9 Technology Trends Influencing the Financial Service Industry
Traditional banking systems are a thing of the past now. They consume a significant amount of time, require a lot of manpower and their execution processes are tedious. On the other hand, digital transformation offers banking services to customers at the tip of their fingers. With the COVID-19 pandemic and health being a priority, people are shifting towards net banking and prefer online services.
Rather than just technological advances, changing customer expectations are constantly pushing the financial service industry to innovate and adapt. The digital approach is being applied to modes of payments, retail banking, insurances, finances management, and commercial banking. Technology is helping financial institutes to fill the gap between the conventional and radical banking systems, improving customer experience, operational efficiency, and data security.
The digital wave is eventually changing the rules of traditional banking and unfolding a new future of the finance industry. With that in mind, we have outlined the top technology trends that will continue to influence the financial industry now and in the future.
- Upgraded Legacy Systems
The present operating model might serve well to banks, it might not work right with modern third-party services. These systems are difficult to respond to the intricate demands of modern finances, including the collection of volumetric amounts of data. Even after integrating them with leading-edge software, they consume a lot of time and slow down the development of digital products.
As an industry that is constantly upgrading, financial institutes need to embrace the latest techs to keep up with FinTech companies. With the state-of-the-art technologies at its side, the finance industry can achieve a considerable productivity boost in its day-to-day operations. It enables them to streamline processes, optimize resources, and reduce the burden on IT operations.
Though legacy modernization requires an initial investment, the cost of maintaining the new software and hardware is relatively lower than the legacy systems. A quick insight into iLink’s approach to Technology Modernization.
- Personalized attention to Customers
Customer Intelligence and the ability to act in real-time is one of the key trends affecting the financial service industry. It is responsible to drive revenue and profitability more directly to the financial organization. With the help of Big Data and AI, marketing experts can easily process data and derive insights to deliver a personalized experience to their customers.
All they need is a smart balance of humans and machines. Powerful data analytics technology helps banks to understand their customer’s goals and priorities. Banks can then work on their offerings and services to best suit their customers and create stronger marketing ROI.
In addition to improvements in revenue, personalization increases conversion rates, improves cross-channel offerings, and develops a loyal customer base. At last, by creating a tailored experience to serve customers’ unique financial needs, banks gain a competitive edge in the market.
- Connected Architecture
Internet of Things has become one of the major technologies being used in the financial service industry. An interconnected network of devices allows them to automate important business processes, communicate with each other and share information. IoT applications can handle financial requests, transfer ownership of a specific asset, and even carry out other processes remotely.
Financial institutes with connected architecture can easily balance control and accessibility. With the help of IoT applications, they can gather customer data, analyze it and predict customer needs and requirements. Also, it enables higher security, better energy efficiency, and greater profitability.
- Automated back-office functions
Over the last decade, banks and financial institutions are reported to have spent more than $321 billion on compliance operations as well as fines.1 The banks are estimated to disburse nearly $270 billion yearly, just on compliance operations.2 This means almost more than 10% of a bank’s operating cost is attributed to compliance costs.3
Rising operating costs cost means slow bank processes, poor compliance management, and an unsatisfactory customer experience. Besides, cutting down operational expenses is not the answer. RPA, also known as Robotic Process Automation, enables banks and financial companies to save both time and money.
It automates all the manual processes such as customer onboarding, verification, risk assessments, security checks, etc that usually require a workforce to complete. It also mitigates errors allowing companies to increase operational efficiency, improve accuracy, and stay relevant and competitive in an evolving finance automation market.
The primary aim of RPA in the banking industry is to assist them in tasks that are repetitive in nature. With the rise of AI, RPA systems can observe and learn the workflows increasing productivity within the workplace and establish financial institutions a little nearer to the new age FinTech services.
- Managing Security Risks
Cybersecurity holds a critical value for banks and financial institutes since they deal in billions of digital transactions. IBM estimates the average cost of a data breach in the financial service sector was US$5.85 million compared to US$3.86 million across respondents in all sectors in its survey.4
On top of that, many financial institutes still rely on the old security models that can be easily breached. Unfortunately, cyber threats are likely to escalate in the coming years with the advances in technology. To be sure, the financial service industry needs more qualified anti-fraud systems to safeguard against internal threats and third-party risks.
