Cyber IT Supervisory Forum eBook

Cyber & IT Supervisory Forum

November 18-20, 2024 Nashville, TN

@ www.csbs.org ♦ @csbsnews

CONFERENCE OF STATE BANK SUPERVISORS 1300 I Street NW / Suite 700 / Washington, DC 20005 / (202) 296-2840

November 18-20, 2024 Cyber & IT Supervisory Forum Nashville, TN

ATTENDEES Alabama State Banking Department Burnette, William

william.burnette@banking.alabama.gov blake.gray@banking.alabama.gov richard.helms@banking.alabama.gov peter.martin@banking.alabama.gov Penny.Walker@banking.alabama.gov

Gray, Forrest Helms, Richard Martin, Peter Walker, Penny

Arkansas State Bank Department Dodge, Donna

ddodge@banking.state.ar.us ffields@banking.state.ar.us jhouseholder@banking.state.ar.us

Fields, Frank

Householder, John

California Department of Financial Protection and Innovation Hong, Kim

kim.hong@dfpi.ca.gov lawrence.tan@dfpi.ca.gov greg.young@dfpi.ca.gov

Tan, Lawrence Young, Greg

Colorado Department of Regulatory Agencies Division of Banking Roberts, Courtney

courtney.roberts@state.co.us robert.spell@state.co.us

Spell, Robert

Delaware Office of the State Bank Commissioner Stevens, Lori Federal Deposit Insurance Corporation Bergeron, Justin Florida Office of Financial Regulation Pullen, Jeff Georgia Department of Banking and Finance Hsu, Maggie

lori.stevens@delaware.gov

jbergeron@fdic.gov

jeff.pullen@flofr.gov

mhsu@dbf.state.ga.us nmattis@dbf.state.ga.us eoxley@dbf.state.ga.us bseigler@dbf.state.ga.us bstump@dbf.state.ga.us jwerner@dbf.state.ga.us kwhite@dbf.state.ga.us

Mattis, Nicole Oxley, Leonard Seigler, Brittney Stump, Brandon Werner, Josh White, Keegan

Idaho Department of Finance Harwood, Amanda

amanda.harwood@finance.idaho.gov taylor.lehman@finance.idaho.gov

Lehman, Taylor

Illinois Department of Financial & Professional Regulation Gallardo, Alfredo

alfredo.j.gallardo@illinois.gov john.johnson2@illinois.gov

Johnson, John

Iowa Division of Banking Smith, Chad

chad.smith@idob.state.ia.us

Kansas Office of the State Bank Commissioner Fine, Kylee

kylee.fine@osbckansas.org matt.hodges@osbckansas.org amy.hunt@osbckansas.org justin.miller@osbckansas.org

Hodges, Matt Hunt, Amy Miller, Justin

Kentucky Department of Financial Institutions Arnold, Edward

edwards.arnold@ky.gov austin.kirk@ky.gov

Kirk, Austin

Maryland Office of Financial Regulation Estes, Dennis

dennis.estes@maryland.gov

Massachusetts Division of Banks Chase, Holly

holly.chase@mass.gov robert.delling@mass.gov sarah.mann@mass.gov margaret.mezzetti@mass.gov ballz@michigan.gov browna8@michigan.gov nashc@michigan.gov pagea2@michigan.gov sharpb2@michigan.gov whitneys1@michigan.gov

Delling, Robert Mann, Sarah

Mezzetti, Margaret

Michigan Department of Insurance and Financial Services Ball, Zachary

Brown, Anne

Nash, Christopher Page, Andrew Sharp, Brenda Whitney, Sarah

Minnesota Department of Commerce Jenson, Nicholas

nicholas.jenson@state.mn.us

Mississippi Department of Banking & Consumer Finance Ballard, Hugh

hugh.ballard@dbcf.ms.gov nathan.draut@dbcf.ms.gov will.larsen@dbcf.ms.gov adam.martino@dbcf.ms.gov patrick.welch@dbcf.ms.gov

