2020 will be remembered as the year for massive digital acceleration in financial services. Even as contactless transactions soared, regulators scrambled to adjust policies for the compliance-related functions of banking to become feasible when transacted digitally, remotely. Despite the lack of modernization in an industry riddled with legacy systems and processes, an overwhelming majority of financial services firms forged ahead, investing in digital transformation, and the result: they’ve grown their business and widened the gap between themselves and the competition.
Few would disagree that the most promising aspect of digitalization in the financial services sector is the ability to make significant decisions that are data- and AI-powered insights driven. With this the enterprise also sets off on the path to higher-level automation, which when pursued with adequate risk controls, amplifies human decisions both in terms of speed and accuracy. In my assessment of financial service providers who have leveraged data and automation to squeeze more value for their strategic priorities, I see a clear pattern:
They deliver frictionless, highly relevant user journeys.
They use data to not just drive relevant transactions but become pervasive in customers’ lives. They are able to anticipate and solve for emerging needs, not just when customers bank, but in adjacent areas of the experience too. They integrate highly relevant non-banking products and services, together with the core financial offering, to comprehensively address these needs. The data fabric also makes it easier for these players to share and cross-leverage their information wealth with ecosystem partners to build a more accurate, dynamic picture of customers and their fiscal positions than any traditional method might enable. This translates into a world of untapped opportunities to explore, especially in an industry that has traditionally been slow to wholly digitize. It’s not that surprising that recent research points to the fact that just 4% of the mortgage industry is fully digital.
Their core is optimized equally for speed and accuracy.
This is the same mission-focused agility and precision of purpose that characterize digital-native companies. These financial services firms use data and their ability to ‘connect the dots’ to innovate in ways that are highly market-relevant. The heart of their operations engine is setup to augment human judgment with AI-led automation producing better outcomes, faster. In fact, the research referenced earlier reveals that financial institutions are driving cloud investment primarily to revolutionize their processes through digitalization and automation. This intense focus on intelligent automation serves to redirect the saved people bandwidth towards value-amplifying activities. Another distinct advantage for financial service providers with a data-first, AI-first foundation is that this sets them up for early detection of the likelihood of fraudulent activities. Clearly, robust risk management from the core, in the world of finance, is an unmatched differentiator.
They are resilient and can change with change.
In times of turbulence and disruption, the world looks to the financial services industry to be their anchor point. And the industry looks to data and the predictability of technology and business operations for resilience. For instance, providers can lean on intelligent automation at a time when human resources may be hard to find or an overhead they can ill afford. Data can shine a light on the path forward for business, by way of borrowers’ digital footprint complementing traditional credit scores so risk assessment can be improved at a time when mistakes prove costly. Robust statistical models help predict collection trajectories and defaults more accurately. AI/ML techniques coupled with real time data can be used to predict and adapt to all manner of emerging customer behavior. Prioritizing a digital-first environment prepares financial institutions for potential surprises and positions them to out-innovate, outgrow, and outperform even in times of flux.
Many institutions, however, struggle through the move to become truly data-centric and digital. Reasons for this range from their inflexible and investment-starved technology core and fragmented data assets, to a dated approach to security and compliance. However, with big-tech companies and data-rich digital players across sectors looking to enter financial services as the next adjacency, incumbents in the space of financial services too need a new strong value proposition built on promise of all that data can do.
