The COVID-19 pandemic, in addition to its global health and social impact, has disrupted every business sector in some way. Financial services companies are faced with several unique challenges, some as a result of the pandemic itself, and others as a manifestation of the heightened pressure on businesses and budgets. This time of rapid change is also an opportunity to respond with innovation and agility, refining and in some instances redefining the financial sector of the future.

Here are some of the challenges facing the financial services sector:

Low-cost, agile competitors:

The financial sector as we know it is changing. Tech-savvy, low-cost players are entering the market. Virtual Fintech players, telecommunications companies, and mega-corporations such as Google, Amazon, and Alibaba, offering low-cost always-on banking that is available anywhere and on multiple devices. Most of these new entrants built digital services around the customer, unencumbered by legacy banking processes and rigid back-office systems. Established banks need to essentially rebuild digital services around the customer and then transition which is a huge challenge. The banking industry has become more strategically focused and technologically advanced to keep abreast with changing market conditions and disruptors. Key global innovation tactics include a single view of the customer, digitalisation, transition to digital channels while reducing physical footprints and data security.

Decreasing advisory revenues:

Financial advisors in South Africa have experienced a decrease of ~16% in their protection sales due to COVID-19, with UK companies experiencing an 18% decrease, and 23% in Australia. As a result, financial advisors need to find new ways to connect with and engage customers, illustrating value through market intelligence and highly personalised products.

Rising customer expectations:

Customers expect personalised financial services and products that integrate seamlessly into their lives, pre-empting solutions before the customer even realises they need them. Innovative financial services companies will employ an omnichannel strategy, using ecosystems and collaboration with strategic partners to delight their customers and individualise products and services in new ways.

Tech-savvy financial services companies can innovate by working towards building a single view of the customer through seamless, interconnected interactions over numerous channels and departments. The challenge for banks and other financial services institutions is that customers consume financial products across various financial services entities e.g. short-term insurance, life insurance, loans, wealth management, deposits, payments, raising of capital, vehicle financing, etc. With the advent of open banking regulations, it will allow new entrants to provide customers with a single point of consumption across all these service entities, utilising all digital channels. This development has the potential to disintermediate the banks from their customers

Legacy systems relegated to the past:

The financial services industry has rich, intricate data at its disposal. To date, this has been locked within legacy systems, or in departmental silos. As companies are thrown into the next era of financial services, they can take advantage of new generation technologies such as artificial intelligence (AI), Machine Learning (ML), Robotic Process Automation (RPA), cloud, data analytics and blockchain. On the front end, banks are automating basic communication and advisory functions through chatbots, using technologies such as AI. Back-office operations are being automated using robotic process automation (RPA) technologies.

On the front end, banks are automating basic communication and advisory functions through chatbots, using technologies such as AI. Back office operations are being automated using robotic process automation (RPA) technologies.

Reduced physical footprint:

As the costs of keeping locations open during COVID-19 and customers call for a simpler banking experience, banks will need to redesign the function of the traditional banking branch and automatic teller machines (ATMs).

Security:

Cyber-crime continues to become more sophisticated and financial services companies are challenged to keep one step ahead to protect their funds and data. Banks’ vast amount of customer data and financial assets make them natural targets. Financial services companies need to continually adapt to ward off security breaches, which makes cyber-security a continual priority.

Financial services companies can use this time of disruption to form exciting new partnerships, attract new customers, tailor customer-centric products and solutions, re-design and digitalise processes, leverage data that supports an omnichannel capability. Innovation is possible through the integration of legacy systems to support a digital world, using customer platforms and processes to futureproof financial services industry businesses. As our infographic on BCX’s analysis of the financial services sector illustrates, intelligent technologies form the bridge between the current bank and the bank of the future.