Financial industry challenges are largely generational. The late 1800s was marked by notorious gangs that plundered banks throughout the American Wild West. The 1900s witnessed women struggling to enter the male-dominated banking industry. And now? Well, now we have digital banking.
The long-held promise of digital technology to transform financial institutions has not been broken. It just hasn’t been fully kept. The digitization of the financial industry was supposed to solve problems. And it has. It has also created some new ones in the process.
Challenges Facing the Financial Services Industry
In this article, we examine 10 of the biggest challenges facing financial managers today. We will also see how the global financial sector is doubling down on technology to find the solutions it needs to not only survive, but to thrive in the era of digital finance.
1. Cybercrime in Finance
Data breaches involving financial service firms increased by 480% from 2017 to 2018. With each attack costing financial institutions millions, innovative solutions are needed if we are to avoid a repeat of the lawless days of the Wild West.
Whatever cybercrime solutions emerge to protect financial services, blockchain technology must be the foundation. Period.
As more and more institutions adopt distributed ledger technology (DLT), blockchain will become the de facto solution to keeping financial data secure while at rest.
Integrating DLT with existing financial infrastructures poses some serious obstacles that must be overcome. Even so, we are past the point of asking whether blockchain is the holy grail of financial data security. It is.
2. Regulatory Compliance in Finance
The ever-changing regulatory environment poses a constant challenge for financial institutions of all types.
Automated reporting, automated audits, and process streamlining are only a few of the benefits offered by RegTech applications.
3. Big Data Use in Finance
Big data provides both opportunities and obstacles for financial service providers. Tapping into social media, consumer databases, and even news feeds can help banks better serve their customers, while better protecting their own interests.
But sorting through torrents of unstructured data for useful information is no small undertaking. It requires powerful data analytics technology if institutions are to reap a benefit.
Fortunately, data analytics solutions are emerging with the potential to transform asset management, trading, risk management, and other financial services.
4. AI Use in Finance
Industry experts believe that AI will transform nearly every aspect of the financial service industry. Automated wealth management, customer verification, and open banking all provide opportunities for AI solution providers.
But that’s all been said before. So why should we expect AI to keep that promise now?
Powerful advances in deep learning technology are paving the way for AI. In fact, if you have been alerted by your bank of suspicious activity on your account, you have likely already benefited from AI.
The challenge that financial services face is learning how to benefit from the power of AI, without being victimized by it. In R&D labs across the world, that question is being pondered at this very moment.
5. Fintech Disruption of the Financial Service Industry
Those pesky little FinTech companies that appeared less than a decade ago have not gone away, as many in the banking industry had hoped. On the contrary. Many have matured into formidable rivals for customers and the cash they bring to the table.
Realizing that partnering with these tech-savvy startups might be more prudent than opposing them, 64% of financial service leaders say they plan to collaborate with FinTechs in the future. Wise move.
6. Customer Retention in the Financial Services Industry
Competition for financial service clients has never been fiercer. While brand loyalty may not be dead, it is definitely on life support.
What matters to most customers in 2019 is greater personalization, more automated services, and easier access to services. Institutions that can deliver all three will capture their share of the market.
Key to not losing the battle is recognizing that customers are less concerned with brand familiarity than getting the services they want. Providing customers those services is key to client retention.
7. Employee Retention in the Financial Service Industry
Today’s financial service companies not only find it difficult to attract customers, but they are also finding it difficult to attract employees.
A lack of qualified talent to fill new IT roles, and a millennial workforce that shuns long-term employment, are leading factors in finding good help.
Institutions that want to attract and retain a qualified workforce must change their philosophy. No longer is it enough to offer good pay and benefits; workers now expect employers to nurture a culture that is accommodating to the values and lifestyles of the employee.
Change is necessary if stable and qualified workforces are to be achieved. But don’t expect it to come easy.
8. Blockchain Integration in Finance
We talked earlier about blockchain as a key component in the battle against cybercrime. But data security is not the only application for blockchains in the financial sector.
Far from it, cases across the globe are already proving the value of blockchain in a wide variety of banking and investment applications. From solving challenges faced by investment banks to helping customers make safer payment transactions, the list is growing daily.
Having said that, industry-wide adoption of blockchain is unlikely to occur until we reach a tipping point in the maturity of the technology. When that will happen is anyone’s guess.
9. Customer Experience in the Financial Services Industry
CX isn’t just a buzzword, it is one of the most important issues facing firms in the financial services industry
Banking customers, today, expect banking to be mobile, with a la carte services, and they don’t care if the bank is a FinTech no one ever heard of.
Changing old-age traditions will take time and money, but mostly open mindedness.
10. Crossing the Digital Divide in Financial Services Marketing
Success in the era of digital banking means more than having a mobile app. It means digitizing your entire brand. How do you do that? You shift your advertising campaigns from conventional ad media to digital channels. Which is another way of saying you reach your target audience where they are today, rather than where they were yesterday.
Of course, social media exposure is necessary, but you need more than a Facebook ad. You must tap big data and AI to help locate potential customers, and to deliver customized offers in real time.
According to a recent survey, only 7% of financial companies have implemented a cloud-based technology stack. The reluctance to adopt technological solutions is understandable. After all, banking did quite well for hundreds of years without them.
But the digital banking revolution has begun, and it will not end till the last institution has crossed the digital divide.
Whether your company makes the transition successfully or gets left behind will depend on one thing: do you see digital banking technology as a problem, or the solution?