Draut, Nathan Larsen, Will Martino, Adam Welch, Patrick

Missouri Division of Finance Mayer, Chris

chris.mayer@dof.mo.gov

Nebraska Department of Banking and Finance Fabry, Michael

michael.fabry@nebraska.gov rachel.newell@nebraska.gov brian.nielsen@nebraska.gov

Newell, Rachel Nielsen, Brian

Nevada Division of Mortgage Lending Furlow, Virgil

vfurlow@mld.nv.gov

New Hampshire State Banking Department Arkell, Tyler

tyler.c.arkell@banking.nh.gov parker.t.howell@banking.nh.gov

Howell, Parker

New York State Department of Financial Services Im, Nam

nam.im@dfs.ny.gov jacob.joseph@dfs.ny.gov vick.satar@dfs.ny.gov

Joseph, Jacob

Satar, Vick

North Carolina Office of the Commissioner of Banks Crowder, James North Dakota Department of Financial Institutions Kruse, Lise

jcrowder@nccob.gov

lkruse@nd.gov

Oklahoma State Banking Department Brubaker, Deron

deron.brubaker@banking.ok.gov chuck.harryman@banking.ok.gov mike.kellum@banking.ok.gov kandace.mills@banking.ok.gov ashley.wilson@banking.ok.gov mo.wilson@banking.ok.gov

Harryman, Chuck Kellum, Mike Mills, Kandace Wilson, Ashley Wilson, Mo

Oregon Division of Financial Regulation Adelman, Nicholas

nicholas.w.adelman@dcbs.oregon.gov khoa.v.nguyen@dcbs.oregon.gov

Nguyen, Khoa

Pennsylvania Department of Banking & Securities Goffredo, Michael

migoffredo@pa.gov chajones@pa.gov

Jones, Charles

South Carolina Office of the Commissioner of Banking Brandyburg, Michael

mike.brandyburg@banking.sc.gov thom.powers@banking.sc.gov gary.trammell@banking.sc.gov

Powers, Thom Trammell, Gary

South Dakota Division of Banking LaBrie, Jordan

jordan.labrie@state.sd.us brady.schlechter@state.sd.us

Schlechter, Brady

State of Connecticut Department of Banking Hendrickson, Andrew

andrew.hendrickson@ct.gov

Lindsay, Sarah

sarah.lindsay@ct.gov

Tennessee Department of Financial Institutions Bohanan, Lucas

lucas.bohanan@tn.gov jimmy.fisher@tn.gov mark.herren@tn.gov william.hodge@tn.gov toniece.johnson@tn.gov josh.robertson@tn.gov

Fisher, Jimmy Herren, Mark Hodge, William Johnson, Toniece Robertson, Josh

Texas Department of Banking Filer, Larry

larry.filer@dob.texas.gov jamie.gaugler@dob.texas.gov phillip.hinkle@dob.texas.gov brett.howard@dob.texas.gov ruth.norris@dob.texas.gov jacob.vohs@dob.texas.gov

Gaugler, Jamie Hinkle, Phillip Howard, Brett Norris, Ruth Vohs, Jacob

Texas Department of Savings and Mortgage Lending Zamora, Elizabeth

ezamora@sml.texas.gov

Utah Department of Financial Institutions Feinauer, Jonathan

jrfeinauer@utah.gov bstewart@utah.gov

Stewart, Bruce

Virginia State Corporation Commission Bureau of Financial Institutions Tate, Reagan

reagan.tate@scc.virginia.gov catherine.villiott@scc.virginia.gov

Villiott, Catherine

Washington State Department of Financial Institutions Parsons, Mark

mark.parsons@dfi.wa.gov yuliya.pine@dfi.wa.gov andrew.smith@dfi.wa.gov rick.st.onge@dfi.wa.gov

Pine, Yuliya

Smith, Andrew St. Onge, Rick

West Virginia Division of Financial Institutions Mann, Matthew Wisconsin Department of Financial Institutions Brandenburg, Ryan

