The delivery of financial service is one of the major parts of global economic activity. In advanced economies, the financial services sectors typically contribute significantly over 5% of GDP and produce massive job-opportunities. If we look at it closely, virtually all the businesses whether B2B or B2C engage with the financial sector as a customer. These services include banking and payment services, brokerage activities, insurance and risk management services, financial advisory services, and trading. Financial firms contribute to economic growth and development by providing a range of economic functions.
However, these financial institutions have challenges that they need to overcome, and these challenges are typical for any business dealing with financial institutions. Here are some of the challenges faced by the financial services sector:
Top 6 challenges Faced by Financial Industry
Most of the financial industry challenges are generational. In the late 1800s, criminals and gangs used to rob banks throughout the American wild west. While 1900 were a century when women struggled to enter the male-dominant banking industry. And as of now? We have digital banking that comes with a lot of opportunities but larger threats.
Digital technology has a long-held promise to transform the financial sector, and they are not stepping back yet from their point of view, and still, the companies haven’t provided their promised solution. These solutions do have the capacity of solving all the major problems of the stakeholders.
In this article, we will try to address the six commonly faced challenges in the financial industry. Additionally, we will also discuss how institutions are growing their capacity and technology to overcome these challenges.
Cybercrimes have to be at the top of the challenges list faced by the financial sector. Why? Because crimes long before digitalization have remained a major problem for banks. And with technology, evolving criminals got more sophisticated and found new ways to conduct fraud. According to a report, data breaches increased by 480% in 2017-2018. Aforesaid resulted in the loss of millions of dollars for the banking industry. Other than this, financial institutions are largely threatened by the online cybercrimes spanning all over the global online marketplace.
Ever-evolving financial regulatory changes pose a constant challenge for financial firms of all types. Financial firms deal with approximately 200 regulatory changes daily and these numbers are rising. Most of the time, businesses fail to concede these regulatory requirements and pay hefty fines. Since 2008, global banks have been fined more than $321 billion collectively for not following KYC and AML regulations.
FinTech firms are providing affordable and comprehensive solutions that financial firms lacked to jump on. This has created a lot of competition for the financial firms especially bricks and mortar banks. Banks that fail to jump on this wagon of evolution results in lesser revenue. However, banks are moving towards digitization at large.
Online Customer Onboarding
Even though traditional financial institutions are becoming aware of the importance of technology and are going digital. Since they had to follow a lot of KYC and AML regulations, they need to conduct customer due diligence which is a hefty task in online scenarios. Moreover, technologically advanced customers want a swift experience when using online services. In an era where customers can easily subscribe to services like Netflix, they want a seamless experience when using online banking.
Today financial institutions find it very difficult to retain customers because of fiercer competition. While you may not see brand loyalty completely vanished but it is on life support. For customers, easier access, automation, and personalization are more important than brand loyalty. According to a survey, 63% of the banking customers are willing to share their data in return for more personalized services. Firms that could deliver all these things will see a growth in their customer base.
As per Gartner CIO Survey, over 50% of financial services CIOs firmly believe that digital channels and digital initiatives will generate more revenue and more value to their services. However, firms implying old-fashioned business applications or siled systems will not be able to keep up with this increasingly digital world. Digital transformation is not just a good idea – it is becoming more imperative for the survival of organizations.
Even though technologies like blockchain are still too immature to realize the significant returns for their implementation soon, technologies like AI, RPA, and cloud computing are already offering significant benefits for firms looking to reduce costs while enhancing customer experience.
How to Overcome These Challenges?
We have discussed Top 6 challenges Faced by Financial Industry but there are several other challenges that need attention. Having so many challenges to contend with, it seems that the financial sector needs to improvise their strategy and their think tank needs to look out for ways to cope with these challenges utilizing very minimal resources. Technologies like AI and cloud computing seem to provide firms with an advantage that too with lower resources. For instance, financial firms could use the AI-based OCR engine to digitize their paper-based documents to make things easier for their employees as well as the customers. This will help banks in reducing costs as well as saving time.
Moreover, AI-based identity verification solutions can assist financial firms in dealing with challenges like cyber fraud, regulatory compliance, and customer satisfaction. Using AI-powered ID verification, the financial business can easily verify the identity of their customers to fulfill customer due diligence requirements and at the same time, it will help them in ensuring that the customer they are dealing with is a real person and will not be harming the integrity of their system. Online ID document verification enhances the customer onboarding experience because it only takes seconds to confirm the identity of a customer using online ID verification which otherwise is a time-taking process. Similarly, using cloud computing banks can make their systems more secure, convenient, and fast.
From data insights to cybersecurity, technologies are making it more convenient for businesses to go digital and explore a global customer base. It has become imperative that financial institutions adopt digitalization.