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For midsize banks, buying from vendors has been the norm. But the rise of agentic artificial intelligence has upended the build-versus-buy calculus, Valley Bank’s chief operating officer said.
Midsize banks typically have a slew of niche products or purpose-built solutions they’ve acquired through vendors that solved a particular problem the bank had at a certain point in time, said Russ Barrett, the $64 billion-asset bank’s COO. But as banks employ AI to a greater degree, that’s changing.
“We are already replacing three external contracts with our ability to leverage AI,” Barrett said in a recent interview. Those were software solutions focused on specific workflows, he said.
While the largest banks already have robust engineering capabilities and a build rather than buy mindset, “our ability to exponentially improve our engineering is totally a game-changer for a bank like Valley,” he said.
Completing foundational work such as the bank’s core conversion and seeing through a cloud-first strategy has given the Morristown, New Jersey-based bank a head start in making strides with AI, Barrett contended.
He pointed to the bank’s quick work with other companies on AI-powered prospecting and fraud capabilities, having reached the production phase sooner than similarly sized banks those partners are also working with.
Barrett made a distinction between the ability to identify a use, sign a vendor contract and begin working, and the ability to get a tool into production and realize benefits.
“A lot of people talk about the first, and it’s a little bit more challenging to be able to sit there and stick to it to see exactly how to get more to the latter,” he said. “We probably are not market-leading in the number of use cases, but we do feel our ability to execute and see it to fruition is definitely something.”
Based on its survey of 73 banks of various asset sizes, D.A. Davidson said Wednesday “the emergence of tangible use cases over the past few months is notable.” About 42% of bank respondents are providing individual user tools, and an additional 35% have identified and implemented quantifiable use cases.
Valley is using AI to realize internal efficiencies related to low-quality, repeatable work and as a “force multiplier” to assist employees, he said. But the bank also sees AI as a customer relationship-bolstering tool.
That involves identifying and working “in what I would call a not-creepy way to leverage AI to be a better relationship bank,” Barrett said, as well as employing AI to enhance lead generation and prospecting, to help bankers develop new client relationships.