mmann@wvdob.org

ryan.brandenburg@dfi.wisconsin.gov alex.mcclain@dfi.wisconsin.gov

McClain, Alex

SPEAKERS Appian Thomas, Kyle

kyle.thomas@appian.com

Board of Governors of the Federal Reserve System Papanastasiou, Constantine

dino.papanastasiou@frb.gov

Consumer Financial Protection Bureau Young, Chris

christopher.young@cfpb.gov

Cyber Risk Institute Magri, Josh

josh.magri@cyberriskinstitute.org

Defense Storm Caballero, Jessica

jessica.caballero@defensestorm.com

Federal Deposit Insurance Corporation Henley, William

whenley@fdic.gov

FirstBank Peery, Wade

wpeery@firstbankonline.com

fTLD | .Bank Registry Diaz, Heather Jack Henry & Associates Wetherington, Lee

heather@ftld.com

lwetherington@jackhenry.com

NIST Applied Cybersecurity Division Mahn, Amy

amy.mahn@nist.gov

Office of the Comptroller of the Currency Richards, Norine

norine.richards@occ.treas.gov

Plante Moran Taggart, Colin

colin.taggart@plantemoran.com

Richey May Brown, Alex

alex.brown@richeymay.com mnouguier@richeymay.com

Nouguier, Michael

SRA Watchtower Vincent, Ed

evincent@srarisk.com

Tennessee Bureau of Investigation Christian, Nicholas

nicholas.christian@tbi.tn.gov

Tennessee Department of Financial Institutions Gonzales, Greg

greg.gonzales@tn.gov

The MITRE Corporation Lachow, Dr. Irving

ilachow@mitre.org

United States Department of the Treasury Knight, Christopher

christopher.knight@treasury.gov

CSBS STAFF Bray, Michael Jarmin, Jennifer Mackin, Julia Quist, Mary Beth Richardson, Amy Robinson, Brad Van Huet, Jami

mbray@csbs.org jjarmin@csbs.org jmackin@csbs.org mbquist@csbs.org arichardson@csbs.org brobinson@csbs.org jvanhuet@csbs.org

Cyber & IT Supervisory Forum November 18 - 20, 2024 | All Times Central Time DoubleTree by Hilton Hotel Nashville Downtown

Monday, November 18 12:00 PM – 4:30 PM

Registration Meeting Room: Cumberland North Foyer

Welcome & Opening Remarks Meeting Room: Salon CD

1:00 PM – 1:15 PM

Amy Richardson Senior Director, Workforce Development Conference of State Bank Supervisors Mary Beth Quist Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Welcome to Tennessee Meeting Room: Salon CD

1:15 PM – 1:30 PM

Greg Gonzales Commissioner Tennessee Department of Financial Institutions From the Future Backwards: The New Era of Data-Driven Financial Services Meeting Room: Salon CD

1:30 PM – 2:30 PM

Lee Wetherington Senior Director, Corporate Strategy Jack Henry & Associates

Break

2:30 PM – 2:45 PM

AI & Financial Services Meeting Room: Salon CD

2:45 PM – 3:45 PM

Kyle Thomas Global Industry Lead, Public Sector Appian

Break

3:45 PM – 4:00 PM

Interagency Regulatory Panel Meeting Room: Salon CD

4:00 PM – 5:00 PM

William Henley, Jr. Associate Director, Information Technology Supervision Branch Federal Deposit Insurance Corporation (FDIC)

Dino Papanastasio Senior Supervisory Cybersecurity Analyst Board of Governors of the Federal Reserve System Norine Richards Director Bank Information Technology Policy Office of the Comptroller of the Currency (OCC) Christopher Young Deputy Assistant Director Consumer Financial Protection Bureau (CFPB)

Mary Beth Quist Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Networking Reception Meeting Room: Cumberland South Foyer

6:00 PM – 8:00 PM

Tuesday, November 19 7:30 AM – 8:30 AM

Breakfast Meeting Room: Salon AB

Current Threat Landscape Meeting Room: Salon CD

8:30 AM – 9:30 AM

Nicholas Christian Assistant Special Agent in Charge Tennessee Bureau of Investigation (TBI)

Break

9:30 AM – 9:45 AM

Risks Across the Cyber Ecosystem Meeting Room: Salon CD

9:45 AM – 10:45 AM

Dr. Irving Lachow Senior Principal The MITRE Corporation

Break

10:45 AM – 11:00 AM

State Panel – IT Support for Examiners Meeting Room: Salon CD

11:00 AM – 11:45 AM

Matt Hodges Director of Information Technology Kansas Office of the State Bank Commissioner Michael Fabry Agency Chief Information Technology Officer Nebraska Department of Banking & Finance Jeff Pullen Distributed Computer Systems Consultant Florida Office of Financial Regulation Mary Beth Quist Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Lunch on Own

11:45 AM – 1:00 PM

Bank Breakout: Alternative Tools – CRI Profile Meeting Room: Salon CD

1:00 PM – 2:00 PM

Josh Magri Chief Executive Officer Cyber Risk Institute

Nonbank Breakout: Vulnerability Management & Key Performance Indicators Meeting Room: Salon AB

1:00 PM – 2:00 PM

Colin Taggart

Partner, Cybersecurity Consulting Plante Moran

Break

2:00 PM – 2:15 PM

Bank Breakout: .Bank – The Secure and Trusted Digital Identity for Banks Meeting Room: Salon CD

