Financial service firms are facing many challenges today. Most of it has to do with the rapid changes in technology. While the vast majority of financial firms have embraced the technology revolution, there are still many challenges these companies have to face.
This article discusses the top 7 challenges financial service companies need to solve in 2021.
1. Eliminating Data Breaches
Financial service firms are prime targets for cybercrime. Because of the sensitive data they carry, they are more likely to be targets. In fact, financial service firms were hit 300 times more than other business.
In 2018 financial service firms were hit 819 times, an increase from 69 incidents reported in 2017. The total number of of cyber attacks won’t be known until well in to 2021, but there has already been a number of data breaches this year.
On March 22-23 a hacker gained access to Capital One’s consumer and small business credit card applications from as early as 2005. According to Capital One, approximately 140,000 social security numbers and 80,000 linked bank account numbers were exposed in the U.S. Also, about 1 million Canadian social insurance numbers were breached.
Other financial service firms faced data breaches as well.
First American Financial Corp had a breach that exposed about 885 million personal and financial records related to real estate transactions dating as far back to 2003.
Canadian credit union Desjardins Group had about 2.7 million of its members information exposed. This breach exposed sensitive data like its members home addresses, names, email addresses, and social security numbers.
A cyber attack on Westpac/PayID exposed the banking information of 98,000 customers.
Each attack is costing financial service firms millions of dollars. They need to continue coming up with innovative solutions to stay ahead of these cyber criminals.
2. Keeping Up with Regulations
Regulations in the financial service industry continues to increase. Banks are spending a large part of their income on making sure they’re compliant. They have to make sure there are systems in place to keep up with ever-changing regulations and industry standards.
Traditional banks have to constantly evaluate and improve their operations to keep up with fast-changing consumer and shareholder expectations, technology and industry regulations.
According to KPMG, there are 10 key regulatory challenges financial service firms will face in 2021. They include:
- Geopolitical change: Companies must expect business change and disruption
- Divergent regulation: Must anticipate continued differences in state, federal and global regulations among protectionist and localized public policy agendas in the U.S. and overseas.
- Data protection and governance: Protect your data at all costs
- Operational resilience: Plan for the unexpected. It will happen
- Credit quality: Firms must apply what they’ve learned from past credit cycles
- Capital and liquidity shifts: Even though their may be an easing of regulatory capital and liquidity requirements, firms should not weaken risk management
- Compliance agility: Must have a solution for agile and streamlined compliance
- Financial crime: It’s OK to be innovative but don’t do too much at the cost of increasing risk for financial crime.
- Customer trust: Firms must maintain the trust of the customers
- Ethical conduct: Do the right thing no matter what
Financial service companies need to create a strategy to innovate and stay in compliance.
3. Exceeding Consumer Expectations
Consumers continue to expect a lot from their financial institutions. Many want a more personalized service from their financial providers.
According to the 2019 Accenture Global Financial Services Consumer Study, one in two consumers want personalized advice from banks based on their personal circumstances. They want an analysis on their spending habits and advice on how to handle money. 64% of the participants are interested in insurance premiums that are tied to their behavior, such as having a good driving record.
Half the survey respondents say they still want an in-person banking experience along with a digital one.
4. Surpassing the Competition
Competition within the financial services industry is still very strong. As mentioned earlier, consumers want more personalized service. They also want more automated services with easier access to them. Institutions that provide all these services will dominate their share of the market.
Today, consumers are less concerned with brand loyalty and identity. They just want what they want. Institutions that provide those services will keep their customers.
5. Keeping Up with Technology
Business growth is very important for financial firms, but in order to grow they must spend money updating their technology. According to a report from Protiviti, financial service firms must continue to invest in technology such as robotics and other workflow automation tools to increase their efficiency and reduce the costs associated with operational, risk management and compliance.
Firms must also modernize their technology platforms and data storage so they can enable big data solutions such as AI-supported digital customer support assistants.
Financial firms must also consider consolidating platforms and provide a more efficient, customer friendly experience across internet, mobile and physical locations.
6. Incorporating AI In to Their Firms
Major financial service firms are achieving a 19% growth in revenue according to a study from Deloitte.
Deloitte found that 30% of financial service firms who they describe as frontrunners are more adept at utilizing AI which is helping them increase revenue faster than their competitors.
These frontrunner firms are also twelve times more likely to notice the importance of AI to their businesses than late adopters. Frontrunners are quicker to recognize the importance of AI and are motivated to implement it. While other firms may recognize the importance of AI but are more hesitant to use it.
Deloitte’s study also discovered that 45% of frontrunner firms are investing $5 million dollars in AI initiatives. That’s 3 times the rate of late adopters. 25% of frontrunner firms are spending $10 million dollars or more in AI. 70% of these firms plan to increase their spending by 10% during the next fiscal year.
60% of frontrunner firms define success by increased revenue and 47% say customer experience has improved. Frontrunners whose businesses have increased revenue, improved customer experiences, and reduced costs are the most effective in finding and funding more diverse business opportunities.
AI is definitely the future in financial services. Companies that want to thrive need to incorporate it as soon as possible.
7. Organizing Big Data
Big data is a necessity but also an obstacle for financial service firms. Big data is getting bigger because a lot of data is being created by a number of sources. This new data is both structured and unstructured, and these legacy data systems can’t handle the volume of data coming in.
The various types of data coming in is one of the biggest challenges facing financial service companies. According to a study from EMC, there will be 44 zettabytes of digital data by 2021. That’s 44 trillion gigabytes.
The challenge for financial service companies is to sort through all their data and determine what is useful and what isn’t.