In times of economic uncertainty, financial advisors remain in high demand thanks to their ability to assist others with their financial needs. But thanks to the recession, new competitors, evolving customer needs, and technological innovation, even this titan of an industry faces big questions in the back half of 2023 and beyond.
“The competition to meet the growing demand for financial support will continue to be fierce, with banks, wealth management firms and fintech companies all looking to fill the gap.” –Mike Sha, CEO of SigFig
Resiliency and adaptability, as always, will be the key to keeping the financial services industry thriving in the future. By looking into expert predictions, combing through the statistics, and researching emerging industry and technological trends, we compiled our ultimate guide for the financial industry.
Improving the consumer experience
For those outside the industry, working with hard-earned money is an intimidating and often alien process. Finding the right financial advisors and banking services are crucial, and the best organizations will prioritize the consumer experience in order to attract and maintain clientele.
BAI research found that new customer acquisition is the number one priority for banks in 2023, which makes sense. Attracting younger clients is the best way to accomplish this, which means embracing online and digital banking. BAI found that 70% of millennials and Gen Zers have already opened accounts online. Gen Zers, in particular, will be a significant focus as more enter the workforce and require these services. Paul Hindle of Fintech Futures notes that the average Gen Zer gets their first smartphone by age 12 and a large percentage spend up to five hours a day on social media platforms.
Embracing digital trends is the key to keeping this demographic happy. 44% of BAI’s respondents found gaps in onboarding processes and seek a more streamlined experience. Meanwhile, more than 70% of respondents said they would switch to a financial service provider with better digital experiences.
“To address these needs, organizations must prioritize offering mobile-friendly solutions and digital self-service options that provide customers with anytime, anywhere access to their financial lives.” –Manas Baba, financial services industry expert
A digital Renaissance isn’t the only thing customers are seeking. Customers are seeking a more personalized experience, ease of use, and a sense of trust in their financial service providers.
Personalized banking is expected to be the norm, which the experts at Finance Magnates believe means embracing AI-based algorithms to track individual preferences and behaviors. Forbes’ Mike Sha notes that beyond standard investment advice, a financial advisor can use personalized information to advise a family on specific goals they need like how to pay for a family reunion or consolidate credit card debt.
Fast Company notes that in today’s world, many consumers are using different financial institutions for different purposes rather than putting their eggs in one proverbial basket and that their financial lives are connected in ways beyond a traditional nuclear family. Financial service providers can embrace this mindset by making alliances with one another to cover services they can’t. The easier an institution, or group of institutions, can make a consumer’s life, the more likely they’ll stick with that institution.
Finally, trust is a significant concern for consumers. While this has always been true, it’s even more critical in a digital world where you aren’t making face-to-face interactions with your service providers. Trust is essential in any relationship, and it takes a leap of faith to trust someone with money. A dedication to trust can be built by prioritizing security, privacy, and ethical practices according to Darryl Knopp.
Embracing emerging technology
In order to meet these evolving consumer needs, financial service providers must stay on top of trending technological advances. Three emerging technologies are particularly relevant to the industry: artificial intelligence, cloud-based systems, and digital banking.
AI is becoming more widely available and used in more and more industries, and financial services are no exception. In terms of gathering and presenting data and in working directly with consumers, AI is becoming a major part of how financial institutions do business.
Chatbots, AI programs used to gather necessary information from consumers and provide information back, are increasingly prevalent in the industry as a way to improve customer service and innovate tasks according to Forbes’ Murtaza Hussain. Studies have shown that chatbots can save banks up to 30% of their customer service costs alone. Programs like ChatGPT, while imperfect, are great for providing human-like answers and being easy to interact with.
AI will continue evolving and offering even more crucial benefits for financial services. Ring Central’s Matt Lehman says that AI can direct customers to the right services, increase personalization to increase a sense of empathy and find the right solutions, and more quickly share information between industry employees. Studies predict AI capabilities will lead to a 35% boost in productivity by 2035.
“In contrast, AI is being used to provide personalized recommendations and insights to customers based on their transaction history. According to a PwC report, AI adoption in the banking industry is expected to rise from 16% to 77% by 2022.” –Finance Magnates
Top-performing financial organizations have been embracing a switch to cloud-based platforms for years, and smaller organizations are starting to catch up. IBM found a plethora of good reasons for switching to the cloud, including increased speed, decreasing costs and operational expenses, and making life easier for remote employees. Thanks to the nation embracing more remote and hybrid models, the last point is particularly noteworthy.
