Banks Must Rethink Their Core Systems for the AI Era
Credit unions face unique challenges in modernizing legacy systems, while larger banks focus on digital experiences. Meanwhile, AI adoption is accelerating beyond fraud detection into customer service, even as institutions expand physical branches.
By Justin Estes, Contributor at The Financial Brand
The banking industry faces increasing pressure to modernize systems and enhance digital capabilities, even as many institutions expand physical branches. On a recent episode of the Banking Transformed podcast, host Jim Marous spoke with Mark Sievewright, chief strategy officer at SRM, about how financial institutions are balancing these competing priorities while navigating technological evolution.
Q: What’s causing the difference between credit unions and the marketplace when it comes to updating back-office systems?
Mark Sievewright: It’s not inertia, first of all. It’s not that those credit unions are sitting there wondering or not caring about their digital ecosystems or how effective they are. A lot of it is around investment capacity. Credit unions, on average, are much smaller than your average ban,k and they have a disproportionate share of the financial services market, eight to 9%, even though there are 4,600 credit unions. To some degree, it’s about investment capacity. It’s also about prioritization. They historically have not prioritized the replacement of legacy systems at quite the same pace as some of their competitors, but I can tell you from day-to-day experience they’re playing catch up fast.
Real-Time Payments and Risk Management
Q: While many small organizations were the first to offer real-time payments, they haven’t kept pace as a group. What is the main barrier preventing wider adoption?
Sievewright: Fear of fraud. The fraud issue around real-time payments is palpable. It’s in every conversation I have certainly with our credit union clients, and they’re being quite skittish overall in the pace at which they allow both send and receive capabilities within real-time payments. And look, it’s ironic that we’re now introducing AI capabilities to help us control and manage… Who would’ve thought? When we look back on our careers, we now have artificial intelligence as a real part of our industry today, but it’s not inertia or complacency again, it’s like the core system question. It’s much more about this fear of fraud and making sure they’ve got the right policies and controls in place before they let loose with real-time payments.
Q: How do you see AI priorities shifting in the next 12 to 24 months?
Sievewright: Now, a very topical question. We know that AI has been around for 50 years, and what happened in November 2022 was somebody hit the fast-forward button, which was called ChatGPT. I’m not exaggerating, it’s not my style, we are on the cusp of the biggest technological revolution of our lifetimes. Because what we’re going to see now in terms of AI is the ability to do something that we’ve never been able to do. We’ve never been able to humanize technology. We now have the opportunity to make technology feel human, look human, sound human, and guess what? Do jobs that humans do. And there’s going to be a massive efficiency opportunity for us.
Q: Where will AI have the biggest impact on customer service and operations?
Sievewright: I think what we’re likely to see is the adoption of AI on sort of basic fundamental levels. What I mean by that is having AI take away things that are repetitive tasks, easy to allow software to take over instead of having people do them. Call centers and service centers are ripe for automation and change through AI. Because roughly a third of the calls we see on an inbound basis are for very routine fundamental things like, "Did my paycheck clear? What’s my balance?" AI can already do that.
The Physical-Digital Balance
Q: With 35% of organizations planning to expand branch networks and 61% of credit unions intending to increase branches in 2025, how do these physical expansion plans align with digital goals?
Sievewright: Several years ago, I made a prediction at a conference that we will never again see a net increase in the number of branches in the United States on a net basis in my career or the audience’s careers. And guess what, we’re kind of tracking that way because even though every single day it seems we’re reading about Chase or B of A or Wells opening new branches, they’re closing existing ones sometimes at a faster pace than they’re opening the new ones. On a net basis, what we’re seeing is branch optimization.
I look to my alma mater in the United Kingdom; the branch strategies in the United Kingdom are all about shutting down the branches fast and moving to digital. We’ve seen a record pace of change in the number of branch closes in the United Kingdom, and there are now companies opening up shared locations for existing financial institutions to use for those customers who want to use them.
Q: How are branch roles and functions evolving to meet changing consumer needs?
