Financial service firms are facing many challenges today. Most of it has to do with the rapid changes in technology. While most financial firms have embraced the technology revolution, these companies still face many challenges.
This is an overview of the top 7 challenges financial service companies face.
CHALLENGE 1: Eliminating Data Breaches
Financial service firms are prime targets for cybercrime. Because of their sensitive data, they are more likely to be targeted. As a result, financial service firms are hit 300 times more than other businesses. Each attack costs financial service firms millions of dollars. They need to continue developing innovative solutions to stay ahead of these cybercriminals.
CHALLENGE 2: Keeping up with regulations
Regulations in the financial service industry continue to increase. Banks spend a large part of their income on ensuring they’re compliant. They have to ensure keeping up with ever-changing regulations and industry standards. Traditional banks must constantly evaluate and improve their operations to keep up with fast-changing consumer and shareholder expectations, technology, and industry regulations. According to KPMG, there are ten key regulatory challenges financial service firms will face in 2022. They include:
- Geopolitical change: Companies must expect business change and disruption
- Divergent regulation: Must anticipate continued differences in state, federal, and global regulations among protectionist and localized public policy agendas in the U.S. and overseas.
- Data protection and governance: Protect your data at all costs
- Operational resilience: Plan for the unexpected. It will happen
- Credit quality: Firms must apply what they’ve learned from past credit cycles
- Capital and liquidity shifts: Even though there may be an easing of regulatory capital and liquidity requirements, firms should not weaken risk management
- Compliance agility: Must have a solution for agile and streamlined compliance
- Financial crime: It’s OK to be innovative but don’t do too much at the cost of increased risk for financial crime.
- Customer trust: Firms must maintain the trust of the customers
- Ethical conduct: Do the right thing no matter what
CHALLENGE 3: Exceeding Consumer Expectations and Surpassing Competition
Consumers continue to expect a lot from their financial institutions. Many want more personalized and automated services from their financial providers. Competition within the financial services industry is still robust. Institutions that provide all these services will dominate their share of the market.
CHALLENGE 4: Keeping Up with Technology
Business growth is significant for financial firms, but they must spend money updating their technology to grow. For example, firms must modernize their technology platforms and data storage to enable big data solutions such as AI-supported digital customer support assistants. Financial firms must also consider consolidating platforms and providing a more efficient, customer-friendly experience across the internet, mobile and physical locations.
CHALLENGE 5: Incorporating AI into their Firms
According to a study from Deloitte, 30% of financial service firms they describe as frontrunners are more adept at utilizing AI, helping them increase revenue faster than their competitors. This is because frontrunners are quicker to recognize the importance of AI and are motivated to implement it. At the same time, other firms may realize the importance of AI but are more hesitant to use it.
Deloitte’s study also discovered that 45% of frontrunner firms invest 5 million dollars in AI initiatives. That’s three times the rate of late adopters. Frontrunners whose businesses have increased revenue, improved customer experiences, and reduced costs, are the most effective in finding and funding more diverse business opportunities.
AI is the future of financial services. Companies that want to thrive need to incorporate it as soon as possible.
CHALLENGE 6: Organizing Big Data
Big data is a necessity but also an obstacle for financial service firms. Big data is getting bigger because a lot of data is being created by several sources. However, this data is structured and unstructured, and these legacy data systems can’t handle the volume of data coming in.
The various data types coming in are one of the biggest challenges facing financial service companies. Their challenge is to sort through all their data and determine what is useful and what isn’t.
CHALLENGE 7: Effective Digital Marketing Strategy
Effective use of digital channels to drive leads and customers is a primary digital transformation challenge the financial industry faces. Many financing companies and banks are having difficulty being efficient, effective, and measuring the impact of their marketing channels, such as paid media, enterprise SEO, Local SEO, content strategy, or social media. One of the primary challenges these companies have is their digital experience, website design, and brand presentation.