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 article discusses the top 7 challenges financial service companies must solve in 2023.
1. Eliminating Data Breaches
Financial service firms are prime targets for cybercrime. Because of their sensitive data, they are more likely to be targeted. Financial service firms were hit 300 times more than other businesses.
In 2018 financial service firms were hit 819 times, an increase from 69 incidents reported in 2017. The total number of cyber-attacks won’t be known until 2023, but there have already been many data breaches this year.
On March 22-23, a hacker gained access to Capital One’s consumer and small business credit card applications from as early as 2005. According to Capital One, approximately 140,000 social security numbers and 80,000 linked bank account numbers were exposed in the U.S. Also, about 1 million Canadian social insurance numbers were breached.
Other financial service firms faced data breaches as well.
First American Financial Corp had a breach that exposed about 885 million personal and financial records related to real estate transactions dating as far back as 2003.
Canadian credit union Desjardins Group had about 2.7 million of its member’s information exposed. This breach exposed sensitive data like its member’s home addresses, names, email addresses, and social security numbers.
A cyber attack on Westpac/PayID exposed the banking information of 98,000 customers.
Each attack costs financial service firms millions of dollars. They need to continue developing innovative solutions to stay ahead of these cybercriminals.
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 there are systems to keep 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 critical regulatory challenges financial service firms will face in 2023. 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
Financial service companies must create a strategy to innovate and stay compliant.
3. Exceeding Consumer Expectations
Consumers continue to expect a lot from their financial institutions. Many want more personalized services from their financial providers.
According to the 2019 Accenture Global Financial Services Consumer Study, one in two consumers wants personalized banking advice based on their circumstances. They want an analysis of their spending habits and advice on handling money. 64% of the participants are interested in insurance premiums tied to their behavior, such as having a good driving record.
Half the survey respondents say they still want an in-person banking experience along with a digital one.
4. Surpassing the Competition
Competition within the financial services industry is still robust. As mentioned earlier, consumers want more personalized service. They also want more automated services with easier access to them. Institutions that provide all these services will dominate their share of the market.
Today, consumers are less concerned with brand loyalty and identity. They want what they want. Institutions that provide those services will keep their customers.
5. Keeping Up with Technology
Business growth is very important for financial firms, but they must spend money updating their technology to grow. According to a report from Protiviti, financial service firms must continue to invest in technology such as robotics and other workflow automation tools to increase their efficiency and reduce the costs associated with operational, risk management, and compliance.
Firms must also 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 internet, mobile and physical locations.
6. Incorporating AI into Their Firms
According to a study from Deloitte, major financial service firms are achieving a 19% growth in revenue.
Deloitte found that 30% of financial service firms they describe as frontrunners are more adept at utilizing AI, helping them increase revenue faster than their competitors.
These frontrunner firms are also twelve times more likely to notice the importance of AI to their businesses than late adopters. Frontrunners are quicker to recognize the importance of AI and are motivated to implement it. At the same time, other firms may recognize 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 3 times the rate of late adopters. 25% of frontrunner firms spend 10 million dollars or more on AI. 70% of these firms plan to increase their spending by 10% during the next fiscal year.
60% of frontrunner firms define success as increased revenue, and 47% say customer experience has improved. 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.
7. 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. This new 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. According to a study from EMC, there will be 44 zettabytes of digital data by 2023. That’s 44 trillion gigabytes.
The challenge for financial service companies is to sort through all their data and determine what is useful and what isn’t.