No organisation is immune from the digital revolution sweeping the financial services world. While older types may feel sympathy for traditional firms that are desperately playing catch-up, it is not as if the young FinTech start-ups that helped fuel the digital fire are not also feeling the heat. Regardless of whether a financial services institution signed off on its first deal a century ago or five months ago, all are under pressure to pursue digital innovation given it is a key financial services industry trend.
This was reinforced by a recent BDO digital transformation study that revealed a staggering 97% of financial services firms were making inroads on digital transformation, be it developing a strategy or already implementing one. Where traditional firms once considered digital offerings a value-add for their customers, today they are rushing to develop and rollout technology that sits at the heart of their businesses to compete with the thousands of new players that appeal to younger, more agile customers.
Some people find it hard and almost impossible to imagine a world in which technologies are offering 24/7 financial guidance via chatbots. However, the technology industry, specifically artificial intelligence (AI), continues to grow at a rapid rate and the use of ‘robots’ to perform simple business functions is no longer a distant 'what-if' scenario.
AI in practice
With AI applications predicted to deliver banks potential cost savings of $447 billion by 2023, it is little wonder financial institutions are searching for new ways to blend the technology into their services. One such area is its ability to prevent fraud and cyberattacks, which is crucial given reports that online payment fraud losses are expected to jump to $48 billion per year by 2023. AI’s ability to analyse and pinpoint irregular data that would likely be missed by humans is why the likes of JP Morgan Chase has invested in and implemented a proprietary algorithm to detect fraud patterns.
AI technologies such as machine learning are also helping corporate finance firms better manage loan underwriting via their ability to better predict and assess loan risks. One shining example is US Bank, which is using AI in both middle- and back-office applications to unlock and analyse relevant customer data to help credit risks. It has been estimated that automating middle-office tasks with AI has the potential to save North American institutions $70 billion by 2025, while the aggregate potential cost savings from AI applications is tipped to be $447 billion by 2023.
Not so long ago, the concept of someone enjoying a positive ‘customer experience’ was measured by whether they walked out of a physical office with a smile on their face. Today ‘customer experience’ captures every aspect of a customer’s journey from start to finish including every touchpoint and interaction along the way. Were they able to access their accounts from multiple channels? Was a chatbot or robot adviser able to answer their question definitively and immediately? Did they receive automated real-time notifications about their loan application?
Improving customer experience has become such a focus for financial services organisations that 83% of executives surveyed by BDO have named it their top long-term business goal and 74% say it is one of their top three short-term goals. Crucially, more than a quarter of financial executives (28%) believe poor customer experience is their biggest digital threat.
Digital transformation is helping financial services organisations deliver a better customer experience by introducing new products, simplifying applications and streamlining processes. The ability to leverage data-driven insights is also crucial for firms to not only attract new customers but retain current ones by delivering more of what they want and addressing the issues that concern them.
It is still early days for the adoption of blockchain technology but any finance company that dismisses its potential is destined to end on the wrong side of history. While much of the focus has been on the advent of cryptocurrency, blockchain technology is set to revolutionise the industry by allowing more secure and automatic payments via the use of smart contracts, strengthening trading systems and claims processing, mitigating fraud risk and streamlining back-office operations.
Even two years ago a third of all financial services organisations were considering the deployment of blockchain technology within 12 months, with Global Market Insights predicting the blockchain market would be worth more than $16 billion by 2024. Commenting on the research analysis, Blockchain Magazine said: “Financial institutions are … going to take up blockchain technology ultimately because of its capability of boosting efficiency of internal procedures and reducing the operational cost in industries like trade finance, know your customer checks (and) documentation.”
What about the human factor?
While repetitive and rule-based tasks can easily be digitised and new technologies will continue to be deployed, there is still that ‘human’ component of financial services that such models cannot imitate. Take financial advisory roles. With AI able to eliminate human error and reduce liability in data-entry tasks, financial advisers can focus on strategy, process improvement, capital optimisation and cost control.
While AI uses historical data to predict and forecast future data trends, it has its limitations. The technology is still a while off being able to fully ‘think like a human’ and cannot currently devise out-of-the-box, planning financial strategies like humans can. Tasks such as building client and inter-departmental relationships will continue to require a special human touch.
The key for financial services executives is to approach digitisation with enthusiasm rather than trepidation. The benefits of speed, efficiency and accuracy that technologies such as AI and machine learning can provide institutions are unmatched, while the potential to deliver a spike in positive customer experiences is too great to ignore.
The rise of digitisation is just one finance trend that executives need to be aware of in the age of COVID. The 2021 Financial Services Industry Trend Report is a great insight into other key factors impacting the industry, current market influences, outcomes from the Royal Commission and how outsourcing can help broking firms deliver efficiencies to help future-proof their businesses.