This year the financial industry is in for big changes.
Financial institutions that successfully expanded digital versions of their products and services to deal with COVID-19 are figuring out ways to bring value-added personal touches that drive revenue and can scale without adding cost.
New fintechs launched products, seeking growth over profitability, a strategy almost certain to change. And regulators are extending new controls over a range of functions and jurisdictions. All of this is happening during a time of technology transition, one more reason why security and risk management matter more for banks, capital markets, insurers and every other part of our industry.
Change is opportunity, and there is plenty of great innovation out there. It’s pretty clear, though, that artificial intelligence, security and resilience, and a refocus on basics, will be the currency of this year’s financial world.
Here are four critical ways you’ll be seeing it happen.
1. AI drives growth
Incumbent banks went digital and learned new ways to sell and new efficiencies, along with the new importance of data. Now they need to add the personalized, relationship-based engagement that is core to their brands – but at scale.
This is where AI plays a key role in driving personalized responses and recommendations. This matters for customers seeking mortgages or financial planning, and for businesses seeking lines of credit. Money is an emotional experience for most people, and that personalization — feeling known and understood — will be key to loyalty and driving growth.
Financial institutions will need to work harder on building strong and unique permission-based digital customer profiles. The data needed to do that may exist already, but perhaps in silos. By breaking down these silos, applying a layer of AI and leveraging human engagement in a seamless way, financial institutions can create experiences that address the unique needs of their customers while scaling efficiently.
2. New perimeters in regulation
As global regulatory expectations continue to increase, the historical approach to having siloed data across operational, financial and cyber risks is no longer going to work. Rising complexity and compliance costs are placing significant pressure on an industry used to developing or sourcing point solutions for specific regulations. In fact, when comparing compliance spending to pre-financial crisis levels, Deloitte estimates banks’ costs have increased by more than 60%.
Regulators are requiring more precise and consistent data, with increased breadth, depth and lineage to preserve the effectiveness and transparency of financial markets. In 2023, institutions will need to start to break down silos to enable more precise and consistent regulatory reporting that meets the regional and global requirements across all risk disciplines.
Like the companies they monitor, regulators will increasingly use tools that look across various reports, spotting data anomalies. That means, both for cost purposes and to mitigate risk, institutions need a single source of truth rooted in data, that reports numbers in the same form. Reporting is quickly becoming platform-based, and both the companies and their technology providers will need ways to modernize and streamline their data architecture using the best of cloud technology and open-source tooling.
3. New era of security risks
For years, financial institutions have invested in point, on-premises security solutions, which resulted in a proliferation of tools and siloed data systems across their enterprise, making a holistic view of the threat landscape hard to compile.
As we enter a new era of increased security risks, we’re going to see a significant shift toward a platform-based security approach underpinned by zero trust which allows financial institutions to have a comprehensive view of cybersecurity. By doing this, financial institutions will be able to unlock insights from the data, detect and remediate threats in a more timely manner, and add a layer of automated controls.
4. Refocusing on the basics
In recent years, incumbent financial institutions moved rapidly to close out any gaps they had in their digital experiences. Often this led to a lift and shift of existing processes to digital experiences.
In 2023, organizations will need to reflect on their digitization journey, and assess what is working and what new digital experiences or processes would need to be built from the ground up. This evaluation will also drive a reassessment of the right distribution mix across channels as more tasks are completed digitally.
Fintech companies face a similar “back to basics” year but are focused more directly on profits. Rapid growth was fine when money was cheap. Today, a path to profits is more compelling. This dictates a greater focus on costs of customer acquisition, cost of customer maintenance, and cost of operations.
Accountability has never been more in vogue than it will be in 2023, and that’s a good thing. It means that new technologies, new products, new strategies, new customer behaviors, and new businesses we’ve seen grow in easier times will be tested. The winners will be the ones that focus on optimizing their data for building high-impact experiences and processes, and deprioritizing the unnecessary.
Zac Maufe is the Head of Financial Service Solutions at Google Cloud, bringing over 20 years of banking experience to the role which is focused on transforming financial services around the world using the power of Google.