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The traditional banking landscape is undergoing a radical shift as financial institutions move from defending their territory to aggressively modernizing their core infrastructure. According to the 2026 Strategy Benchmark report from Jack Henry, the industry is no longer just competing with the bank down the street—it is fighting for relevance in a digital ecosystem where fintechs and neobanks have redefined customer expectations.
With margins improving in 2025, 88% of financial institutions are prepared to increase technology spending over the next two years. However, the goal has shifted. Rather than simply launching standalone digital tools, executives are focused on a more holistic challenge: capturing the “money flow” and regaining control over customer engagement, payment activity, and fragmented financial data.
The New Rivalry: Fintechs Overcome Community Banks as Primary Threats
For the first time in three years, banking executives have officially ranked fintech companies as a greater competitive threat than other community financial institutions. Credit unions share this sentiment, citing neobanks and challenger banks as their primary rivals. This shift highlights a critical reality—banking is increasingly occurring within external digital ecosystems.
Younger consumers, particularly Gen Z, often view banking as a utility or a feature within an app rather than a primary destination. The report reveals several startling trends regarding this demographic:
- Data Fragmentation: A typical Gen Z or Millennial couple may use between 30 and 40 different financial providers.
- Invisible Assets: Banks and credit unions currently see only 20% to 25% of their accountholders’ total financial data.
- The Deposit Leak: For every $8 collected via third-party payment apps, only $1 eventually makes its way back into a traditional financial institution.
To counter this, institutions are prioritizing “orchestration”—the ability to unify data and remain embedded in the customer’s daily financial habits.
AI Evolution: From Experimental Projects to Operational Reality
Artificial Intelligence has officially claimed the top spot for planned technology investments. The benchmark data shows that 83% of institutions are increasing their Generative AI (GenAI) budgets, with a specific focus on retail lending and operational efficiency.
The focus is moving away from chatbots and toward “behind-the-scenes” execution, including:
- Automated Workflows: Priority for nearly half of all surveyed banks and credit unions.
- AI-Assisted Underwriting: Targeted by 37% of banks to speed up the loan approval process.
- Predictive Analytics: Used to anticipate customer needs before they arise.
Despite this enthusiasm, an “execution gap” remains. Only 15% of tech budgets are currently allocated to growth initiatives, with the remainder consumed by maintenance and compliance. The institutions that bridge this gap will be those that can successfully integrate AI across their entire ecosystem rather than in isolated silos.
Payments as the Gateway to Deposit Growth
While deposit growth remains the number one strategic priority for 66% of bank CEOs, the path to achieving it has changed. Payments are now the primary engine for both acquiring and retaining customers. To attract younger demographics, 94% of institutions plan to introduce new payment services within the next 24 months.
Top investment priorities for payment modernization include:
- Instant Payments: Implementation of FedNow and RTP (Real-Time Payments) connectivity.
- Mobile-First Tools: Digital card issuance and tap-to-pay capabilities.
- Small Business Support: Enhanced digital self-service and payment acceptance tools.
By owning the payment experience, banks ensure they remain the “operating system” for their customers’ financial lives, preventing the migration of funds to external digital wallets.
The Convergence of Lending and Fraud Prevention
As financial stress increases—with 67% of consumers living paycheck to paycheck—demand for flexible lending products like Buy Now, Pay Later (BNPL) and earned wage access is rising. Consequently, 95% of institutions plan to upgrade their lending capabilities, with small business loans taking center stage.
However, increased digital activity has also accelerated the threat of cybercrime. Executives are now treating fraud as an identity crisis rather than a transactional one. Investment is pouring into:
- Real-Time Monitoring: Identifying suspicious activity as it happens.
- Machine Learning Models: Using AI to detect socially engineered scams.
- Operational Resilience: Strengthening data protection and privacy controls.
The Future belongs to the Coordinated Institution
The 2026 Strategy Benchmark clarifies that the next competitive advantage won’t come from a single feature, but from seamless coordination. Payment strategies must drive deposits, AI must be fueled by unified data, and security must be baked into the user experience.
Success in the coming years will be defined by how quickly an institution can reduce friction and how effectively it can integrate itself into the daily flow of money movement for both consumers and businesses.
Source: thefinancialbrand.com