What’s the biggest issue confronting financial services today? Technology. And not just old-school back-office automation (although that’s still important), there’s also the way that emerging and disruptive technology is forcing financial institutions to reimagine almost every area of the business. Let’s look at some examples.
Customer preferences. Thanks to advances in the digital economy, customers are demanding more choices, more convenience, and a friction-free experience. Financial institutions are responding with online and mobile solutions that give customers greater control in the delivery of the products and services they need.
Product distribution. Increasingly, third-party retailers are assuming the distribution of financial products such as insurance and lending. The result is a customer base that identifies more with the retailer than with the provider. Incumbent institutions are responding by investing in front-end technologies that reestablish customer connectivity through sophisticated interaction capabilities.
Regulation. Since the financial crisis, large financial institutions have put a great deal of labor and expense into addressing regulatory compliance concerns. Much of that was done very quickly and therefore manually.
Now large institutions are examining their options for automation, but have discovered that fintech applications generally serve only part of the compliance process.
Rather than start from scratch, firms are becoming integrators—merging their own capabilities with those of fintech and large technology companies to come up with an end-to-end solution.
Banking is taking very different forms around the world.
In some markets, nearly all banking is done via mobile phones. In others, legacy infrastructure still dominates, overseen by regulators concerned about stability. Financial institutions in these more established markets are working with regulators to satisfy requirements and clear the way for the widespread adoption of new technologies.
Competition. Incumbent financial institutions have important competitive advantages: brand, trust, and customer service. But one advantage, cost, is gone—whisked away by new entrants whose infrastructures are entirely online. Realizing this, leading firms are prioritizing the adoption of digital technologies to drive down their cost to deliver and close the price gap with upstart competitors.
Talent management. The global financial sector has hundreds of thousands of jobs. Many are in the middle and back offices, making them vulnerable to automation. It’s looking increasingly likely that those jobs will be replaced by technology in the not-too-distant future. The socioeconomic effects of this development is a subject that the industry has mostly avoided—but it probably won’t be able to for much longer.
These changes are coming on quickly.
To adapt, financial institutions will have to build flexibility into their organizations—no small feat within an industry known for its conservatism. The good news is that financial services has always embraced technology. In that spirit, large institutions have already begun to pivot, turning to a future where digital innovation is neither cyclical nor segregated but a permanent feature of day-to-day business.