Digital disruption in the finance industry
Like a lot of industries, the financial sector is going through a lot of changes in terms of digital transformation. Decades ago, the financial sector was location-sensitive, and the physical branch was king, meaning that everything was based on human relationships and face-to-face interactions.
The first real digital disruption came just over 50 years ago with ATMs, putting a physical difference between the banks and their customers for the purpose of convenience, speed and expansion.
Like most industries, the financial sector is going through an intense time of digital transformation. Check out how technology is influencing the insurance sector here.
Back in the day, the financial industry was very product-driven and the systems created were, in turn, also very product driven. Consumers are now used to engaging with everchanging technologies which make it more convenient access to financial services whenever and wherever they want. Digital disruption in the finance industry is spurred by two main aspects:
1. Changing consumer demands
Banks are being encouraged by changing consumer demands to embrace new opportunities and technologies including cloud-based services, bots, voice interactions and mobile apps. Not only are banks adjusting customer-facing interactions, but they’re also digitising their internal processes by moving away from paper-based filing and legacy applications for more secure and efficient options such as cloud.
Most of us remember the banking crisis of 2008. It was three weeks that changed the world and brought down financial giants. It was a big full-stop for many of the banks to recapitalise and not spend more cash than needed on digital initiatives and instead invest I mandatory initiatives just to keep themselves going. It could be argued that if the financial crisis didn’t happen, we may have been even more ahead with financial technology than we are now.
2. A growing threat from challenger banks
A challenger is a small bank set up with the intention of competing for business with large and long-established national banks. Over the last 10 years, the largest banks have recapitalised themselves to keep themselves progressing, but challenger banks have been able to utilise emerging technologies to move more swiftly too.
The exciting thing is, challenger banks will get to a point where they can service very niche markets while also being able to scale globally without running into the same problems that national banks have done previously.
Responding to the change
The financial industry isn’t afraid to embrace change. The big leaders in finances industry are embracing change. There is so much money at stake and it’s a ruthlessly competitive environment, so to not embracing it would be to their own demise.
With more at stake, how can larger and more legacy-based banks best embrace a digital mindset and practice? The answer would be through a clever combination of culture, talent and technology.
Banks have had to evolve to benefit to the changes. Most large financial institutions have talented engineers within their IT divisions who have built robust, scalable technologies that service huge banks very well. It allows banks to move at speed and pace, whilst remaining secure and robust.
Meeting the challenge of change
A bank’s technology needs to be interconnected into their infrastructure where mindsets, skill sets, and toolsets come together to embrace new technologies. Banks need to be open to innovation, collaboration and embracing “fintech” or “financial technology”. Just like with the introduction of the ATM, banks need to keep up with the times.
A decade ago, the banking crisis meant that banks stopped all recapitalisation and expenditure on digital initiatives. With the direction that the financial industry is moving in right now, in banks will be very different in another 10 years.
This doesn’t mean that they won’t come across a few challenges along the way as data regulation and GDPR become even more prevalent and industry regulations continually progress. Banking, insurance and financial service firms have been subject to tighter controls of auditing, reporting and assessment, especially as it’s an industry where heavy security is compulsory. A data breach can not only have a detrimental effect on an individual, but it can also have a long-term impact on the reputation and trust of the financial institution.
Whilst the risks are significant, there are a lot of technologies which are helping financial services to overcome these challenges such as helping with customer service, marketing, operations, security and customer insight.
Key benefits of digital in the finance industry
Embracing technology is the way to go for the finance industry. There are key benefits to the finance industry when implementing technology functions:
- Better customer service with the help of online banking or chatbots etc
- Reducing process costs and increasing scalability
- The efficiency of the investigation and identification of fraudulent activity
- Increasing effectiveness by optimising cycle time, reducing transaction errors and eliminating transaction re-works
- Leveraging industry-leading practice to standardise, simplify and reduce overall complexity for customers and employees
A significant factor for the financial industry to overcome is the harmonious balance between technology and manual intervention. Disruption isn’t necessarily a bad thing, it can generate good, effective change.
If you’d like to chat further about how the finance industry is being shaken up by technology, you’re welcome to contact me directly via email at [email protected] or call me on 0121 616 0093.