2:15 PM – 3:15 PM

Heather Diaz Vice President, Compliance & Policy fTLD Registry Services, LLC

Nonbank Breakout: Risk by Association: Navigating the Cybersecurity Challenges of Third-Party Partnerships Meeting Room: Salon AB

2:15 PM – 3:15 PM

Alex Brown Director, Cybersecurity Solutions Richey May Michael Nouguier Director, Cybersecurity Services Richey May

Break

3:15 PM – 3:30 PM

Project Fortress Meeting Room: Salon CD

3:30 PM – 4:30 PM

Christopher Knight Cyber Policy Analyst United States Department of the Treasury

Wednesday, November 20 7:30 AM – 8:30 AM

Breakfast Meeting Room: Salon AB

8:30 AM – 9:15 AM

NIST Cybersecurity Framework 2.0 Overview & Updates Meeting Room: Salon CD

Amy Mahn

International Policy Specialist NIST Applied Cybersecurity Division

IT Cyber Exam Modernization Meeting Room: Salon CD

9:15 AM – 10:00 AM

Holly Chase Director of Cyber/IT/Fintech Massachusetts Division of Banks Phillip Hinkle Director – Cybersecurity Texas Department of Banking

Josh Robertson Chief Administrator Tennessee Department of Financial Institutions

Break

10:00 AM – 10:15 AM

Fintech Panel Discussion Meeting Room: Salon CD

10:15 AM – 11:45 AM

Jessica Caballero Director of Cyber Risk Management Defense Storm

Wade Peery Chief Innovation Officer FirstBank Ed Vincent Chief Executive Officer SRA Watchtower

Lunch on Own

11:45 AM – 1:00 PM

Tabletop Exercise Meeting Room: Salon CD

1:00 PM – 2:15 PM

Mike Bray Director, Nonbank Supervision and Enforcement Conference of State Bank Supervisors

Brad Robinson Senior Director, Cybersecurity Policy and Supervision Conference of State Bank Supervisors

Break

2:15 PM – 2:25 PM

Tabletop Exercise Meeting Room: Salon CD

2:25 PM – 3:40 PM

Mike Bray Director, Nonbank Supervision and Enforcement Conference of State Bank Supervisors Brad Robinson Senior Director, Cybersecurity Policy and Supervision Conference of State Bank Supervisors

Break

3:40 PM – 3:50 PM

CSBS Updates Meeting Room: Salon CD

3:50 PM – 4:25 PM

Mike Bray Director, Nonbank Supervision and Enforcement Conference of State Bank Supervisors

Mary Beth Quist Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Brad Robinson Senior Director, Cybersecurity Policy and Supervision Conference of State Bank Supervisors

Jami Van Huet Senior Director, Bank Supervision Conference of State Bank Supervisors

Closing Remarks Meeting Room: Salon CD

4:25 PM – 4:30 PM

Amy Richardson

Senior Director, Workforce Development Conference of State Bank Supervisors

Adjourn

4:30 PM

Internal Use Only

2024 Cyber & IT Supervisory Forum November 18-20, 2024

Internal Use Only

Welcome Amy Richardson

Senior Director, Workforce Development Conference of State Bank Supervisors

Internal Use Only

Schedule

Monday: • Registration: 12:00 PM – 1:00 PM • Forum: 1:00 PM – 5:00 PM • Reception: 6:00 – 8:00 PM

Tuesday – Wednesday: • Breakfast:

7:30 AM – 8:30 AM 8:30 AM - 4:30 PM

• Forum:

Internal Use Only

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104 Attendees 39 States & FDIC

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© GeoNames, Microso Ō , TomTom Powered by Bing

Internal Use Only

Housekeeping Notes

• Silence your phones • Registration table: • Agendas • Attendee rosters

• List of nearby restaurants • Q&A – please wait for the microphone • Presentations will be provided following the forum

Internal Use Only

Upcoming Training • Nonbank Cyber Examination Training • March 4-6, Atlanta – District 3 • April 22-24, San Francisco – District 5 • May 13-15, Chicago – District 2 • June 24-26, Dallas* – District 4 • July 22-24, Washington, DC – District 1

*Pending confirmation

Internal Use Only

Welcome

Mary Beth Quist Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Internal Use Only

Welcome to Tennessee Greg Gonzales Commissioner Tennessee Department of Financial Institutions

From the Future Backwards Forces shaping the era of data-driven banking

Lee Wetherington Senior Director, Corporate Strategy Jack Henry

strategy

11/18/2024

What is strategy? Where are we?

