In the banking industry, digital transformation is changing the way businesses operate daily. From retail to mobile banking, technological advancements influence every facet of the industry, led by increasing demand from Millennials and Gen Z demographic for a digital experience.
Banks are rethinking their strategies for tougher economic and recession possibilities in 2023, says Forrester. A common practice in the sector is making wise investments to position themselves for long-term success while keeping costs in check. Despite challenges, lucrative times are imminent for the banking industry, where everything will undergo a radical transformation, making firms adaptive, proactive, and innovative. The focus is shifting from augmentation to invention, considering their digital innovation initiatives.
On the other hand, the insurance industry is undertaking a large-scale change to deal with unforeseen developments. They continue to address the technical debt through flexible business models, cloud migration, and core process digitization. Technology adoption, which was sluggish in the insurance industry, is witnessing rapid growth in recent years.
The advent of direct-to-customer sales, growing risk factors, and the need for a personalized experience made insurance companies rethink how they do business. According to Gartner, only 8% of Insurance chief information officers (CIOs) have implemented key business composability components
Banking & Insurance Industry Statistics
Although recent years have seen various technological advancements and innovations, banking and insurance companies are increasingly looking at technologies to create a better digital experience for their customers and improve operational efficiency. The statistics mentioned below, collated from recent studies by Gartner and Forrester, attest to the observation.
- Banks will synthetically generate 20% of their test data for use cases facing consumers – Gartner
- Total IT spending in the banking and investment sector surpasses USD 260 billion – Gartner
- Over 70% of banks consider cost-cutting a top priority – Forrester
- More than metaverse, banks will focus on operational efficiency as they redirect the innovation expenditure – Forrester
- Over 60% of insurance consumers want the companies to provide information related to loss prevention and claims – Gartner
- Nearly 60% of insurance CIOs have designed business processes aligned with technology capabilities – Gartner
- For their services and products, incumbent insurers will navigate newer embedded distribution channels – Forrester
Banking & Insurance Industry – Popular Tech Trends
Trends gaining traction are different, observing the two industries individually due to the nature of the businesses. Although banking and insurance belong to financial services, the target customers and the technological needs vary significantly.
Let’s look at the banking industry first and try to understand the change in its dynamics. Traditionally, banking was quite conservative in technology adoption. The banking industry thrived on trust with a lot of focus on customer data and less on agility or speed. However, in the technology-driven business landscape, things are changing due to evolving customer demands and mindsets. What we see and understand from the banking industry experts concerning demand from today’s customers and regulators can be summarized as follows.
- A Complete Digital Experience: It is nothing new that customers prefer online banking, which allows them to purchase or terminate services without having to visit the firm. With smartphone applications getting more efficient and innovative, business transactions in various spheres of life are getting simple and easy. The millennials and the Gen-Z demographic expect the same from their banks.
- Personalized Technology Experience: In the last two decades, banks started providing most of their services online. Customers see a lot of data about various products and services. However, the current customer expectation is that their bank provides only relevant information and does not flood their mailboxes and phones with every product information. Banks need to understand customer expectations while being up to date with their lives. It will put a lot of pressure on the existing technology systems of the banks.
- Data Security: With the banking sector looking to go fully digital in the coming days, data security is important for both customers and regulators. Therefore, the platforms will require the highest levels of cybersecurity standards.
- Real-Time Regulatory Controls: The spiraling digital transformation trend and the increasing speed and agility of the banking industry have prompted regulators to be wary of online fraud, security breaches, and other issues that severely impact customer confidence. Hence, real-time dashboards, transaction reports, and information are becoming a mandate of regulatory bodies globally.
- Real-Time transactions: In the past, the standard banking transactions used to take anywhere between 2 and 5 working days. It depended on various factors such as location, nature of the transaction being domestic or international, currency conversions involved, etc. In the new normal, it will be unacceptable. As alternatives, various fintech agencies promise to reduce the time to hours, if not minutes. Although the banks achieved this in most cases, they must continue to invest in making transactions nimble, real-time, and error-free without compromising data security. Technology innovation is the only way forward, considering the many channels and protocols involved in each transaction. It will be challenging for the banks to manage every change and drive innovation. Hence, technology partners will play a vital role. The partners will range from product vendors and cloud service providers to IT professional services partners, and each will have a role to play in the foreseeable future.
