Since the global economic crisis, the financial services industry has seen huge disruption. New regulatory frameworks, with data protection and greater transparency at their core, have put compliance at the top of the boardroom agenda. At the same time, new financial technology (Fintech) businesses continue to grow and diversify at an outstanding rate, and encroach on the establishment.
Alongside these transformative changes are developing technologies, ranging from blockchain and big data, to artificial intelligence (AI) and digital payments – all of which are relentlessly unsettling traditional processes. Add to the mix the continual rise in cybercrime threats, and this all amounts to an undeniably challenging market for any financial services organisation. Despite this, recent research has highlighted that businesses are not prepared for technology disruption.
The fintech effect
Businesses are surrounded by economic and political uncertainty, which appears to be discouraging the decision to embrace disruption, as organisations worry about what the future holds. Businesses require flexible plans in place to ensure they are suitably prepared for anything that comes their way and are equipped to respond quickly and efficiently.
The FinTech industry saw global investment of $57.9bn in the first half of 2018 alone, exceeding the total investment for the entirety of the previous year, and contributing to the industry’s significant and speedy growth. This trend is showing no signs of slowing down, as technology adoption continues to drive organisations that are striving to stay ahead of the competition. With an array of new upstarts continually adding themselves to the equation, reputable industry members are facing unprecedented new challenges.
However, our latest research, The Future of Financial Services: Planning for Every Eventuality, has found that a surprising 52 per cent of business decision makers in UK and US financial services organisations report that their leadership teams aren’t appropriately responding to, or taking advantage of, the opportunities offered by this wave of disruption. This is a disappointing conclusion from the world’s two largest financial centres, as the potential held in new technology only continues to transform and mould the industry’s future.
Seeking opportunities for transformation
Resilience against cyber-attacks has become integral for many high street banks and insurers, so having the right processes and solutions in place is imperative if businesses are going to protect both their companies and customers from attack.
The word disruption carries negative connotations, and it’s true, the next five years will certainly be a rocky road for most. But the most competitive businesses will be those that seek out and identify opportunity amongst the chaos. Which technologies can we anticipate as being most disruptive to businesses, while also presenting the best opportunities? Automation has already transformed many business processes, taking on mundane tasks and freeing up employee time to focus on the core business objectives. Now it’s time to take it further. Almost a third (30 per cent) of UK and US financial leaders identify AI as a dominant disruptor for the upcoming 5 years, putting it at the head of developments. But it’s important to remember that businesses should approach making big technology investments with caution, ensuring they have a clear-cut strategy with specific applications in mind.
Customer loyalty is becoming more important than ever as digital applications open consumers up to a much wider array of options online. As such, payments technology innovation is one way in which financial services firms are looking to keep customers happy and loyal to the brand – making it one of the most promising areas of FinTech. New offerings, with the examples of digital and cardless payments, in addition to mobile deposits, are focussed on customer convenience – and it is evident that financial services companies must embrace this type of innovation in the coming years. Cryptocurrencies and blockchain are on the list of those technologies expected to have smaller impact on the financial services industry in the short-term. Those already adopting these technologies, are reaping the benefits from practical applications, with ING and HSBC having accomplished the world’s first commercially viable blockchain trade-finance transaction. Despite industry leaders’ low expectations of these technologies, they are looking to come to the fore soon, and only those with planning solutions in place can expect to be prepared for this area’s speedy expansion and be ready to respond as quickly as opportunities arise.
While disruption brings an array of opportunities, it also leads to increased threats, with any significant Fintech developments having huge knock on effects for cybercrime and system security. Our research further confirms this, having found that business leaders expect cybersecurity to be their biggest challenge over the next few years. According to recent figures from Dun and Bradstreet, business identity theft was up 46 per cent year on year in 2017, and comparatively, KPMG Forensic research reported that business fraud increased by 78 per cent in 2018, with the majority of crimes committed by employees and managers inside the company.
Realising the power of connected data
It is vital that companies perpetually question if they are getting the utmost out of their data and taking advantage of the newest technologies to maximise its innate power – this is made all the more crucial as they face the implementation of new regulations. It’s therefore surprising that the majority of firms don’t have a Big Data plan in place, perhaps partially due to this data type being accepted as part of modern business.
In an industry that is constantly riding waves of disruption, being prepared for any unexpected change is necessary to be able to successfully respond to market change. Departments need to sing from one hymn sheet by working from the same planning tool, with the ability to see updates in real time in order to understand what’s going on in the business – yet our research only found half of UK and US financial services businesses are doing so.
To effectively capitalise on the opportunities afforded by disruption in the next five years, leadership teams need to be consistently planning effectively and must embrace forecasting and connected planning business-wide. Although seemingly contradictory, using the latest technology to encourage teams to be closer to data and plans may well be the key to overcoming technology disruption.
Ian Stone, CEO and Founder, Vuealta
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