01 02 03 04 05 06

What are banks planning? No data, no AI: new strategy What should banks do now? What does the future look like?

strategy

2

How do banks feel about the future?

strategy

3

strategy

4

strategy

5

How do banks see the future?

strategy

6

”strategic” planning?

strategy

strategy is not a plan, it’s positioning • planning = a set of activities we plan to do

• …activities that usually aren’t integrated or coherent • plans have expenses/budgets that we manage/control • …which makes “plans” more comfortable than “strategy” • strategy = choices that position you on a playing field in a way that you win (aka, an outcome/goal) • strategy has a theory and must be coherent /actionable • why should we play on this field vs. another? • how can we be better than anybody else on that field? • hinges on a variable (customers) we can’t control • measured in revenue

strategy

SOURCE: Harvard Business Review; Roger Martin; “A Plan is Not a Strategy”; https://www.youtube.com/watch?v=iuYlGRnC7J8; 6/29/22

8

What is ”strategy”?

strategy

Roger Martin Former Dean Rotman School of Management University of Toronto

10

How should strategy feel?

strategy

11

strategy

12

how is “innovation” usually done? 1. Identify customer needs. 2. Deliver great products. 3. Beat the competition to market.

PROBLEM : You can do all three and still fail.

strategy

13

ecosystem strategy

A new playbook At its heart, ecosystem strategy is about partner alignment. Customer insight and great execution are the necessary but no longer sufficient drivers of success. As delivering your value propositions has become more dependent on collaboration, finding ways to align your partners has moved to center stage. Winners in ecosystems can create and capture value from a variety of positions, and choosing where to play is just as important as what, how, and when to play.

14

the innovation blindspot

strategy

15

the wide lens

strategy

16

co-innovation and the probability of success

Partner A Partner D 85% 85% 85% 85% 52% Partner B Partner C

strategy

17

co-innovation risk and one weak link

Partner A Partner D 85% 85% 85% 2% 1.2% Partner B Partner C

strategy

18

Where are we?

strategy

2024 2025

trends

shifts and predictions

2023

GenAI Inflation Rates Regional bank failures Fintech funding Fintech layoffs Economy & spending Money supply Personal savings rate Deposits Crypto BNPL usage (up 14%)

Gen AI Inflation Rates Loan demand Delinquencies/charge-offs Recession Consumer spending Deposits Automated saving (retain deposits) SMBs/commercial (revenue) Crypto (BTC ETFs, FASB, BTC halving) BNPL and Pay-by-Bank

strategy

20

financial fragmentation -consumer

Personal

strategy

21

financial fragmentation – small business

Business

strategy

23

banks’ plans…

strategy

Sent to all Jack Henry bank and CU CEOs • asset sizes <$500M - $5B+ • 127 total FIs, 47 banks and 80 credit unions Sixth annual CEO survey Showcases strategic priorities and technology plans of Jack Henry financial institutions. Helps FIs plan, perform, and compete Benchmarks FIs’ strategic plans and priorities against their peers and competitors. Identifies opportunities and gaps.

What:

Focus Across 6 Key Competencies

Who:

} Core } Digital } Open

} Lending } Payments } Fraud & Security

Why:

banking

Fielded 1/09 – 2/27/2024

25

! ME Growing deposits remains top strategic priority growing deposits remains top strategic priority Over the next two years, what are your top three strategic priorities ?

Banks

Credit Unions

72%

44%

Growing deposits

Growing deposits

9

20

Increasing operational efficiency

53%

38%

Improving accountholder experience Increasing operational efficiency Accountholder acquisition

4

8

5

45%

36%

Growing loans

2

Improving accountholder experience

23%

34% 34%

7

19%

Growing loans

new

Reducing/deterring fraud

2

- Statistically significant

26

Source: Jack Henry TM 2024 Strategy Benchmark Study

Fielded June and July 2024

Surveyed 111 independent directors, chief executive officers, chief operating officers and senior technology executives

Focused on U.S. banks below $100 billion in assets

More than half of respondents represented financial institutions with over $1 billion in assets

27

Source: 2024 Bank Director Technology Survey; September 2024

improving operational efficiency and attracting/retaining customers guide bank’s technology strategy

28

Source: 2024 Bank Director Technology Survey; September 2024

! ME Growing deposits remains top strategic priority NIM compression and deposit attrition top concerns Over the next two years, what are your top three concerns?

