After having experienced a tumultuous journey, the financial services industry is embracing a new breed of technologies. The pandemic has pushed financial companies toward the cloud, with most adopting digital transformation. According to McKinsey, over 50% of companies are making technology investments to refocus their business around digitization. Moreover, the consulting firm believes nearly 80% of the customer interactions in the industry are digital.
Following are key technology shifts identified by Gartner, Inc. as growth contributors to the financial services industry
- Adoption of privacy-enhancing computation methods to rise among approximately 60% of organizations by 2025
- The foray of autonomic systems
- Using generative AI for risk factor modeling, fraud detection, and trading prediction.
While transformation remains the top priority, increasing efficiency, managing risks, and optimizing costs contribute to technology adoption and innovation. As customer expectations continue to spiral, there are key challenges facing the financial services companies to fill the expectation gap, which include insufficient support, lack of accurate solutions, low customer-centricity, and long-term stability. Hence, the industry is witnessing a common crucial goal among companies – Improving Customer Experience.
Improving Customer Experience – The Next Big Thing in Financial Services Industry
The more the customers grip digital solutions for a better experience, the more grows the adoption of digital technologies among financial services companies. They focus on continued investment in cloud-native applications, automation, machine learning / artificial intelligence, and IoT-driven systems. Objectives like real-time mitigation of risks and more efficient operations are major investment enablers.
To differentiate themselves and deliver customized products for quality customer experience, financial services companies are growing more digital and partnering with FinTechs. Their prime focus in doing so is to develop an in-house team of specialized technological knowledge. The relationship that involved competition has turned into a strategic partnership that benefits both. Financial services companies can bring regulatory and industry expertise whereas FinTechs can offer innovative customer engagement methods and speed-to-market.
All these efforts of financial services companies converge on a single focus – improving customer experience. They keep growing keen on going digital, disrupting the cloud, big data, and machine learning models to create customer-centric services and products. For process automation and to consolidate cybersecurity, financial institutions leverage artificial intelligence to bring optimal efficiency.
Popular Financial Services Trends to Watch Out For
What fundamentally is similar to databases, blockchains comprise a few differentiating characteristics. To name a few, they are distributed, encrypted, and governed by consensus. These characteristics make them highly disruptive for financial services companies centralized by regulators, such as national banks and governments.
Blockchain offers a platform for infrastructure streamlining by eliminating fraud, speeding up operations, strengthening security, and establishing transparency. In the foreseeable future, the rise of innovative business use cases using blockchain is inevitable for financial services. What was limited to digital tokens and cryptocurrency, will be potentially lucrative for the industry.
Machine Learning and Artificial Intelligence
One of the early adopters of ML and AI, financial services leverage these technologies to prevent fraud, assess risks, and automate repetitive operations. Established financial services players face competition from big retailers and technology giants like Google, Microsoft, and Amazon. A feasible tool for all these competitors is ML, AI, and data-driven technologies, leaving lesser room for financial services companies to adopt and leverage them for competition. However, IDC predicts that financial institutions will ramp up investment in AI and account for nearly 15% of global AI investment by 2025.
Consumers look for efficient mobile applications from financial services companies. The reason is the dire need for quality customer experience, relieving brick ‘n’ mortar visits, and establishing an always-on connection. It is evident that financial services companies will deploy cardless transactions, chatbots, and personalized communications through mobile phones.
Already migrating en masse to the cloud during and after the recent pandemic, financial services are determined to bring solutions at scale. Digital services have witnessed a demand spike more than ever before, alongside the resiliency and security of the infrastructure. Cloud computing has made this simple and relatively affordable, particularly in orchestrating projects that make the most of technologies like AI, Blockchain, and mobile applications. Hybrid cloud and multicloud infrastructures are preferred among the industry players looking to meet environmental, social, and governance (ESG) goals.
Building and Innovating on the Cloud
The financial services industry used to deploy SaaS applications, especially for non-core application areas like human resources and customer relationship management but things have changed. They are increasingly adopting the cloud for core application areas like consumer payments and credit assessment.
The ineffectiveness of the legacy core solutions to process huge data volumes and enable the computing power essential to offer valuable business insights has further driven cloud adoption among financial services companies. Reducing the data storage cost and delivering scalable applications, the cloud empowers financial services players to achieve a high speed of innovation with quick responses to evolving customer expectations.
Ways in which the cloud benefits financial services companies are
- Low Time-to-Market and High Speed of Innovation:Cloud technology continues to spur innovation by ebbing the barriers to entry for financial services companies that have hosted their infrastructure on the cloud. While the cloud decreases the time-to-market through rapid application development and cost optimization in new server set up, it eliminates the financial services organizations’ need for more time to procure hardware and spend on upfront capital.
- Augmenting Responsiveness:Reducing the data storage cost and improving scalability, the cloud continues to empower financial services industry players to maximize big data through advanced analytics for valuable customer insights. These players are embracing the cloud in the form of analytics platforms to harness customer insights using the data from different partners via microservices and APIs, thereby achieving high responsiveness to customer requirements.
- Driving Revenue: Cloud environments have driven financial institutions to pave revenue streams. For example, traditional companies leverage the cloud to sell the payments IaaS to different start-ups and industrial companies. It diversifies the revenue streams and facilitates interoperability, as different systems efficiently integrate with one another into cloud environments. The result is a seamless end-customer experience.
- Enabling Cybersecurity: Adopting globally-accepted best practices like real-time health monitoring of systems and advanced security features deployment makes cloud providers the right fit for financial services companies to secure the data and eliminate risks. Hybrid cloud adoption along with a server on the private cloud to store critical data and a server on the public cloud to store non-critical data effectively addresses the issues of data protection, security, and compliance. As the digital transformation landscape grows, the cloud’s potential advantages will grow too, leaving organizations with no choice but to act on their cloud strategy.
Despite recent advancements, the industry faces challenges to transform certain components of the technology stacks. Modern technology stacks are used in mobile applications; however, data privacy is an issue. Financial services industry executives face difficulties to migrate such applications to the cloud for optimizing costs and leveraging managed services. Moreover, deployment and management of multi and hybrid-cloud environments are key difficulties for financial services companies.
Despite all the challenges, financial services companies are the ones who lead the transformation of the global economy. Their digital solutions facilitate the lives of consumers. As the industry grows to be pivotal for developing a sustainable and reliable economy, digital transformation powered by the cloud will witness aggressive adoption by financial institutions in the coming years.