Combination of keycodes, Voice ID, two-factor authentication, one-time passcodes, behavioral analysis, digital fingerprinting, and protective messaging are some of the widely integrated security methods. But the real problem lies in locating vulnerabilities in the first place. Hence cyber resiliency needs to be sharp, effective, and thorough.
Related Reading: 5 Ways to Overcome Ransomware in your organization
- Blockchain Technology
Blockchain technology started with bitcoin and other cryptocurrencies and has expanded into almost every industry. As per the MarketWatch report, the total investment of blockchain in the banking and financial services sector will likely reach $17.47 billion by the end of 2025.5
Blockchain creates a ledger of transactions using complex algorithms and encryptions that is tamper-proof and easily accessible to everyone in the system. A patch of these transactions is recorded by each of the data blocks that are allegedly chained together and locked away with advanced cryptography.
The most significant benefit of blockchain technology is in cross-border settlements. It can create a global network that is both highly cost-efficient and potentially transparent. Other benefits of blockchain technology include automating claim sorting and processing, helping financial firms to streamline KYC processes, efficient transfer of payments, and asset management.
- Big Data Analytics
Many financial services institutions have started to invest in the platforms that compute and store big data to enable convenient, personalized, and secure transactions. In the process, big data has not only managed to transform individual business processes but also the entire financial service sector.
Big data in finance has led o significant technological innovations. It helps them drive revenue opportunities by analyzing customers’ spending patterns, credit information, financial situation, and social media activities. Financial firms can deliver a more personalized recommendation to customers, create a more efficient process to drive competitive advantage, provide strengthened security and deliver better customer service.
Studies have shown that 71% of banking and financial market firms that use information and big data analytics have a competitive advantage compared to their peers.6 Moving ahead in the future, the mass of information will grow and so will the profitability of adopting big data analytics in the financial industry.
- AI and Chatbots
Financial organizations leverage AI to help customers fulfill their demands by providing self-service options. Hence they were able to grow with lower human resources as compared to a conventional financial organization.
Chatbots play a crucial part in providing these self-service options. According to Gartner, 85% of banks and businesses were expected to interact with their customers using chatbots by end of 2020. Another report shows that financial chatbots can save over four minutes on every interaction. Using chatbots customers can rely on financial organizations for 24/7 service.
These conversational interfaces provide instant response and quick query resolutions, ultimately improving the personal banking experience of the customers. Apart from personal finance, AI is particularly helpful in corporate finance as it can help improve loan underwriting and reduce financial risks. It can also detect frauds and anomalous activities helping investors, analysts, and accountants to work better long term growth.
- Biometric Technology
Mobile payments and remote banking are on the rise as global consumers are becoming less reliant on cash. Juniper Research estimated that the total number of online and mobile banking users will exceed 3.6 billion by 2024.7 Unfortunately, in the light of digital banking comes greater responsibility for security along with providing a frictionless experience to customers.
Biometric access control offers a promising alternative to traditional PIN and password methods. New features like fingerprint, face recognition, voice recognition, and other biological characteristics allow banks to verify customers’ identities before processing transactions. Many banks have already started using biometrics to authenticate employees and customers.
The global market for biometrics in the banking and financial services market is projected to reach $8.9 billion by 2026.8 As we continue to progress towards a heavily digital world, biometric in banking will help banks provide a secure, fast and efficient method of transactions now and in the future.
How iLink can help you get started?
The way financial institutes leverage the above technologies will determine their ability to tackle cyber risk and compete in a high-scale market. It will help them drive digitalization, innovation and achieve business excellence. To ensure the right implementation of the above technology, financial institutions must partner with dignified technology leaders.
iLink is a trusted technology partner for varied industry brands. We offer integrated engineering and consulting services for digital transformation. With 19 years of experience, our domain experts help businesses harness the power of technology to successfully deliver innovations and gain a competitive advantage.