tech’s valuation crash and highlighted the bank’s areas of interest: “We have enormous technology requirements to support cyber and stop client fraud, and data control and management, and so on. Consolidation is the key word.”

Tech spend is “the fastest-growing part of this firm,” he added, “But that’s good because it’s displacing things we would be doing manually, which we shouldn’t be doing manually – so I’m perfectly happy to see our tech spend go up.”   

JPMorgan and Bank of America are in the same boat: Chase CEO Jamie Dimon said that the $3.8 trillion-asset bank wasn’t slowing down its hiring or tech spend, even as he warns of a potential recession. The bank’s tech expenses increased 4% year-over-year to $2.3 billion in Q3. Brian Moynihan, CEO of $3.1 trillion-asset BofA, also lauded how his bank’s tech progress has helped it invest in its people, marketing, financial centers, and more technology: “What allows us to help pay for these investments are the operational process improvements we’ve talked about and the increased digital adoption rates by our customers.” 

But it’s not just internal tech driving growth: $591 billion-asset US Bank inked 2.5 times the number of “tech-led partnerships” so far in 2022 than it did in all of 2019, according to CFO Terry Dolan during the bank’s earnings call. These partnerships are driving revenue and “continuing to grow,” he added, while the bank’s other digital initiatives are “both deepening our core competencies and expanding our competitive advantage, which we believe will drive meaningful profit.” 

Authorized push payment scams – where victims are tricked into sending money to criminals under false pretenses but of their own accord – are a growing problem. Banks are testing biometric technology to help flag unusual customer behavior.

A new report from the Global Anti-Scam Alliance found that scams increased by 10.2% globally in the past year, reaching 293 million reports and leading to a record amount of money lost by victims. (The study also notes that this underestimates the total problem, because scam reporting remains low.)  

Much of this fraud involves authorized push payments (APPs) – where victims get swindled into willingly sending money – which are notoriously difficult for banks to deter. But as regulators in the US ramp up pressure to add protections and grant reimbursement to victims, there’s a growing push to use biometric technology to slow down these scams.  

While biometrics in banking usually involves face or fingerprint scans, several tech firms are deploying machine learning to spot customer behavior that could be a sign of potential coercion. Suspicious traits like hesitation or choppy typing can prompt banks to inject additional warnings to customers or even delay or prevent payment. 

“Behavioral clues that are out of the norm – such as fumbling and hesitating while entering unusual amounts to be sent to unfamiliar recipients’ phones or accounts – are some of the red flags biometrics spotlight,” an exec at tech firm Callsign told American Banker. Several banks in the US, Canada, and the UK are testing Callsign’s technology, while a similar firm called BioCatch has had an uptick in interest too. 

Customer education is currently the main tool banks use to mitigate APP fraud and biometric intervention offers a promising additional option.

Financial firms crave the many benefits of moving to the cloud, but it’s a difficult, slow, and expensive process. Google Cloud and Santander are betting that big institutions will buy battle-tested software that makes the transition easier.  

Nine in 10 financial institutions are working on their digital transformation, but the process of migrating applications to the cloud in a systematic, secure way can be daunting.  

To that end, Google Cloud just launched a mainframe migration service built on top of technology that Banco Santander created to help it digitize its core banking. The software, which Santander dubbed Gravity, allows parallel processing, where workloads run on both existing mainframes and on the cloud at the same time. This lets Banco Santander perform real-time testing for stability and performance before officially transitioning.  

Through this partnership, other large firms will now be able to buy a version of the software through Google to help them complete their own cloud migrations. 

The alliance gives Banco Santander a way to externalize a product it developed in-house and will also accelerate its digital transformation. Capital One made a similar move earlier this year when it started selling Slingshot, a software product it originally created to manage its own use of the cloud data tool Snowflake.  

This partnership will also help Google appeal to other big financial services customers (it currently counts Wells Fargo and BNY Mellon among its clients). 

Cyber training programs should impart knowledge and skills to all workers, not just technical ones, because individual employees are generally the weakest links in organizational security.

Cybersecurity is all about people, according to Immersive Labs, which offers training software to help global organizations boost their workers’ judgment, skills, and speed in dealing with security risks and attacks.  

The firm just scored fresh funding and has raised $189 million total, including from Insight Partners, Goldman Sachs Asset Management, and Citi Ventures. Immersive’s “cyber workforce resilience” program upskills employees, while also providing industry metrics and internal benchmarks to measure against (which is particularly vital as board members – and regulators – increasingly expect progress reports).  

Financial services firms are prime targets for cybercriminals because of their double whammy of valuable assets and legacy infrastructure, according to Immersive Labs CEO James Hadley. “It’s important to note that the risk of cyberattacks is not just to the individual institution, but rather to the larger financial ecosystem,” he told Insights Distilled.  

To that point, a group of financial services firms recently approached Immersive to test their collective cybersecurity capabilities. Immersive worked with them to run months-long crisis simulation exercises, Hadley said, which allowed them to identify areas to improve and then upskill their teams. 

Immersive Labs counts HSBC, Citi, Moody’s, and Bain Capital among its customers. 

Tech tools that use automation to compile and analyze data allow lenders to make approvals much faster, without increasing risk – which ultimately allows them to serve more businesses (with greater returns).

HSBC has rolled out a digital platform for collateral-based receivables finance lending that it co-created with fintech Trade Ledger to make it simpler, faster, and more secure for business clients to apply for working capital.  

Instead of requiring businesses to manually upload invoices, the online platform uses an application programming interface (API) to let customers automatically transfer data from their accounting software, which it then uses to generate a survey and risk report. The software also provides task orchestration across teams, which allows HSBC’s underwriters to receive each report and application within hours of a customer completing it.  

This new process saves time and effort for customers at the front end and for HSBC at the back end. Trade Ledger’s product optimizes receivables finance and eliminates typical hurdles, a spokesperson told Insights Distilled: “Complex business lending fits across many areas and teams of a commercial bank, all with differing priorities. In contrast, Trade Ledger, as a tech start up, has a blank sheet of paper” to “focus on this problem end-to-end.” 

In general, Trade Ledger’s clients see, on average, a 60% reduction in origination cost, a 97% reduction in manual errors, and a 50% reduction in dropouts, which can boost ROI.