Few industries have been more affected by the digital revolution than finance. Historically, financial services firms have been heavily dependent on legacy IT — but the ground is now shifting under their feet. Exciting innovations in digital technology bring new possibilities to offer better products and a more robust customer experience.
But which trends and factors in digital transformation (DX) are at the forefront of this revolution? And how can financial businesses roll with the punches and adapt in a constantly shifting business and technology landscape?
This article is the first in a series exploring digital transformation in finance, emphasizing the banking, investment, insurance, and accounting sectors. Below, we’ll discuss the first four of the seven trends that we see leading the way for DX in finance.
- Fintech Startups
Larger firms have historically dominated the financial sector, relying on their institutional weight to attract and retain customers. Recent years, however, have seen the rise of many “fintech” startups that present a viable challenge to the major players at the top of the hierarchy.
The online brokerage Robinhood, for example, allows users to invest in U.S. stocks, ETFs, and cryptocurrency with just a few taps on their smartphones. Even if the underlying activities are the same as a traditional brokerage, Robinhood’s work to make trading more accessible and comprehensible for consumers has shaken up the investment field.
Fintech startups have the advantage of speed, agility, and disruptive thinking over their bigger competitors. Large banks, for example, may take days to approve a consumer loan due to traditional KYC (know your customer) guidelines, while lightweight startups can leverage AI and machine learning to make the same approval in just minutes.
- Customer Experience
With fintech startups competing for attention, financial services firms need to focus on customer experience to generate new leads and win back users on the fence. For example, in a 2020 survey of financial companies undergoing digital transformation, 33 percent of respondents said that “improving customer experience” was a key impetus for the project. Customer Experience (CX) was the survey’s most popular motivation for DX in finance, beating out other options such as increasing revenue, lowering costs, and streamlining operational processes.
Two elements are essential for a better customer experience in finance: personalization and connectivity. Personalized offers make customers feel like a valued part of the business, rather than an anonymous cog in the machine. For example, insurance companies can analyze customer demographics to create targeted marketing campaigns for home insurance, life insurance, and auto insurance.
Meanwhile, connectivity ensures that customers can interact with your business in the times, places, and manners that are most convenient for them. This includes an omnichannel approach that spans digital technologies such as your company website and mobile app, as well as traditional touchpoints such as phone, email, and in-person visits.
- The COVID-19 pandemic
The most apparent effect of the COVID-19 pandemic, both for financial companies and consumers, has been the swift migration online: employees adopted remote work arrangements while customers enjoyed new digital product offerings. A 2020 study by McKinsey & Company found that the pandemic has “speeded the adoption of digital technologies by several years.” As of July 2020, for example, businesses were conducting a much larger percentage of customer interactions digitally, soaring to 58 percent from just 36 percent in December 2019.
COVID-19 has accelerated the rise of digital banking and changed the nature of customers’ relationships with their local bank branches. During the pandemic, many users could perform services such as applying for loans and mortgages online, marking the first time they had done so digitally.
- Artificial Intelligence and Machine Learning
AI and machine learning have been some of the most significant drivers for digital transformation in finance. In a 2020 survey, for example, 72 percent of financial services companies said that machine learning is a “core component of their business strategy.” Public cloud computing solutions such as Amazon Web Services and Microsoft Azure now offer “AI as a service” products that make it easier than ever for financial technology innovators to leverage artificial intelligence, even without specialized knowledge.
Below are just a few ways that financial services firms can strategically deploy machine learning and AI:
- “Robo-advisors” that automatically generate investment recommendations based on a customer’s portfolio.
- Chatbots that help resolve simple, common questions and issues without having to wait for a human agent.
- Automatic fraud detection based on suspicious user transactions or behavior.
Factors such as fintech, CX, AI, and the migration to online services in the wake of COVID-19 combine to make it more imperative than ever that finance companies engage in digital transformation. Businesses that can embrace these trends with agility will be the best positioned for success in our new world of digital finance.
That’s precisely why DigiXchange was founded: enabling companies to share their experiences and advice for digital transformation. We host an ongoing series of events and webinars to help business leaders connect on the topic of DX.
To learn more, check out the DigXchange website and register to get updates on our next digital transformation event. We also publish the latest news and articles on our Facebook, LinkedIn, and Twitter accounts. Stay tuned for the second piece in this series, which will examine the three remaining trends in digital transformation for financial services firms.