The North America Banking Report by Temenos reveals a crucial shift in how North American banks are responding to the technological revolution.
With 90% of banks in the region identifying technology as the most significant trend impacting their industry over the next five years, financial institutions are increasingly investing in tools like artificial intelligence (AI), blockchain, and cloud computing to modernise their infrastructure and meet growing competitive demands.
A Strong Focus on Digital Transformation
Historically lagging behind their European and Asian counterparts in technology adoption, North American banks are now ramping up their efforts to overhaul legacy systems.
This shift is driven by the need for product agility, customer personalisation, and the ability to compete with fintech disruptors.
DevOps—agile development strategies that help speed up system updates—and low code/no-code platforms are emerging as popular solutions to modernise banking infrastructure.
These tools allow banks to transform back-office operations efficiently, thereby improving fraud detection, enhancing cybersecurity, and offering more personalised services.
Moreover, cloud adoption is becoming increasingly essential for North American banks.
Initially held back by data security concerns, cloud technology is now seen as a driver for securing customer data, managing the exponential growth of data, and enabling banks to scale their operations quickly.
By prioritising cloud migration for core domestic banking functions, financial institutions are also preparing for a future where a multi-cloud strategy may become a regulatory requirement.
Blockchain and AI: The New Pillars of Banking
One of the key findings of the report is the growing focus on blockchain and AI technologies.
North American banks are investing more heavily in blockchain than their global counterparts, viewing it as a tool to bolster fraud prevention and cybersecurity, while also simplifying processes like payment settlement.
With the transparency, immutability, and auditability that blockchain offers, banks are better equipped to prevent identity theft, money laundering, and fraudulent payments.
In addition, AI is being leveraged to detect and prevent fraud, a rising concern as fraudsters increasingly adopt advanced technologies like AI-generated voice IDs.
Machine learning models are being used to analyse customer behaviour, transaction history, and anomalies to identify potential fraud.
In North America, more banks are using AI for this purpose than in other regions, with AI-powered cybersecurity tools also helping to safeguard customer data and prevent larger breaches.
Competing with Non-Traditional Players
Non-traditional competitors, such as fintech companies, digital wallets, and e-commerce giants, are increasingly posing a threat to traditional banking models.
Banks are responding by focusing on enhancing customer experience, increasing engagement, and improving product agility.
One emerging strategy is the adoption of embedded finance, where non-financial companies offer banking services like credit or insurance within their platforms to provide a seamless customer experience.
To remain competitive, some North American banks are pursuing partnerships and acquisitions.
For example, Fifth Third Bank’s acquisition of Rize Money, an embedded payment platform, underscores the importance of embedded finance in maintaining market relevance.
By offering banking-as-a-service (BaaS) and collaborating with fintech companies, traditional banks can better compete in the rapidly evolving financial landscape.
Addressing Financial Inclusion
The report also highlights how North American banks are turning their attention to the unbanked and underbanked populations, which represent a significant business opportunity.
Approximately 5.9 million households in the US are unbanked, and 18.7 million are underbanked.
By adopting technologies such as mobile banking, digital wallets, and blockchain, banks are aiming to offer responsible lending and basic financial services to these underserved groups.
This focus on financial inclusion not only serves a social purpose but also represents a lucrative opportunity for banks to tap into new markets.
By embracing fintech solutions and expanding access to banking services, North American banks can enhance their customer base and generate new revenue streams.
Looking Ahead: The Regulatory Landscape
As these banks continue to modernise, regulatory challenges are also on the horizon.
Many banks in the region believe that a multi-cloud strategy will become a regulatory necessity within the next five years.
Additionally, fewer North American banks see impending regulation around climate change, sustainability, and ESG (Environmental, Social, and Governance) as a pressing concern compared to their global peers.
While banks in the region are slower to adopt sustainable finance initiatives, their focus on financial inclusion and technological advancement positions them to remain competitive.
As the pace of digital transformation accelerates, North American banks are gearing up to embrace the full potential of AI, blockchain, and cloud technologies to stay ahead in an increasingly competitive financial environment.
The report highlights a significant shift in North American banking, as traditional banks strive to keep up with fintech disruptors, their investments in these emerging technologies will play a crucial role in shaping the future of the financial services landscape.
With a keen eye on competition, regulation, and financial inclusion, they are poised to navigate the next wave of banking innovation.
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