Banks

Credit Unions

Regulatory or legislative changes Economic slow down or recession Price compression on financial services Deposit attrition or displacement Net interest margin compression

Talent acquisition and retention Deposit attrition or displacement Net interest margin compression

61%

40%

14

4

12

41% 43%

31% 31%

16

17

8

28 9

Regulatory or legislative changes

35%

25% 25%

Economic slow down or recession

22%

10

- Statistically significant

29

Source: Jack Henry TM 2024 Strategy Benchmark Study

External Risks Internal Risks community banks’ perceptions of risk (CSBS Survey) 1. Cost of funds 2.Regulation 3.NIM 1. Cybersecurity 2.Tech implementation costs 3. Liquidity 4.Staff retention 5.Credit 4.Core deposit growth 5.Cost of technology

strategy

30

SOURCE: CSBS’ 2024 Community Bank Survey

community banks’ top internal risks

strategy

31

SOURCE: CSBS’ 2024 Community Bank Survey

! ME Growing deposits remains top strategic priority social engineering is top cybersecurity threat Select the top three cybersecurity threats to your FI over the next two years:

Banks

Credit Unions

Social engineering of employees

Social engineering of employees

71%

66%

new

new

46%

34%

12

6

Data breaches

Data breaches

17% 20% 20%

32% 32%

Website pharming

Ransomware

2

4

Distributed denial of services (DDoS)

Website pharming

new

new

Distributed denial of services (DDoS)

24%

Supply chain security

new

new

- Statistically significant

32

Source: Jack Henry TM 2024 Strategy Benchmark Study

! ME Growing deposits remains top strategic priority check fraud leads as most concerning fraud threat Select the top three fraud threats to your FI over the next two years:

Banks

Credit Unions

86%

68%

new

Check fraud

Check fraud

new

Romance or investment scams

Romance or investment scams

53%

56%

new

new

37%

47%

Account takeover fraud

Account takeover fraud

4

1

Money laundering or mule accounts

30%

28%

First party fraud

new

new

21%

43

26%

new

First party fraud

Real-time payments fraud

- Statistically significant

33

Source: Jack Henry TM 2024 Strategy Benchmark Study

! ME Growing deposits remains top strategic priority CUs prioritize data & AI tech more than banks Select the top three technologies you plan to invest in over the next two years

Banks

Credit Unions

Fraud detection and mitigation

41% 43%

51%

Digital banking

8

2

1

Fraud detection and mitigation

44%

Data analytics

4

40%

36%

6

Automation

Automation

13

3

37%

31% 33%

Digital banking

Data analytics

2

5

32%

Artificial Intelligence

Cybersecurity

new

- Statistically significant

34

Source: Jack Henry TM 2024 Strategy Benchmark Study

! ME Growing deposits remains top strategic priority types of fintechs FIs plan to embed into digital Select the types of fintech you plan to embed in your digital banking experience over the next two years.

Banks

Credit Unions

1

65% 66%

4

59%

Payments

Payments

Consumer financial health

39% 39%

SMB services

8

6

58%

11

Digital marketing

Treasury management

2

Data collection or analysis tools

47%

36%

14

Digital marketing

1

Cross channel accountholder service

Consumer financial health

46%

32%

1

8

- Statistically significant

35

Source: Jack Henry TM 2024 Strategy Benchmark Study

payments, digital account opening, and data analytics lead in recent upgrades or implementations

strategy

Source: 2024 Bank Director Technology Survey; September 2024

37

! ME Growing deposits remains top strategic priority tapping the BaaS breaks: most FIs no longer plan to embed their financial services into third parties Which of your existing financial services do you plan to embed into non-financial brands/third parties over the next two years?

Banks

None Credit Unions

70%

67%

None

20

15

6

17

18% 20%

23%

Payments

Payments

9

20

2% 12%

Lending

Deposit accounts

3

14%

Deposit accounts

Other

- Statistically significant

38

Source: Jack Henry TM 2024 Strategy Benchmark Study

Payments drive 80% of digital.

strategy

! ME Growing deposits remains top strategic priority most FIs show high interest in real-time payments Which payment services do you plan to add over the next two years?

