Impact of Digitization on the Financial Industry
The financial industry has undergone radical changes over the past half-century. Technological advances have ushered in a new set of cultural expectations for customers to place on their financial institutions.
Starting from the advent of the ATM in the ‘80s, bank customers have placed increasing importance on location-independent convenience and automation. Today, financial institutions need to offer multi-channel customer support solutions integrated with powerful cloud-based platforms.
Not all banks have adapted to these changes with equal agility. Regulation milestones such as the implementation of GDPR or Second Payment Services Directive (PSD2) have created compliance bottlenecks as banks race to open up their architecture to third parties. Forward-thinking financial executives and tech experts with the appropriate architecture already in place enjoy a significant advantage over those with closed processes and structures.
The digitization movement has been underway for decades, and it still represents a wildly uneven playing field among financial institutions. What started as simply reducing paper use in the office has transformed into artificial intelligence (AI)-powered predictive analyses, platform-as-a-service (PaaS) capabilities, and open APIs that give FinTech startups data to work with.
State of Big Finance’s Digital Infrastructure Today
It’s impossible to explain the digital infrastructure of the finance industry without describing the effects of the 2008 financial crisis. This event led banks to recapitalize tech expenditures towards meeting more pressing regulatory initiatives. As a result, the largest institutions became larger and less technologically agile, leaving room for small, swift newcomers to challenge their dominance with more convenient options and a smoother user experience (UX).
But even the largest financial institutions are not afraid to implement change. They are profit-oriented enterprises operating in an industry renowned for its competitiveness. Those with the right combination of talent, leadership, and culture have repeatedly taken the lead with technological innovation.
The combination of changing consumer demands and the need to respond to the constant threat of competition form the two main drivers for digital innovation in the financial industry. Any bank that refuses to meet its customers’ expectations or lets a competitor eat up its market share is setting itself up for serious challenges ahead.
Where Digitization is Taking the Finance Industry
Financial processes across all sectors are moving towards agile, open architectures that offer increased security and flexibility in the face of changing consumer attitudes and regulatory needs. In the finance industry as a whole, these concerns are proving themselves to be major drivers for innovation at every level of the enterprise.
Already, banks are closing their branch offices and relying less on traditional, face-to-face interactions with their customers. The practical benefit of this movement is greater processing speed – automated underwriting and digital signatures help to move along sign-ups, loans, and contracts while reducing the occurrence of human error.
But becoming a digital-first organization requires more than developing robust solutions for today’s most time-consuming processes. It obligates technology leaders of the financial industry to create solutions that are agile enough to respond to abrupt changes in the market landscape. This strategic step typically focuses on three key technologies:
- Artificial Intelligence. AI-powered predictive engines allow financial employees to glean meaningful data from very large data sets. These are already making a major difference in digital banking processes, allowing highly accurate customer data analysis to occur without waiting for a human employee to perform the necessary cross-checks.
- Cloud Technology. Financial institutions have been reluctant to implement cloud technology in the past, citing migration and security concerns. However, the arrival of cloud-based newcomers with characteristically low process and infrastructure costs is putting pressure on major institutions to change their approach.
- Open APIs. The proliferation of FinTech startups offering everything from financial advice to microloans is pushing banks to open up their processes through API development. Banks that focus on API development are better-suited to serve customer needs in a platform-agnostic way, putting their products and services in front of customers when needed most.
Top Factors Challenging Digital Development
It’s not easy for financial leaders and record managers to implement fundamental changes to the way their organizations do business. Both large and small institutions are having trouble streamlining communication and collaboration between their IT departments, strategic leadership, and customer-facing employees.
An organization whose IT team isn’t on the same page as the rest of its departments will struggle to implement company-wide changes while meeting regulatory standards and satisfying customer needs throughout the transition. Strong leadership is required to build bridges between IT and every other department in the organization, optimizing the value of technology investments and initiatives.
Financial industry leaders can get several steps ahead of the rest of the market by utilizing Ripcord’s digitization process – click here to learn more about Canopy, our cloud management system that takes all of the tough work out of accessing financial documentation.