DashDev’s Igor Tomych reiterates that the cloud is just the beginning of advanced innovation for industry needs. Breaking free from legacy systems means becoming more consumer-focused and data-driven while leading to better communication and resource sharing.
Digital banking and increased consumer support
As mentioned above, millennial and Gen Z users are heavily focused on ease of use and a well-designed digital interface. Innovations focused on clean, easy-to-access tools and an optimized orientation process will lead to happier consumers.
This starts with mobile-friendly tools and well-made self-service options, according to Manas Baba. Younger consumers are more inclined to do things on their own at their own time. The more an institution’s platform allows a user to operate autonomously, the happier this emerging consumer base will be.
Another innovation discussed by Ather Williams of Wells Fargo is the idea of creating a digital ID, or a way to prove there is a real person on the receiving end of any financial transaction. Third-party services that don’t rely on credit cards like Venmo and Cash App are popular, but their ease of access can lead to fraud. Williams suggests institutions will find their own way to create these IDs but the long-term solution would involve a standardized approach.
“We’re going to have to work to solve this problem of how to know that both the buyer and seller are who they say they are.” –Ather Williams, Wells Fargo
Increased focus on risk management
As technology in this industry advances, you can be sure that those who would disrupt the industry are making technological advancements of their own. According to Microsoft’s Bill Borden, cybercrime is expected to cost the world $10.5 trillion by 2025, tripling the annual amount of a decade ago. Financial institutions have a challenge ahead of them to create more robust risk management techniques while complying with government regulations.
Financial crimes and money laundering are serious concerns and have only become more prevalent thanks to new technology and a shift to remote work. Receeve found that 42% of businesses said that digital fraud prevents innovation and stops expansion into new channels. Because of the shift in remote work, data is constantly moving through different services and software, making it an easier target for ne’er-do-wells.
Forbes’ Sudhir Pai writes that while reporting standards and guidelines have risen, they aren’t always consistent. Because financial data is so complex, firms need to find constantly evolving and innovative software to combat the constantly evolving and innovative software of their enemies. Pai believes digitization, decentralization, and decarbonization will be the top three priorities.
“There will be a rise in the number and growth of regtech firms that offer technological solutions suitable for financial firms to achieve regulatory compliance.” –Sudhir Pai, Forbes
Finance Magnates believes that biometric authentication, artificial intelligence, and machine learning will dominate cybersecurity efforts. These efforts should assist with the previous points as well. Better technology creates a better user experience while building a sense of trust thanks to these efforts will bring in more satisfied consumers.
Matt Lehman says that regulation efforts add an additional challenge. There is more pressure on banks and other institutions to achieve compliance and successfully manage risks, and those that can’t are subject to hefty fines. Finding the right tools to maintain compliance and increase cybersecurity efforts will be a difficult balance.
Cost-cutting versus optimization
There isn’t a single industry out there that isn’t trying to do more with less—it’s a constant truth in business. And financial organizations are no exception. The above points all point to a need to innovate and find better ways to fulfill customer needs, and that isn’t cheap. Finding a way to cut costs across the board while optimizing available resources is the tricky balance financial service providers need to find.
Matt Lehman cites that the majority of financial institutions don’t expect an economic recovery until sometime in 2024, though some are optimistic we could see a turnaround in late 2023. Many institutions are embracing a more conservative approach in the face of this uncertainty and are risk-averse. This leads to the industry trying to do more with less.
via Ring Central
Bill Borden says that a core component of doing more with less is letting technology handle processes by automating tasks and digitizing data. Being able to optimize day-to-day actions better will free up money and time that can be spent on innovating in other areas. It isn’t cheap to invest in new technology, and not every attempt at innovation will work. Being able to free up extra resources by automating more mundane tasks creates more breathing room.
More than ever before, the last few years have shown us just how uncertain the world can be. For the financial services industry, economic uncertainty, changing cultural needs, and a surge in technological advances are the biggest challenges of an uncertain future.
“With the rapid rate of change in the financial services space, it can sometimes be difficult for banks and fintechs to keep their finger on the pulse amid a sea of technological advancements and ever-changing consumer demands.” –Paul Hindle, Fintech Futures
Organizations dedicated to crafting a better experience for their customers, finding innovative ways to use technology to create that experience while minimizing risk, and optimizing resources to cut existing costs to fund this technology will be best able to navigate this uncertain future.
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