Banks

Credit Unions

9

70%

63%

RTP via FedNow

RTP via FedNow

10

51%

56%

RTP via TCH

Digital card issuance

new

27

13 35% 40% 44%

47%

Same-day ACH

Contactless cards

new

2

43%

Digital card issuance

P2P alternative to Zelle

new

11

39%

Contactless cards

Same-day ACH

new

- Statistically significant

40

Source: Jack Henry TM 2024 Strategy Benchmark Study

78% plan to expand services for small businesses Over the next two years, will you expand services for small businesses ?

22%

Yes No

78%*

*Total up from 65% in 2023

strategy

SOURCE: Jack Henry’s 2024 Strategy Benchmark Study: n=127 CEOs

41

financial fragmentation – small business

Business

strategy

42

competition ramping up for SMBs

43

Source: Blueprint for a Model Small Business Bank, Celent, June 2024

the state of small business in the U.S., cont’d • SMBs are an attractive and fast-growing market • ~$130B annual revenue pool in the US (Celent) • 4.6x deposit balance compared to consumer deposits • Shifting SMB demands/behavior/preferences: • Growing expectations set by nonbank providers • Small businesses are increasingly using apps and demanding that their banking services providers connect with their apps and provide on par or superior customer experiences and journeys. • Over the past 5 years, an average of 4.7M businesses have been started every year. • According to data from the US Census Bureau, the nearly 5.5M small businesses started in 2023 is the highest number on record.

44

most small businesses are sole proprietors

https://advocacy.sba.gov/wp-content/uploads/2023/03/Frequently Asked-Questions-About-Small-Business-March-2023-508c.pdf

45

the small business opportunity

46

Source: Blueprint for a Model Small Business Bank, Celent, June 2024

components of FIs’ small business rev opportunity

47

Source: Blueprint for a Model Small Business Bank, Celent, June 2024

Payments drive deposit attrition.

strategy

SMB payment (acceptance) impact on deposits

strategy

SOURCE: Autobooks’ “2022 Small Business Data Report”; September 2022

49

redefining the value of banking

AI strategy

strategy

banks’ deployment of AI, 2018-2024

strategy

SOURCE: Cornerstone Advisors’ 2024 What’s Going On In Banking Study; By Ron Shevlin

52

CUs’ deployment of AI, 2018-2024

strategy

SOURCE: Cornerstone Advisors’ 2024 What’s Going On In Banking Study; By Ron Shevlin

53

banks’ AI plans for 2024

strategy

SOURCE: Cornerstone Advisors’ 2024 What’s Going On In Banking Study; By Ron Shevlin

54

CUs’ AI plans for 2024

strategy

SOURCE: Cornerstone Advisors’ 2024 What’s Going On In Banking Study; By Ron Shevlin

55

customer service, fraud detection top AI use cases AI – Which AI use case is your top priority? (Of respondents who plan to invest AI over the next two years):

60%

50%

50%

45%

40%

40%

30%

25%

21%

21%

20%

20%

20%

20%

17%

10%

7%

7%

4%

4%

0%

0%

Customer Service

Fraud detection or prevention

Credit underwriting

Sales and marketing

Other

Total

Banks Credit Unions

strategy

56

SOURCE: Jack Henry’s 2024 Strategy Benchmark Study: n=127 CEOs

chatbots vs. intelligent digital assistants • Chatbots • rules-based systems that perform routine tasks with general FAQs…and generally suck in customers’ money moments of need • Intelligent digital assistants (IDAs) • evolved chatbots equipped with natural language understanding (NLU) which aids in understanding and retaining context for polished conversations while carrying out a variety of tasks to fulfill a customer’s requirements

strategy

57

AI use cases differ between bank asset tiers AI – Which AI use case is your top priority? Select the top three technologies you plan to invest in over the next two years:

Asset Size

Total

< $500M $500M - <$1B $1-$5B +

FIs with assets of $1B- $5B+ have significantly greater plans to use AI for customer service. FIs with assets of $500M - <$1B report significantly higher plans to use AI for fraud detection and/or prevention.*

45%

Customer service

46%

11%

78%*

Fraud detection and/or prevention

21%

18%

44%*

-

Credit underwriting

21%

27%

22%

11%

7%

Other

9%

-

11%

7%

Sales and marketing

-

22%

-

*Represents a statistically significant number

strategy

59

SOURCE: Jack Henry’s 2024 Strategy Benchmark Study: n=127 CEOs

data analytics and AI lead emerging tech discussions

strategy

Source: 2024 Bank Director Technology Survey; September 2024

60

among banks discussing allocating budget/resources to AI, most don’t have an AI policy in place

strategy

Source: 2024 Bank Director Technology Survey; September 2024

61

89% of banks are “much more” or “slightly more” concerned about digital fraud yet only 14% have AI-enabled fraud detection

strategy

Source: 2024 Bank Director Technology Survey; September 2024

62

6 steps for implementing AI at your bank 1. Define “AI” 2. Understand the big picture