Sievewright: What we know in this country is that 52% of our population today is called Gen Z or millennials. They want you to have a branch near where they live or work, but they have no intention of ever coming in. The number of people we employ to work in our branches is coming down, but the types of people we’re employing to work in our branches are also changing.
I started my career as a teller. I needed to know how to cash a check, how to count money fast, and how to write on an old receipt and give it to the customer. Today, if I were back in that world, I’d have to have great empathy skills. I’d need to understand how to cross-sell or help somebody when they need it, and I’d need to be using data that was at my fingertips in order to do that. So the whole branch model is shifting in the United States, and a lot of it has to do with generational change.
Data Strategy and Customer Experience
Q: How can banks better leverage their existing customer data to improve relationships?
Sievewright: What we’re all about now when you talk about where we need to be as an industry is creating immersive member or customer experiences across integrated channels. What a concept that the channels are actually integrated, and those interactions and experiences have to be intelligent. In other words, we have to know the customer or know the member and personalized. We just can’t keep offering products to customers and members who already have them with us. I mean, let’s offer those products to them if they have them somewhere else.
Q: How are institutions approaching data strategy and implementation?
Sievewright: There’s also a bigger job to do, in my opinion, at least, we’ve got to stage the financial institution to get ready for this. A lot of institutions do not have a data strategy, and a lot of them don’t have their data in a place where it can be accessed readily. And so, no matter how much AI we apply to that, it’s not going to do much good if we don’t have our fundamentals in place around data.
Learn more:
- Personalization and Accessibility: Are Banking Apps Doing Enough?
- 3 Ways Community Financial Institutions Should Invest in Innovation
- ‘Do It for Me’ Will Power the Next Phase of Innovation in Banking
Q: What do you see as the biggest challenge in financial services today?
Sievewright: Moving from where we are to where we need to be. The environment is so challenging that we’re trying to get to a future state where we have immersive customer experiences through integrated channels. Where we have highly personalized intelligent marketing. Where we have an ecosystem that’s effective and efficient. Getting from where we are to that point is incredibly challenging, and I think the biggest challenge we have is possibly how we prioritize and define where we’re going to place our IT investments, our resources, both people and money, in order to get to that future state.
Q: What do you see as the biggest opportunity in banking today?
Sievewright: Oh, I think we should improve how we actually conduct the business. We have an opportunity now, thanks to technology where we can redefine the business model of banking. We really can. We can serve customers or members in a different way than we’ve ever been able to do. We can automate things in ways we’ve never been able to do. We can change the jobs of our people in ways we’ve never been able to do. We shouldn’t have people anymore who aren’t spending their time on valuable member or customer impact roles. If we have people who are doing repetitive tasks day after day after day, we’re doing something wrong.
Future Innovation and Global Learning
Q: How should banks approach innovation and transformation moving forward?
Sievewright: When we look at our ACH files or our credit and debit card files for our customers or members, you can observe a lot just by watching in terms of where their other relationships are and where the money is flowing. We’ve got to act on that. That’s pretty easy information to access.
Remember when the chip came to America, chip card technology and it had already been in Europe for over a decade? The issue there around adoption is we hadn’t staged the payment system environment to be ready for chip, and it was only when the fraud started to hit because fraud always goes to the point of least resistance, and that became the United States for a while, chip was suddenly prepped. It was staged, it was launched, and it was rolled out impressively quickly. I see the same principle and sequencing for AI.
Q: How can institutions prepare for the future of banking while managing current demands?
Sievewright: Look, we’re realistic enough to know because we’ve sat in those seats — you’ve got to go get your deposits. You’ve got to make your loans. We’re in the business of buying and selling money and moving it. That environment’s incredibly tough right now, but not withstanding that, I think the biggest challenge is making it a priority to move to this new future state that we have to get to. We have to.
The combination of data-enabled decision-making AI integration and enhanced customer experiences will define successful institutions moving forward. Financial institutions must balance maintaining current operations while investing in the technological capabilities that will shape banking’s future. Those who can effectively navigate this transition while keeping customer needs at the center will be best positioned for long-term success.
