Traditional financial institutions are escalating their technological investments in response to the fintech revolution. By 2024, these banks are projected to allocate a staggering 47.4 billion reais to technology, a detail furnished by Febraban, the sector’s federation. In a span of eight years, technology investments have more than doubled from 19.1 billion reais in 2015 to 39 billion reais recently, marking a 104% surge. Looking ahead, if predictions hold true, this figure will have increased by a robust 148% in total.
The Febraban Bank Technology Survey 2024, designed by Deloitte, provides insights based on the financial reports of participating banks. Of utmost importance in their funding priorities is cybersecurity, a concern unanimously shared by the interviewed banks. This year’s investment strategies will primarily focus on advanced threat detection and response, identity and access management, employee training, cloud security, penetration testing, and robust data encryption.
Moreover, financial institutions will dedicate funds to emerging technologies like cloud computing, artificial intelligence, blockchain, and Central Bank’s new digital currency project (Drex), along with explorations into quantum computing. The rapid digital transformation, accelerated by the pandemic and the advent of systems like Pix and Open Finance, have compelled banks to seek new customer service formats and operational excellence, as explained by Rodrigo Mulinari from Febraban.
Survey results also revealed priority areas: improving client experience (83%), technological innovation (71%), service personalization (63%), cutting-edge security and privacy (58%), social responsibility and sustainability (54%), and integrated ecosystem offerings (54%).
With 54% of banks utilizing it, artificial intelligence has become a significant asset, widely applied through facial biometrics, chatbots, robotic process automation (RPA), generative AI, and cognitive intelligence tools. Deloitte’s Sergio Biagini highlights AI’s influence in promoting innovative and productive banking processes, citing an 11% efficiency improvement for adopters.
To sustain the surge in technology spending, banks have increased their IT hires by 22%, bringing their IT professional count to 45,300, primarily developers. Looking to 2024, 56% of banks intend to grow their IT teams by 28%, aiming for a workforce of 54,100, with an emphasis on developers, information security experts, data scientists, engineers, and agile methodology specialists.
Key Questions and Answers:
1. Why are traditional banks increasing their technology budgets?
A: Traditional banks are increasing their technology budgets to stay competitive with fintech companies, which have been disrupting the financial industry with their use of advanced technologies to provide innovative services.
2. What is the scope of the technological investments by traditional banks?
A: Banks are investing in cybersecurity, cloud computing, artificial intelligence, blockchain, and other emerging technologies like Central Bank’s digital currency project (Drex) and potentially quantum computing.
3. What are the major areas of focus for these investments?
A: Investments are focused on improving client experience, technological innovation, service personalization, security and privacy, social responsibility and sustainability, and integrated ecosystem offerings.
4. How is artificial intelligence being used by these banks?
A: AI is utilized in various ways, including facial biometrics, chatbots, robotic process automation, generative AI, and cognitive intelligence tools, leading to efficiency improvements.
5. Are banks expanding their IT workforce?
A: Yes, banks have increased their IT hires by 22% and plan to grow their IT teams by 28% by 2024, with a focus on hiring developers, security experts, data scientists, engineers, and agile methodology specialists.
Key Challenges or Controversies:
– Balancing Innovation with Regulation: Traditional banks must adhere to stricter regulatory requirements than many fintech startups, which can slow down the innovation process.
– Data Privacy and Protection: As banks invest more in digital solutions, they face increased risks related to data breaches and must ensure robust data protection measures.
– Cultural Shift: The integration of advanced technologies requires a cultural shift within the organization, emphasizing agility, continuous learning, and adaptation to new tools and processes.
Advantages:
– Enhanced Competitiveness: By increasing tech budgets, banks can offer services comparable to those of fintechs, retaining and attracting customers.
– Improved Efficiency: Technology such as AI and cloud computing can streamline operations, reduce costs, and improve productivity.
– Better Customer Experience: New technologies can provide personalized services, faster response times, and more user-friendly platforms.
Disadvantages:
– High Costs: Substantial investments in technology can be costly and may strain the financial resources of some institutions.
– Implementation Challenges: Integrating new technologies into legacy systems and processes can be complex and time-consuming.
– Talent Acquisition: There is fierce competition for skilled IT professionals, and attracting the right talent can be challenging.
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