This year poses another “disrupt or die” scenario for industries all over the globe, and the financial services industry is no exception. For good or ill, technological innovations empower all sides—both businesses and customers, institutions and individuals, regulators and criminals. As a result, the challenges facing financial institutions are becoming more complex than ever before.
Understanding the top trends that are poised to reshape the financial services industry this year—and beyond—can help financial service companies remain competitive in a rapidly shifting marketplace.
Here are the top five trends that are currently revolutionizing the financial services landscape:
1.) Stronger FinTech
According to Business Insider, global funding for financial technology (FinTech) surged to the tune of $15 billion by mid-August 2016 with the United States, Europe, and the Asia-Pacific (APAC) region leading the way in attracting the most fintech investment. Analysts posit that customer demand, lower barriers of entry, the accelerated pace of technological evolution, and venture capital funding are the main drivers behind this growth.
The FinTech industry offers non-traditional platforms that cater to customer demand for ease, simplicity, flexibility, and convenience in making financial transactions. FinTech firms leverage next-generation technologies such as mobile apps, blockchain, and Big Data to offer next-generation financial services. And because FinTech firms fill the gaps that traditional financial services companies fail to address, analysts see a stronger market for the FinTech industry in the coming years.
This trend can either be boon or bane to traditional financial services companies of all sizes. FinTech firms that offer digital banking, for example, can out-perform traditional banks that offer inflexible services. But according to Capgemini, “traditional firms still hold some competitive advantages.” For a win-win game, analysts suggest creating a symbiosis between both traditional and next-generation financial service firms to create a positive customer experience.
2.) Changes in Compliance Regulations
Building partnerships between FinTech and traditional financial services institutions, however, can result in regulatory compliance complexities and conflicts. According to Deloitte, this is due to differences in culture, business processes, and risk tolerances. But traditional firms can overcome these complexities by understanding how FinTech works and by “stay[ing] abreast of regulatory developments related to FinTech firms.”
Aside from the rise of FinTech, Deloitte sees that many other regulatory trends will impact the banking industry, including the change in the United States administration, recent technological advancements, and financial crime risks.
Banks, too, are poised to spark changes in compliance regulations. Reuters
reported that big banks in the United States want a regulatory overhaul that can enable them to focus on their core missions instead of spending too much time and resources on ensuring anti-money laundering (AML) compliance. Banks want regulators to make it easier for them to comply, and are hoping that the current administration will address their concerns. Experts think the same way, with a recent Washington Times op-ed piece saying that existing AML laws and policies are effectively useless and have instead “turned into a disaster for the global poor, who can no longer get bank accounts or easily and legally transfer money (remittances) to their relatives in poor countries.”
3.) Smarter Financial Services
Smarter technologies such as artificial intelligence (AI), machine learning, blockchain, and augmented reality are set to change how the industry delivers services to customers and makes crucial decisions.
“Financial services firms are beginning to deploy artificial intelligence technologies to make themselves more efficient and better than their peers,” writes Liz Skinner in Investment News. According to a Narrative Science report cited by Skinner, the top reason financial services institutions adopt AI is to optimize workforce productivity. Other reasons cited include the need to harness data for new opportunities, improve competitive advantages, and “personalize communications at scale.” But these are just few of the many advanced capabilities that disruptive technologies can offer the industry.
According to Scott Hackl, writing in The Financial Brand, new technological innovations can dramatically improve how banks and credit unions analyze their data. “New innovations in data analytics,” writes Hackl, “empower financial institutions with systems that are so smart, they learn on the go, automatically refining their algorithms and improving their results over time. This isn’t your grandpa’s approach to data analysis—spreadsheets, data tables and crunching numbers on a calculator. This is true artificial intelligence (AI).”
But according to a report cited by Hackl, adoption of these technologies can be very difficult due to various factors such as legacy technology environments, the lack of a unified vision for “digital” across the organization, lack of skills and expertise, and a dearth of dependable technology partners.
4.) Cybersecurity will Remain a Top Challenge
Cybersecurity remains a top challenge for financial services companies. And things will only get tougher as government and regulatory institutions amend the laws and regulations, putting more pressure on banks and insurers, particularly the smaller industry players.
Recently, as reported in Fortune, New York State declared the final regulations that will oblige banks and insurers to “meet minimum cyber-security standards and report breaches to regulators as part of an effort to combat a surge in cybercrime and limit damages to consumers.” To comply with these rules, banks and insurers will have to devise effective approaches to protecting their networks, safeguarding customer data, disclosing cyber events, and performing risk assessments.
Aside from complying with local cybersecurity laws and policies, financial firms that offer services on a global scale should also keep abreast of legal amendments in the different regions in which they operate. In Europe, for example, various reforms will take place in 2017, including the Criminal Finance Bill and Cybersecurity and Data Protection.
Although complying and keeping pace with the changes in cybersecurity laws are viewed as an additional burden to the industry, being able to do so can bring significant competitive advantages.
5.) The Inevitability of Integrations and the Coming Data Explosion
One of the upshots of the ongoing technological revolution in the financial industry is the inevitable increase in the number and types of B2B, data, and application integrations that will be required. For example, traditional banks that want to leverage FinTech will have to integrate enterprise applications and data with those of their FinTech partners. And complying with ever-changing compliance regulations requires a unified view of all financial transactions, which can only be achieved through seamless integration of data and applications.
These emerging trends also foreshadow the coming data explosion, which, when handled ineffectively, can lead to more complexities and inefficiencies down the line. The use of smarter technologies, for example, can be counterproductive if financial services companies lack a robust and secure platform that can enable them to efficiently integrate and access all data from different departmental silos and sources and prevent them from capturing bad data that can negatively affect the quality of their business insights. Building and maintaining their own data integration platform can be very costly for financial institutions.
The Liaison ALLOY™ Platform helps financial services organizations meet the challenges of each of these industry trends. It provides financial services firms with unified integration and data management capabilities that are scalable through a unique microservices architecture and that offer inherent compliance with changing regulations. Liaison also manages integrations for ALLOY users through an industry-leading managed services approach. This empowers financial services organizations to keep up with the increasing number of integrations required while directing their own IT resources toward the more strategic challenge of deriving insight from today’s wealth of data.
Keeping pace with the top financial services industry trends of 2017 can help financial firms stay competitive. But doing so without the right expertise, skills, and technology can be next to impossible. Contact us to learn how our award-winning ALLOY Platform and our data and integration experts can fill in the gaps.