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Summary: A recent report by PwC examines how the financial services sector will undergo a dramatic transformation in 2020 and beyond. It delves deep into the forces that are pivotal in changing the financial technology landscape — their structure, operating guidelines, functions, customer preferences, and the overall competitive environment. The report further reveals that technological disruption is the most potent catalyst in transforming today’s financial services. So let’s get a deeper understanding of the real-world implications of these technological changes and how they will impact the life of a typical user.
Gone are the days when it was nearly impossible for new companies to break into the financial services industry. But with the advent of cutting-edge financial solutions, fin-tech disruptors are penetrating the industry. These start-ups focus on a particular technology and use it across various processes — from making online payments and sending notifications to collecting EMIs and settling insurance claims. As a result, they create new challenges for well-established businesses that don’t mainly focus on less profitable service offerings.
An industry respondent in the PwC global Fintech Survey said that a quarter of their business would be vulnerable to standalone FinTech companies in the next five years. Global investments of about USD 12 billion in FinTech since 2014 provide a testimony that this sector is rising rapidly and is giving a tough time to the antiquated bank industry.
The so-called “sharing economy” has become a critical part of the automobile — cars and taxis — and the hotel industry. But it’s penetrating the financial services industry rapidly. Customer interaction with banks and other financial institutions is at an all-time high, but their methods have changed. Today, users rely more on mobile solutions that give them the freedom to make transactions and receive payments from anywhere and anytime.
The sharing economy will help financial institutions in two ways:
Financial institutions invested substantially in e-business units two decades ago. These investments led to rapid developments in the internet ecosystem that significantly improved efficiency and helped build a large customer base. Today, the massive growth of the digital ecosystem is moving along the same lines — companies are investing in building separate teams that are highly efficient, designating huge budgets, and investing resources to work upon a digital agenda. This agenda particularly focuses on creating exceptional customer service, building excellent operational efficiency, and implementing cutting-edge tools like data analytics and big data.
The digital wave is transforming various essential sectors in the financial services industry, including retail banking, payments, wealth management, and insurance. In addition, it is gradually penetrating into institutional areas such as commercial banking and capital markets.
Financial institutions are opening to experiment with industry 4.0 technologies, and blockchain is leading the race. Although many businesses may not survive the rapid ripples of change in the next three to five years, the use of the blockchain’s public and private ledger will increase in the coming times. They will become an integral part of a bank’s operational infrastructure and will allow them to promote safe and secure financial transactions at the click of a button.
Blockchain is already revolutionizing the cryptocurrency market, and now it’s all set to make a breakthrough in the financial services sector.
>>>Also Read: How Blockchain Will Modify Inter Company Transfers?<<<
Customer intelligence was based on simple heuristics, including samples, surveys, focus groups until a few years ago. Therefore, companies failed to get a 360-degree perspective of their customers that functioned as an obstacle in creating highly-detailed user profiles.
With the advent of industry 4.0 technologies like machine learning, IoT, and AI, things are changing rapidly. Today, companies have a massive amount of data about their customers that help them brainstorm effective marketing strategies. This vast trove of information allows financial services firms to unlock hidden data about customers — geographic, demographic, psychographic, and behavioral that provides relevant insights about customer needs and desires.
>Also Read: Customer Intelligence: Do You Really Know Your Customers?<
In the information age we live in, everyone — employees and customers — want access to real-time data at the click of a button. The cloud infrastructure enables companies across sectors to facilitate the free flow of information across relevant stakeholders. Recently, businesses have been relying on cloud-enabled ERP systems to run non-core functions like HR, CRM, and financial accounting. Other application areas include highly detailed and easily understandable statistics and KYC verification. But as the range of applications improves and as COOs and CIOs get more comfortable using this technology, it will find more penetration in the financial services sector for performing core activities — credit scoring, consumer payments, bills, and statements.
>Also Read: Sage 300cloud is now available on the industry-leading Microsoft Azure<
Leading financial services institutions are reducing/eliminating risks and bringing down costs by leveraging the following capabilities of AI and robotics:
Service robots have shown remarkable results in the past few years. They can identify objects in their environment, respond to objects and information safely and securely, and perform complicated tasks that their human counterparts cannot accomplish. Although service robots are in the nascent stages of development, there is a long way to go before they take up additional responsibilities. Experts suggest that the future generations of robots will be highly advanced — both in logical capacity and raw strength — and will attain the capability to integrate with varying modular platforms.
>>Also Read: Top 4 ways how robots will significantly change logistics<<<
According to the Identity Theft Resource Center (ITRC), the total number of data compromises through 30th September 2021 is 17% higher than FY 2020. This goes on to show why it’s so crucial for companies to invest in cyber security mechanisms.
Another despairing statistic comes from PwC’s 2016 global CEO survey, where 69% of CEOs working in the financial services sector said they are very concerned about security threats compared to 61% of CEOs working in other sectors. Unfortunately, the situation is likely to remain the same for the following reasons:
>>Also Read: ERP and Cybersecurity – What no one is talking about?<<<
Not only financial service companies but industry regulators are also showing interest in learning about new analytical and data gathering tools as it will enable them to monitor individual institutions’ activities and get a better understanding of the overall systemic activity. Moreover, data tools will allow financial regulators to address potential issues and compare scenarios before they become endemic problems.
The middle class globally is estimated to rise by 180% between 2010 and 2040. An essential fact that we should discuss over here is that Asia’s middle class has already surpassed Europe’s, and the majority share of the middle class is expected to shift from Europe and North America to Asia-Pacific. Moreover, about 1.8 billion people are projected to move to cities in the next 30 years, particularly in Asia and Africa, which will open new opportunities for financial institutions.
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