A well-functioning financial system is driving a seamless and prosperous economy. There’s no doubt that banks and other financial institutions have evolved from merely being a safe place for storing valuables to being a single stop for all transaction processes for their customers. As we step forward into the digital age, we should expect to see more ground-breaking, technology-driven and creative consumer-based banking solutions at the centre of all strategic actions.
Currently, the economy across the world and financial systems have modern technology that are one of the most important drivers of evolution. That is why, there’s no doubt that conducting transactions online is the new norm as even the Banking & Financial Services & Insurance (BFSI) domain now functions with smart devices. Even banking expert JP Nicolos agrees as he states that banks are doomed to being simply mindless commodities that act behind the scenes if they cannot be customer intimate.
2020 has been exceptional for the BFSI domain. With digitization and ever-evolving technology, the industry is on the brink of revolution, which does not seem to stop any time soon. It is time for organizations affiliated with the BFSI sector to prepare for new and mature technology solutions. This is why companies are choosing to collaborate with corporate finance consulting firms to track and keep up with the latest trends in the domain.
In this article, we have provided the top five trends of the BFSI sector that have truly revolutionised the industry.
Trends of the BFSI sector
Pre-crisis, the most revolutionary product that originated from the banking sector was Internet banking. Post-2008, developments and new products have been ongoing at regular intervals. Let ‘s look at some of the patterns that have emerged in BFSI space over the last decade:
Focus On Digitisation
The industry is experiencing a sustained and aggressive emphasis on digitization and the introduction of new and evolving technologies to deliver operational efficiencies, speed-to-market and superior customer experience.
Banks are cutting spending on branches to invest in digital self-service platforms as mobile and online banking become more common among customers. Moreover, with the rise in popularity of digital wearable devices, which provide almost all benefits of a smartphone, it is increasingly feasible for banks to provide customers with tailored services.
Cybersecurity & Financial Frauds
While digitization in the BFSI sector surely comes with a plethora of advantages, however, the most prominent disadvantages are cyber threats and financial frauds.
PwC claims that the following forces are responsible for the sub-optimal cybersecurity status:
- Overuse of third-party vendors
- Rapidly evolving, complex technologies
- Data exchanges carried out across borders
- The rapid and uncontrolled growth of IoT and increased use of mobile technologies
In conclusion, the PwC report stated that all organizations need to consider cybersecurity as the top concern and adopt measures to tackle this challenge while embracing digital transformation.
First, they need to determine, analyse and recognise the current security state of their company and identify their cyber-risk appetite. They should build a Cyber Security Roadmap that will enable them to measure vulnerable areas and seal those holes early. The technique also allows them to promote swift action in the event of an infringement. Human capital is going to play the most important role here. That is why companies should recruit and train cyber security teams that can effectively manage threats and vulnerabilities in advance.
Automation & AI
Automation and AI technologies have matured in the BFSI domain. While the domain has not been successful in its automation efforts before, the future could be different. McKinsey expects early-growing pains to eventually give way to a transformation of banking, with significant benefits for institutions that master the latest capabilities. In a report, they stated that between 10-25% of the work across banks is done through machines.
McKinsey indicates that the sector should leverage from this opportunity by pursuing a strategic strategy. Companies in the BFSI segment can update their legacy processes in the light of automated or AI-led activities by gaining insights from customer analytics services.
Moreover, Robotic Process Automation (RPA) technologies are used very frequently to automate financial services, which include accounts payable/receivable, data planning and consolidation among others. Automation can accelerate time-consuming activities such as insurance claims management , programme administration, credit card processing, and billing.
The Rise of FinTech
Prominent industry expert Jim Marous says that banks and other financial institutions should provide their customers with a digital interface that is easy to use and goes beyond simple online banking. That is precisely what FinTech offers.
Data-driven analysis and hyper-personalization are among the most consistent trends at the heart of FinTech ‘s services. Gartner expects that 85% of banks and companies will communicate with chatbots this year. There is a growing emphasis on reducing or eliminating human intervention as much as possible, with an aim to enhance productivity.
Blockchain in FinTech is predicted to cross $6700 million in the U.S. by 2023, and will be used as a prominent security feature of FinTech applications, like smart contract creation and seamless digital payments.
The startups of FinTech have definitely disrupted the dynamics of the BFSI industry for the incumbents. By forming a strategic partnership with start-ups, the incumbents can give their consumers the ideal speed, protection and productivity they need. We should expect further M&A deals to be signed as we step forward into the 2020s.
Banks, financial service providers and insurance firms are expected to change their way of doing things as digitization is inevitable. The key to accelerated development is to adopt emerging technologies.
Rise of Blockchain
Technologies such as blockchain are now heralding a quiet revolution, bringing into question the traditional economic value provided by the BFS industry. Blockchain is shaking the very foundations of conventional business models of peer-to-peer lending, smart contracts and digital payments, replacing intermediaries and accelerating underlying processes. It is estimated that Blockchain will save up to USD 20 billion in ordering costs for the BFS industry every year. This is going to result in the rise in the amount of banks that make use of technology in various services.
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Other than the blockchain, cryptocurrencies are continuously gaining momentum, which is reducing the need for physical money. When it comes to this, assets that were considered core no longer hold that status and restrictions that were once used are not giving rise to new regulations like Open APIs and PSD II.
Conclusion
Companies can no longer afford to ignore digitization – either accept it completely or to evaporate. AI-driven interactions with chatbots rather than human representatives will dominate the future of the BFSI sector. This includes automated data entry processes instead of mundane copy-pasting data on spreadsheets; hyper-personalized, data-driven, omni-channel services instead of a wide range of options; secure tap transactions rather than bank visits; and many more.
In the coming years, innovative software solutions will continue pushing the BFSI domain. To stay on top of these trends, it’s recommended to avail data analytics services.