4. Identify AI use cases • Review/document current • Evaluate/prioritize new 5. Develop usage standards • Handling of IP, PCI, PII • Software dev guidelines • Mgt of use-case approval • Authorized AI tools 6. Evaluate 3 rd party partners • AI infra and data needed for targeted use cases • Open banking strategy

• Vision, objectives, values 3. Review elements of an AI implementation plan • AI infra, engineering, security • Regulatory compliance • Data management • Model risk • Communication • People and culture

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63

data strategy

strategy

data scarcity: already running out of good data

strategy

65

SOURCE: CBINSIGHTS’ “2024 generative AI predictions”; January 2024

financial data’s value continues to rise quickly

strategy

66

SOURCE: CBINSIGHTS’ “2024 generative AI predictions”; January 2024

data privacy, IP and code concerns re: models

CODE PCI

PII IP

strategy

67

banks may be too optimistic about how much of their customers’ financial data they have

strategy

Source: 2024 Bank Director Technology Survey; September 2024

68

What if this is the only data the bank has?

Banks have only a fraction of their customers’ financial data…and can’t lever AI fully without it.

strategy

70

How can you get more of your own customers’ financial data?

strategy

71

How can you plug data deficits on your own customers?

strategy

72

strategy

73

Open banking provides the broader set of data needed to train and tune the ML/AI required to fight fraud successfully in real-time.

strategy

74

46% of Fls feel the risks of open banking outweigh the benefits, and only 35% believe the benefits outweigh the risks.

SOURCE: PYMNTS Intelligence & Hawk A.I.’s “How Fraud Fears Impact FIs’ Adoption of Faster Payments Solutioons”; Feb 2024

strategy

75

Experiencing increased fraud raises FIs’ aversion to open banking by 26%.

SOURCE: PYMNTS Intelligence & Hawk A.I.’s “How Fraud Fears Impact FIs’ Adoption of Faster Payments Solutioons”; Feb 2024

strategy

76

What do you need most to fight fraud effectively in real time?

strategy

77

Do you need more or less data to fight fraud?

strategy

78

Get smart about data strategy.

strategy

79

Total up from 65% in 2023 78% plan to expand services for small businesses Over the next two years, will you expand services for small businesses? Yes No 78% 22%

Source: Jack Henry TM 2024 Strategy Benchmark Study

strategy

81

strategy

82

data strategy 1. Do we have the right data? • If not, where can we get it? 2. Do we have enough data? • If not, where can we get more? 3. Can we access the data in real-time? • What do we need to access enough of the right data in real-time to do X, Y or Z?

strategy

83

What should banks do?

strategy

plumb into open banking

strategy

85

strategy

86

eliminate screen-scraping

strategy

87

solve fragmentation

strategy

88

achieve first-app status

strategy

91

With all of customers’ financial data aggregated back to the bank, GenAI can do amazing things…

strategy

93

become a matchmaker (i.e., CUs must be platforms matching members with right fintech innovations)

strategy

95

Open Platform

Deposits

NIM

Differentiated User Experience Bank

Fintechs 3 rd Parties

Customers

strategy

96

modernize and unify bank’s tech stack on cloud (incrementally, without risk, for agility, security, privacy and better compliance)

strategy

97

strategy

98

A glimpse…

strategy

The future?

strategy

GenAI is one part of a constellation of convergences that will fundamentally improve the unit economics of running a bank… and increase the charter value of relationship banking.

1 0

102 strategy

Banks can (and must) lever open banking rails, real-time data, and GenAI to remain effective, relevant and future-ready…and differentiate digitally on both personal and personalized service.

104 strategy

questions framing the future of banks 1. How will banks secure first-app status? 2. What is the bank’s open strategy? 3. What is the bank’s real-time (data/payments) strategy? • Can bank leadership see intra-day status of metrics (e.g., deposit inflows/outflows) and KPIs? 4. What is the bank’s embedded fintech strategy? 5. What is the bank’s path to a modern tech stack?

105 strategy

strategy

© 2023 Jack Henry & Associates, Inc. ®

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