Are Banks Suffering From ‘Innovation Fatigue’ at the Worst Possible Moment?

Digital investment among banks has quadrupled over the past two years. And according to a new report, the industry has little to show for it – at least so far. Now some institutions appear to be pulling back on innovation, either because of fatigue or more immediate concerns. But is now really the time to take our foot off the accelerator?

The report: The 2024 Digital Banking Performance Metrics Report [April 2024]

Source: Cornerstone, Alkami

Why we picked it: Banks and financial institutions are under pressure to embrace advanced technologies, like AI, and ramp up their spending on digital capabilities. But which technologies and how? And what is the right level of investment and expected ROI? We hoped this report would provide a roadmap.

Executive Summary

According to the 2024 Digital Banking Performance Metrics report by Cornerstone Advisors, digital spending among financial institutions has nearly quadrupled over the past two years, to around $780,000 per $1 billion in assets.

However, this substantial investment has not translated into proportional gains in key metrics like digital account openings and mobile banking adoption, which have stagnated. And while digital support capabilities have improved — with more institutions offering live chat and chatbots — the percentage of consumer loan applications submitted digitally has actually declined.

Increased spending is insufficient. The most pressing need is strategic integration of emerging technologies like AI to enhance the digital banking experience and regain innovation momentum within the industry.

Key Takeaways

  • Digital spending levels have soared but strategic impact remains unclear, raising sustainability concerns.
  • Mobile banking and digital account opening adoption have plateaued despite increased investments.
  • Integration of AI technologies in digital banking platforms is crucial for improving customer experience.
  • Financial institutions must reignite their “innovation mojo” to drive meaningful digital transformation.

What we liked about it: The report serves as a stiff rejoinder to much of the hype surrounding digital innovation in banking, suggesting that many institutions have exhausted themselves chasing low-hanging (or unproductive) fruit while failing to pursue a long-term strategy.

What we didn’t: The report’s most striking observation — that “innovation sentiment’ in banks and credit unions is declining” — is a bit buried (on page 24 of 29).

Digital Investments Surge, but Strategic Impact Remains Elusive

The digital banking landscape is undergoing a transformation, driven by evolving consumer preferences and the relentless pursuit of technological advancements. The average digital spend per $1 billion in assets has skyrocketed, nearly quadrupling from $424,680 in 2022 to $778,666 in 2024. This surge in investment reflects the industry’s recognition of the strategic importance of digital banking capabilities.

However, the report raises concerns about the impact and long-term value of these soaring expenditures, as the corresponding improvements in key digital banking metrics have not kept pace. For instance, the percentage of checking accounts opened digitally declined by 3 percentage points to 16% in 2024, with low-performing institutions lagging at just 12%.

A Startling Trend:

Digital checking account openings dropped 3 percentage points to 16% of total in 2024.

The report also highlights the stagnation in mobile banking adoption, with the overall percentage of checking account holders who are active mobile banking users remaining relatively flat at around 72 to 73% over the past year. This plateau suggests that financial institutions need to reevaluate their strategies to drive further adoption and engagement in the mobile banking space.

Similarly, digital deposit account opening continues to disappoint, with the percentage of checking accounts opened digitally dropping despite financial institutions’ plans to upgrade or replace their digital account opening systems. This discrepancy raises concerns about organizational commitment and potential technology-related constraints hindering progress in this critical area.

Emerging Technologies: AI’s Pivotal Role

As financial institutions grapple with these challenges, the report emphasizes the pivotal role of emerging technologies, particularly artificial intelligence (AI), in shaping the future of digital banking. While the adoption of AI technologies, such as machine learning and conversational AI, is gaining momentum, the report underscores the need for strategic integration of these technologies into digital banking platforms to enhance the customer and employee experience.

Digital Rises to the Top of Investments:

Digital spend per $1 billion in assets quadrupled to $778,666 from 2022 to 2024.

Notably, the percentage of institutions offering chatbots nearly tripled from the previous year, indicating a growing recognition of the value of conversational AI in delivering efficient and personalized support. Furthermore, the report projects that by the end of 2025, over half of financial institutions will have deployed generative AI applications like ChatGPT and DALL-E for various purposes, including marketing, writing, and digital content creation.

Despite the increasing adoption of emerging technologies, the report raises concerns about a potential decline in “innovation sentiment” within the industry. The authors introduce a “Demand Score” that measures financial institutions’ interest in new system selections or replacements across various applications. This score has seen a consistent decline over the past three years, suggesting a waning enthusiasm for innovation.

To address this challenge, the report emphasizes the need for financial institutions to reignite their “innovation mojo.” By fostering a culture of continuous improvement and embracing cutting-edge technologies, institutions can drive meaningful digital transformation and stay ahead of the curve in an increasingly competitive landscape.

Read more about AI innovation in banking:

Striking a Balance: Measurement and Strategy Alignment

The report underscores the importance of aligning performance measurement with strategic objectives. While the metrics provided offer valuable insights into industry benchmarks, relying solely on the data without the context of a well-defined strategy can lead to misguided decisions.

To strike the right balance, the report recommends that financial institutions develop a comprehensive digital banking metrics framework. This framework should encompass a range of metrics, including investments, adoption, usage, efficiency, and output, ensuring a holistic understanding of digital banking performance and enabling data-driven decision-making.

In conclusion, the 2024 Digital Banking Performance Metrics report serves as a wake-up call for the industry. While financial institutions have made significant investments in digital banking capabilities, the strategic impact of these investments remains uncertain. To navigate the evolving digital landscape successfully, institutions must embrace emerging technologies like AI, reignite their innovation drive, and establish robust performance measurement frameworks aligned with their strategic objectives. By doing so, they can unlock the full potential of digital banking and deliver exceptional customer experiences that drive growth and profitability.

Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.

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