Financial industry challenges are largely generational. The late 1800s was marked by notorious gangs that plundered banks throughout the American Wild West. The 1900s witnessed women struggling to enter the male-dominated banking industry. And now? Well, now we have digital banking.
The long-held promise of digital technology to transform financial institutions has not been broken. It just hasn’t been fully kept. The digitization of the financial industry was supposed to solve problems. And it has. It has also created some new ones in the process.
Challenges Facing The Financial Services Industry
In this article, we examine 10 of the biggest challenges facing financial managers today. We will also see how the global financial sector is doubling down on technology to find the solutions it needs to not only survive, but to thrive in the era of digital finance.
1. Cybercrime In Finance
Data breaches involving financial service firms increased by 480% from 2017 to 2018. With each attack costing financial institutions millions, innovative solutions are needed if we are to avoid a repeat of the lawless days of the Wild West.
Whatever cybercrime solutions emerge to protect financial services, blockchain technology must be the foundation. Period.
As more and more institutions adopt distributed ledger technology (DLT), blockchain will become the de facto solution to keeping financial data secure while at rest.
Integrating DLT with existing financial infrastructures poses some serious obstacles that must be overcome. Even so, we are past the point of asking whether blockchain is the holy grail of financial data security. It is.
2. Regulatory Compliance In Finance
The ever-changing regulatory environment poses a constant challenge for financial institutions of all types.
Regtech is an emerging industry that can help ease the burden of compliance. By using the latest FinTech technologies to address regulatory compliance, RegTech startups are bridging the gap between regulators and the financial service industry.
Automated reporting, automated audits, and process streamlining are only a few of the benefits offered by RegTech applications.
3. Big Data Use In Finance
Big data provides both opportunities and obstacles for financial service providers. Tapping into social media, consumer databases, and even news feeds can help banks better serve their customers, while better protecting their own interests.
But sorting through torrents of unstructured data for useful information is no small undertaking. It requires powerful data analytics technology if institutions are to reap a benefit.
Fortunately, data analytics solutions are emerging with the potential to transform asset management, trading, risk management, and other financial services.
4. AI Use In Finance
Industry experts believe that AI will transform nearly every aspect of the financial service industry. Automated wealth management, customer verification, and open banking all provide opportunities for AI solution providers.
But that’s all been said before. So why should we expect AI to keep that promise now?
Powerful advances in deep learning technology are paving the way for AI. In fact, if you have been alerted by your bank of suspicious activity on your account, you have likely already benefited from AI.
The challenge that financial services face is learning how to benefit from the power of AI, without being victimized by it. In R&D labs across the world, that question is being pondered at this very moment.
5. Fintech Disruption Of The Financial Service Industry
Those pesky little FinTech companies that appeared less than a decade ago have not gone away, as many in the banking industry had hoped. On the contrary. Many have matured into formidable rivals for customers and the cash they bring to the table.
Realizing that partnering with these tech-savvy startups might be more prudent than opposing them, 64% of financial service leaders say they plan to collaborate with FinTechs in the future. Wise move.