One-third of financial services CIOs identified digital as their top business priority for 2019. As technology and digital services continue to transform the landscape across industries, digital transformation in financial services is no exception. New technology has pathed the way for new services which disrupt the old.
Changing customer expectations and behaviours, increased competition, more complex regulatory measures, demand for more efficient operations, and other factors are driving the push for reinvention, innovation and evolution.
Digital transformation in financial services is vital in allowing financial institutions to keep up with or outperform the competition. Here’s how financial institutions are adopting key emerging technologies to approach the drive in important digital transformation trends.
#1 Fintech
A blend of the word ‘financial technology’ is the application of technology to enhance or automate financial services or processes. These technologies are moving the financial services industry in a new direction, quickly. They have been targeting some of the most profitable elements of the financial services value chain.
PwC Global Fintech Survey suggests that ¼ of their business, or more, could be at risk of being lost to standalone Fintech companies within 5 years. Traditional banks are supporters and adopters of the technology, actively investing, acquiring or partnering with Fintech companies, moving the industry forward and staying relevant.
#2 Digital banking
Personal finance, consumers have increased demand for easy digital access to their bank accounts and financial products on their mobile. Majority of banks and financial institutions offer apps, especially the rise of neobanks!
Neobanks are internet-only financial services without any physical branch (E.g. Revolut, Monzo or Starling).
Mobile and digital infrastructure evolutions mean that traditional banks in 2020 are looking at their brick-and-mortar locations not as a place of business, but as pure overhead. Customers want 24/7 access, easy-to-use apps and as little human contact as possible apps.
#3 Mobile Payments
The definitions of ‘Mobile Payment’ means a process of payment for a product or a service via a portable electronic device. Payment technologies have changed the way we all do business and manage our finances. It’s easier than ever to send money digitally, catering to customer demands of convenience and quick transactions.
Fewer people carry a physical credit or debit card to complete payment. Apple Pay and Google Pay are two big payment technologies which have digitally transformed the financial services industry.
#4 Artificial Intelligence
Artificial Intelligence (AI) is being used by financial institutions as an opportunity for growth. The power of AI lies in its ability to run massive quantities of data through algorithms designed to spot trends and risks.
AI is digitally transforming key processes within financial services such as addressing key pressure points, reducing risks and mitigating risks.
They are targeting a specific combination of capabilities such as social and emotional intelligence, natural language processing, logical reasoning, identification of patterns and self-supervised learning, physical sensors, mobility, navigation, and more…
Financial companies are using AI to:
- Identify transaction anomalies.
- Better mitigate fraud and laundering risk.
- Make faster, smarter trade decisions based on sophisticated analyses of past market performance data.
- Calculate the best investment opportunities, the best interest rates, the best loan providers so clients can stay on top of their investment prospects.
- Conduct customer sentiment and mood analyses and personalize customer experiences based on individual customer profiles.
- Enhance customer experience by using chatbots and other tools to improve the customer service interaction.
#5 Blockchain
Blockchain is often associated with Bitcoin and other cryptocurrencies; however, Blockchain’s Distributed Ledger Technology (DLT) offers possibilities for other areas.
Simply, blockchain is a public ledger capable of recording the origin, movement and transfer of anything of value. DLT is a safe and secure method to transfer and catalogue data.
Instead of relying on central authorities, blockchain requires unanimous approval from the individual nodes in the blockchain to process a payment or transfer a good. Blockchain technology is most attractive to financial institutions as it solves problems associated with the industry today. By removing friction from processes blockchain technology can ensure:
- More secure and automatic payments.
- Strengthen supply chains, trading systems, and claims processing.
- Streamline back-office operations.
- Mitigate fraud risk.
DLT technology’s promise of eliminating unnecessary middlemen, paperwork and security headaches can save some of the largest banks, like Santander, around $20 billion annually.
Blockchain will go on to become an essential part of financial services technology.
#7 Cyber Security
Data privacy and cybersecurity continues to escalate, as attackers use increasingly sophisticated methods and enter through a greater number of entry points. Organizations are improving their security programs with technologies such as cloud-based cybersecurity services, Big Data analytics, and advanced authentication and biometrics.
Financial services companies with sensitive client and third-party information, are susceptible to attacks. A data breach can result in serious consequences, including loss of trust and diminished reputation, as well as legal claims and sanctions and other costs.
Surging cybersecurity and data privacy concerns have left all companies no choice but to tighten up internal controls and invest in more robust cyber and data privacy resources.
#8 Evolving Workforce
Digital transformation in financial services goes hand-in-hand with digitally upskilling employees and recruiting talent with the evolving industry.
Advances in technology creates an environment where positions are at risk of becoming outdated unless new digital skills are developed. The workforce must also evolve and rise to the challenge of becoming more digitally educated as digital transformation continues to accelerate within the financial services industry.
In 2018, PwC launched an internal digital workforce transformation programme, focusing on digital fitness. Increasing the technological capability of our people to keep pace with client demands, optimise our operations and continue to attract top talent.
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Written by Dominic Moore
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