To understand how each IT software partner will help achieving technological progress, innovation, and efficiency, let us look at the roles and areas that the specialists must cover.
The Emergence of Winning Banking Products:The core products of the banking industry are standardized to a certain extent, with identified market leaders ruling the areas such as core banking, syndicated lending, front & back-office operations, finances, etc. There are only a handful of banking software products that truly meet the global requirements in different banking areas. However, the question is, among these market-leading products, which ones will emerge victorious? It will be those that realize the true importance of making the banking processes seamless and enabling maximum scalability and flexibility. Ultimately, it will help banks deliver a personalized experience to their customers. These winning products will enable running the software on all the cloud platforms, allowing easy integration with native services and other products with low customization costs. A bulky product with extremely high dependency on licensed software and complex integration modules will very quickly become obsolete.
Choosing A Suitable Cloud Infrastructure Platform: With all the agility and speed of action required by current and future banking customers, the IT systems must be scalable and flexible. There is a need for continuous improvement of the digital experience along with the ability to bring changes and features to the clients faster. Without a doubt, making these changes will be challenging unless the IT workloads are migrated or redeployed on a public cloud platform. For assessing the existing workloads and technology, and understanding the plans for IT expansion, the banks must choose their cloud service provider with caution. For a bank, cloud migration entails a significant amount of time and effort. Informed decision-making will be of paramount importance as it may not be easy to recuperate after a certain point.
Design and Implement the Highest Levels of Security: As more and more transactions become digital, fraud and security breaches online will become a common sight. Robust security practices will be necessary, both in design and operations, to prevent data breaches. Here, partnering with professional service providers with cybersecurity specialization will be a priority for coming up with a well-defined and proactive approach to infrastructure protection. At present, the industry sees big strides in cybersecurity and technology advancements, such as Zero Trust Network and cloud-native SaaS-based SIEM. These solutions enable continuous monitoring along with the ability of threat detection and risk management through analytics. The right implementation of such solutions will go a long way for banks to maintain customer trust.
Data Analytics for Real-Time Reporting: For a long time now, we have all agreed that data is the new oil. For banks, it is no different. However, the kind of data that is valuable varies between industry sectors. Banking is a highly regulated industry, and with the rise in online banking, regulators will focus on critical data in real-time. There are firms specializing in data analytics and reporting and they will continue to gain popularity for providing such services.
We will talk about the use of data analytics in a different context when we talk about the insurance industry later.
Automation: It is here to stay and is probably the most important lever for the banking industry. The automation that we see today in the banks is probably just the tip of the iceberg. Until now, the real automation from the end-user side is limited to chatbots and the processing of digitized account openings and operations. Whether using DevOps to deploy features on-demand or using APIs in the backend for processing most of the transactions, innovative automation will remain the key driver. The current demands of customers, more so in retail banking, is the 24X7 real-time processing of transactions. In such a highly regulated industry, it is possible only through controlled and diligent implementation of automation in front, mid, and back-office IT systems. Needless to say, such implementation will require expert professionals, and just like products, there will be some among the IT professional service providers who would scale in these areas faster than others and emerge as winners.
We have talked about the banking industry. Now, let us have a look at the transformation paradigms of the insurance industry. Like the existence of various products in the banking industry, the insurance industry too has a variety of products related to health, life, auto, home, device, and others. In contrast to the consistent presence of the banking industry globally, the insurance industry’s penetration in the general population, however, varies a lot from country to country. Especially, in developing countries, its penetration is still quite low which creates a tremendous opportunity for growth in the digital business world.
Over the years, the insurance business has been quite restrained in terms of being agile, generally regulated by individual countries’ governing bodies, and is heavily dependent on channel partners. They were consistently reluctant to become the first movers in any area, rather than preferring to wait and watch others before making a move. However, with the rapidly changing customer expectations, the channel partners having changed to digital platforms, a new phenomenon, insurtech, has emerged just like fintech’s incarnation in the banking world. The approach of wait and watch has given way to new age insurance companies to become the real disruptors of the market.
The key points derived from different studies and opinions by insurance industry veterans, considered to be potent in driving the insurance industry’s future growth are summarized below.
