Winning in the new normal for the Financial Services Industry

The new normal for the Financial Services Industry:

The Banking and Financial Services Industry is facing a new environment which brings challenges across multiple dimensions.

At the macroeconomic level, there is a slowing global economy, inflation, higher interest rates, reduced money supply for capital markets, geopolitical shocks including wars, weakening household finances and rising insurance costs. The Financial Services sector is also facing competitive pressures, raising consumer expectations and industry shifts. This includes the continuing fight for deposits, rise of digital only banks and fintechs, innovative products like BNPL, stress in commercial real estate post covid, continuing focus on cost discipline, need for hyper personalization, perpetual KYC, Real time payments, Ecosystem Banking, Embedded Finance, shift of Insurance from risk transfer to risk mitigation etc. New exponential next gen technologies also bring new opportunities. These include AI/GenAI, Open Banking, Digital Identity, Increasing Fraud and Cyber Security Challenges, Acceleration of Digitization, Legacy Modernization and Platform & Cloud transformation. There are also demographic changes bringing a new generation of customers who have drastically different expectations regarding financial services and are open to consume them differently than past generations.

Technology strategies to navigate these uncertain times:

As Banks, Financial Services institutes and Insurers look to navigate this new normal, there are five technology adoption and delivery strategies to embrace to stay relevant, resilient and grow profitably.

1)?Make customer experience the core: With the raised customer expectations and more digital native demography in the customer base, it is paramount to deliver frictionless and hyper-personalized customer experience. A comprehensive customer experience analysis and journey design across all customer segments, customer and colleague personas, products, digital channels and applications is a great way to understand and elevate the experience of customers and remove friction points. This design will also be a central driver for future investments in products, features and platforms.

2)?Adopt AI and GenAI: According to the report “AI in Finance - Bot, Bank & Beyond” published by Citi in June 2024, AI could add $170 billion or 9% to global banks sector profit pool by 2028. Also, the Financial Services industry is expected to be the leader in the adoption of AI /GenAI. There are a wide range of AI use cases that can deliver significant immediate value in Operations, Customer Engagement and Technology Delivery. A few use cases like AI based knowledge assistant for contact center agents or AI based document extraction and processing for small business onboarding could be quick wins. But many organizations start by piloting one or two AI use cases only to pull back due to concerns about customer data, trust, model explainability and risks. The best way to adopt AI is to first establish a broad AI strategy aligned with business goals and take a platform centric approach to build and manage AI use cases. This will ensure safety, reuse, data privacy and regulatory requirements are inbuilt from the outset and AI can be scaled safely and cost effectively across the enterprise. It is also vital to establish a robust AI governance framework that aligns with both regulatory requirements and industry best practices. This will ensure AI systems are transparent and explainable, especially in sensitive areas like lending decisions and insurance underwriting.

3)?Focus on rapid business outcomes and speed to value: Implementing digital initiatives in an iterative and agile way with a focus on delivering business value faster is critical in these uncertain times. It is best to avoid multi-year long running initiatives and instead market test key new capabilities and features with incremental rollouts. A product delivery operating model with business OKRs and customer value as the driver could be the best approach for many businesses. Along with focusing on speed to value, there shouldn’t be any compromises or shortcuts in establishing strong architectural and technology guardrails and reuse.

4)?Invest in Technology modernization to overcome Legacy drag: To be agile and resilient, it is critical to invest in foundational and next generation technologies across Cloud, API, Data, Platforms, Microservices, DevSecOps, AIOps, cybersecurity, software tools, engineering talent etc. Also, legacy modernization, overcoming technical debt, having open, decoupled and resilient applications, ability to integrate with external ecosystems are critical to take advantage of new growth opportunities. It is best to create Enterprise and Business level Technology strategy and roadmap that guides the decisions across technology stacks, architectures and applications and then dovetail all technology change and modernization efforts to this overall strategy. The goal should be the scaling of the financial institute to 2x or 3x revenue without disruptions, performance decline, resiliency loss or significant costs.

5)?Embrace new technology Partners and Operating models: We have seen the expansion of remote workforce and focus on resilient supply chains post the pandemic. There are continuing disruptions with AI/GenAI based IT Services, Product centric delivery models, Global Capability Centers, Nearshore delivery, joint co-creation and co-building with partners etc. Organizations are also exploring new partners and challengers instead of sticking to existing “Scale” players who may be mostly delivering legacy services with a headcount mindset. With these disruptions, it is time to revisit the Technology Services vendor strategy and spread the risks with a mix of Scale, Challenger and Niche providers.

Infinite is well placed to meet these needs of the BFSI sector:

We see that the clients are looking for partners who can bring a combination of domain, platform and AI capabilities underpinned by strong leadership team and delivery capabilities. They are also looking for service providers who understand the complexities of the existing business and technology landscapes and deliver value rapidly while focusing on cost efficiency.

Infinite is doing exactly that, and we are bringing strong financial services domain, product design, platform engineering, experience in exponential technologies, agile factory delivery model and infusing AI into all parts of the value chain including Technology design, delivery, managed services and operations.

This helps us to deliver critical engagements such as Core Banking Implementation on Cloud, Programmable Payments, Banking as a service, Commercial Underwriting transformation etc. We are delivering many AI-based engagements including creating AI strategy and roadmap, infusing GenAI in existing Testing and Infra Operations, Implementing AI/LLM use cases in contact center, customer onboarding, commercial insurance underwriting, claims management, document processing, knowledge management etc. We are working with several banks and credit unions on Fraud which is a big focus area in the Financial Services industry. We are also helping them in the overall Technology and Platform strategy for growth, resiliency and scaling.

In summary:

These are uncertain and challenging times for the Financial Services industry. But they are equally exciting, given the potential for disruption and outmaneuvering of the competition especially with new exponential technologies and operating models. It is critical for organizations to take a strategic and thoughtful approach to navigating these choppy waters and come out as winners. A partner like Infinite can help in this journey.

This article is authored by Rajaram (Raj) R. K. , an industry leader with over 25 years of proven track-record in incubating and scaling businesses by leveraging Technology, Cloud and Digital Innovation in Banking & Financial Services.?