Similar to other industries, the finance sector isn’t immune to changes and transformations. We have seen financial institutions swiftly switching to the trend of digitization and automation in recent years. While these unprecedented changes have revolutionized the finance industry, there still are many challenges for the sector to overcome. The future of finance depends on prioritizing the clients, empowering the customers, and incorporating the latest digital trends. The rise of cryptocurrency made people invest in decentralized banking. The traditional finance industry must strive to maintain viability, combat competitors, and compete with people’s expectations by facing the following challenges:
Challenges for financial institutions in 2021
- Big data:-
Let’s begin with a problem faced by every modern-day company in 2021, i.e., big data. Experts say that over 1 trillion megabytes of data are created daily. Handling this data and analyzing it to extract useful information have become serious challenges for the finance industry. The solution lies in adopting data analytics. Analytics tools enable companies to sort through torrents of data constantly. Since neglecting this information is disastrous for business.
- Employee retention:-
The fast-paced business world has made it difficult for financial firms to attract customers and even employees. Since there are emerging finance firms, many students flock toward the new establishments to grow along with them. It poses a grave challenge for existing firms to hire fresh talent. However, a viable solution is to develop your existing employee base by providing learning and development opportunities. It might even attract new hires to join your company since such employee development opportunities depict a good organizational reputation. You can search out online learning options for your employees to ensure they remain updated with the latest knowledge. Finance and accounting professionals can avail themselves of online masters in accounting to learn about essential accounting standards and principles. It will not only add to their knowledge bank but also accelerate career development and growth.
- Customer expectations:-
Fulfilling consumer demands remains one of the topmost challenges faced by the industry. In 2019, around 50% of customers demanded personalized services from financial institutions. In other words, they wanted them to assess their preferences and then offer individualized business advice. Similarly, over two-thirds of consumers expected to have insurance premiums specialized in complying with their behavior. Regrettably, traditional institutes aren’t delivering the kind of service the majority of their customers want. For instance, one-fourth of them don’t like having an account with a bank with no local presence since they prefer in-person service.
- Security breaches:-
Security breaches have, without a doubt, become a primary concern for firms right now. The finance industry is more vulnerable than any other business when it comes to cybercrimes. Back in 2019, financial services were attacked by cybercriminals 300 times more than any other sector. In 2020, the incidents of security breaches increased amid the pandemic. Preventing hackers from infiltrating has thus turned into a challenging responsibility for modern-day banks. Each attack may cost them millions of dollars. So, the finance industry must invest in AVS (address verification service) and end-to-end encryption, and biometric and location-based authentication.
- Increasing competition:-
Since customers expect to have personalized financial suggestions, they’re more than happy when conducting business with automated services. So, the finance industry must surpass the competition by honing their USPs or unique selling points. What’s stopping the customer from going with modern financial technology startups? We’ve seen several FinTech companies such as Robinhood succeeding in winning over many customers. These startups offer applications that have made investing a very convenient task. So, institutions that provide easy access to these innovative apps dominate the market. Challenging this competition will remain a major headache for companies.
- Incorporating AI:-
Artificial intelligence (AI) is – definitely – the future of the finance industry. Companies that wish to thrive and survive in this decade are incorporating AI into their everyday operations. A survey shows that 80% of banks are familiar with the benefits of adopting AI and machine learning. And many of them are planning to deploy AI-enabled solutions for their customers. AI will bring automation to every bank’s service; for instance, customers can interact with chatbots instead of a bank representative. These chatbots can respond to consumers’ repetitive questions and offer assistance 24/7. But the challenge remains to implement these solutions permanently and successfully.
- Regulatory compliance:-
The rapidly transforming regulatory atmosphere also poses a severe challenge to the banking sector since they must always be vigilant about legal change. Compliance with these regulations has become imperative for the finance industry’s survival and prosperity. If their systems aren’t up-to-date with the recent modifications, companies may face penalties. Therefore, keeping up with the ever-changing industry standards is one of the staunchest challenges encountered by the sector right now. These regulations ensure that the finance industry conducts itself ethically, retains the trust of its customers, and protects people’s data from cybercriminals.
- Antiquated applications:-
We’ve already mentioned how financial organizations must incorporate digital transformations and incorporate AI to survive this decade. Using old-fashioned applications diminish a firm’s productivity. Thus, it’s essential to implement technologies such as AI and blockchain into a firm’s daily operations. Blockchain – famous for Bitcoin – leads to enhanced security; the cloud helps store data more effectively and brings more people to conduct business with you.
When the world entered a recession after COVID-19, the finance sector considered it merely another addition to the numerous challenges they were already facing. The business model has suffered a massive transformation internationally, with firms countering immense compliance pressures. On the other hand, FinTech and cryptocurrency compel traditional financial institutions to rethink how they wish to conduct business in the future. Moreover, protecting consumer information from hackers has also become a challenge as cybercrimes intensify in 2021. Also, customers now demand 24/7 service from companies. Meeting these requirements will enable the finance industry to survive and prosper.