Wall Street banks have realized they can't do it all themselves

If banks want to continue to cut costs, then they need to deploy nascent tech such as blockchain and machine learning.
Banks are partnering with fintechs to spread risk and cost, and building the tech that will differentiate themselves in-house.

Technologies like AI, machine learning, and blockchain have become buzzwords on Wall Street, and for good reason. They have the potential to make financial services firms more efficient.

AI, for instance, could translate into productivity gains of 20% to 30%,

easier said than done for some banks, which are already burdened with declining returns on equity and costly legacy systems.

Banks then are stuck between a rock and hard place. They are under pressure to cut costs, but if they don't put the necessary cash into new tech initiatives, then their cost problems intensify. That's where fintechs step in.

"Given the imperative to cut costs and the opportunities offered by new technologies, many institutions are now actively seeking to embrace partners," the report said. "They are leveraging partnerships to add innovation in areas where they lack expertise or scale, or to enable them to focus the expertise they do have on their most differentiating areas."

JPMorgan also launched a residency program for fintech firms in order to tackle strategic and security-related challenges using big data, blockchain technology, and machine learning. Such incumbency programs have taken off on Wall Street. Deutsche Bank in March announced a new innovation lab in New York City to

The pay-off for such partnerships could be big, according to the Broadridge report.

The firm's research suggests $2 to $4 billion of the total near $24 billion spent on trade processing costs could be "eliminated" for partnerships on non-differential tech, for instance.

It will also allow banks to focus internally on things that will set them apart.

"By adopting a partnership approach to take advantage of the biggest technological advances in a generation, banks can free themselves to work on standing out from the competition, putting themselves on a stronger pathway to profit," the report said.