5 Reasons Why Financial Services Firms Need a Digital Strategy
Financial services firms are facing their greatest technological change in a generation, with emerging technologies such as blockchain and artificial intelligence holding the promise of reimagining the banking experience. However, for firms that want to remain competitive, adopting a comprehensive digital strategy will be the key to thriving.
The Bots are Coming
Artificial intelligence can transform banking. “Artificial intelligence is no longer just the stuff of sci-fi movies and financial institutions need to embrace the power it offers,” Finextra writes. “AI will become the cornerstone of understanding data better to provide new customer journeys and an enhanced end-user experience.” Accenture’s Banking Technology Vision 2017 report says AI will help create simple and smarter interfaces, and will improve such things as fraud detection and customer service. Accenture writes that AI “will help elevate the customer experience and move staff to more judgment-based and higher value-added roles.”
The age of opening banking is here. In Europe, regulators have forced banks to open their application programming interfaces to app developers under the updated Payment Services Directive (PSD2) regulation. Open APIs are taking hold in North America and Asia too, driven by market competition as banks work with tech firms and startups to create new apps and services that will keep their offering competitive. McKinsey says this new collaborative age of banking is reaching a “fever pitch.” Figuring out how to win in the age of digital banking requires a solid digital strategy.
Financial services firms need a plan to head off possible digital disruption from GAFA — Google, Apple, Facebook, and Amazon. The Financial Brand writes that these four firms are perhaps the biggest threat facing the industry: “Their market capitalization and use of data to deliver increasingly improved consumer experiences is a threat that can’t be ignored.” Financial Brand suggests a three-step strategy; 1) identify disruptive trends relevant to your industry and market; 2) determine the size, timing and likelihood of impact and how those changes could affect your business; 3) develop a strategic plan to mitigate risks and maximize opportunities.
A study by LinkedIn reveals that among affluent Millennials, only 46% expect to remain with their current financial services providers for a few years. Indeed, 48% would switch to another firm with better services. The report notes, “Unless financial companies proactively attack this challenge by understanding and targeting Affluent Millennials with relevant offerings, financial services providers face the possibility of losing customers en masse.” Building loyalty among these digital natives is helped by innovative use of technology — something that can be achieved by including value-added digital services in a firm’s offering, such as a secure digital vault to store documents and important financial records. In the coming 40 years, Millennials will inherit $30 trillion in wealth from their Baby Boomers parents and will move that money, making appealing to them particularly important.
The Industry is Unprepared
While the digital disruption to financial services has been well publicized, many firms don’t have a digital strategy. Deloitte research finds that while 90% of firms expect digital technologies will significantly disrupt the industry, only 46% have a strategy to deal with that digital disruption.