Focus on the Customer: Attaining new customers is harder for insurance companies compared to banks and comes at a higher cost. The availability of ample amounts of data on a population, region, and even community has made it extremely important for insurance companies to create the right set of products for a particular demographic. A one-size-fits-all approach will not attract potential clients, and the companies not able to make this change will struggle to stay in the competition.
Create an Identity: Using technology and data, insurance companies must look to create innovative products that meet the specific requirements of their clients. Such products will create an identity for an insurance company. Customers will be accepting of such products, knowing their benefits and compatibility beforehand, which will reduce the cost of marketing for insurance companies. The investment priority of insurance companies will change from marketing to customized product development.
Reduce Liability, Quicker Claims Settlement: This is quite similar to the expectations of banking customers for undeviating processing of transactions. Customers will expect their claims to be processed digitally and without the hassle of the paperwork. Although this advancement is still in its infancy, the claims settlement must be processed as quickly as possible. Although it will need a set of approvals, validation, and verification in certain claims, the majority of straightforward claims must be processed and settled in real-time.
Conduct Business Anywhere, Anytime Irrespective of the Channels: An emerging trend witnessed in the last few years, especially with COVID restricting the movements of people severely, is the comfort of buying insurance services and products online. What used to be sold majorly by partner salesmen, is taken over by various online channel partners who provide greater agility and speed. It necessitates insurance companies to establish highly effective online platforms that seamlessly integrate with all the major channel partners. Any of the insurance companies lagging need to pull up their socks and get to business fast. This will be the norm globally in the future. Some countries are already witnessing this phenomenon unfold, with the rest following suit.
For insurance companies, the amount of technology innovation required to keep up with the pace of transformation necessitates involving the right partners. The key to success is choosing the appropriate cloud service provider and developing successful insurance products that offer enough flexibility to customize against customer-specific requirements. I would like to mention three areas of IT and software that are expected to play a vital role in shaping the insurance industry for the future.
Extensive and Diligent Use of Data: Professional expertise is critical to handle and extracting valuable insights from petabytes of data available at the insurance industry’s disposal. It will require expertise in understanding the customer or a certain demographic and identifying opportunities by analyzing the reason behind the industry’s low market penetration. Customer profiling and choosing the right product will rely on the financial condition, stage of life, family, needs, and future goals of customers, to name a few. It will involve an enormous investment in developing in-house IT teams to go data-driven with a solid track record. Insurance companies, having the ability to adapt and handle many use cases efficiently, will be the leaders in the industry.
Integration with Channel Partners: Integration with online channel partners will not remain a luxury. It will be a mandate for all insurance companies, which is possible with numerous native APIs offered by the leading cloud providers. Any IT service provider with the right set of knowledge of cloud-native development and expertise in API management will be crucial for insurance companies to build and maintain such integrations.
Use of AI & ML to Facilitate Faster Claims Settlement: The current claim settlement process concerning health is inefficient, and completely misaligned with customer expectations. The only option going forward, to keep the potential clients interested, is to establish a seamless and nimble settlement process. A significant overhaul of the insurance companies’ IT teams is imperative, rather than introducing insurtech to drive innovation. The AI & ML-based automation will help scan, read, and approve a large portion of the claim’s approval process. In turn, this will streamline the process. However, to develop reliable systems will need insurance companies to partner with the right technology provider.
Banking & Insurance – The Role of Digital Transformation and Cloud Computing
Digital transformation and cloud computing are critical for the banking and insurance industry to see notable positive changes. It is only possible by revitalizing existing operations, improving work culture, and focusing on customer experiences. The digital transformation completely reshaped the industry, facilitating the demand-supply balance, smart transactions, and 24/7 support to query resolutions. Cloud computing and digital transformation are bringing cultural and operational shifts across all areas of the banking and insurance industry.
The industry must move smart in adopting the cloud to power their digital transformation journeys to breed unshakeable security and bid the legacy systems goodbye once and for all. Banks and insurers must look to implement innovative technologies and systems to explore all the possibilities of the cloud shift. However, overseeing the innovation will need competent talent.
As digital transformation journeys accelerate alongside cloud adoption, and the new normal continues to unfold, the banking and insurance industry should be prepared with evolved methods of doing business. By eliminating the burden of traditional
systems as early as possible, the industry can build resiliency, be better equipped to proactively mitigate risks, and participate in the highly competitive landscape through a connected ecosystem.