The last year has seen some dramatic changes in everything from IT to electrical distribution, and with the economy still on the mend, it seems fitting that the next entry in our industry trends blog series looks at the landscape for financial services.
So, what’s on the horizon for the financial services industry in 2021 and beyond? Much like other industries we’ve discussed, financial services is staking a lot on the proliferation of digital technologies that seem to be growing more sophisticated by the day, and the past twelve months have only accelerated this growth.
Blockchain and cryptocurrencies. Digital wallets. Automated wealth managers. “FinTech” is no longer a buzzword for our financial future; today it describes the applications and services that have already been developed and are rapidly evolving amidst the larger digital transformation. The difference is that now, rather than simply implementing these technologies, the finance sector is beginning to shift its focus to enhancing customers’ overall digital experience as more and more of us integrate this tech into our banking, insurance, investing, and other financial activities.
In many instances, much of this has become possible due to the integration of mobile in the banking sector, which has enabled 24/7 account access and nearly frictionless global payments, as well as things like on-demand credit checks, zero-commission, on-the-go trading, and a host of other user-experience upgrades.
Mobile banking apps in particular have risen fast in their widespread adoption and accepted usage, with no signs of slowing down. Whether these are apps from traditional banks, or digital-only banking entities like Venmo, PayPal, or Square, more and more consumers now expect to have the ability to pay for just about anything without ever having to pull out their credit cards. To illustrate this, a recent National Retail Federation (NRF)survey found that contactless payments had increased by more than 69% since January 2020, with nearly one-in-five consumers saying they had made an in-store digital payment for the first time.
Of course, as more of our financial data is stored, shared, and accessed online, this inevitably creates increased opportunities for bad actors to sneak in and steal it. This is nothing new for cybersecurity teams, but it becomes all the more pronounced when high-profile attacks such as last year’s hack of SolarWinds lead to public outcries for greater protections.
As a result, financial organizations are likely to continue building up their institution-wide cybersecurity “hygiene”, which will protect both the public whose data is housed there, and companies themselves from the resulting PR fallout. This will also include a greater focus and investment in internal risk analysis and management, as individual firms look to push toward more innovative tech-based offerings and solutions.
Open for Business
Another component of the digital transformation currently underway in financial services is the expansion of open banking. More and more firms are opening up their platforms through secure application programming interfaces (APIs), making end-user data available to a variety of third parties. In fact, the API market is set to expand from just over $3 billion in 2019 to nearly $7 billion by 2025.
This is partly the result of new regulations in some countries that require banking organizations to allow customers to securely share their data in order to increase competition. But it’s also somewhat opportunity-driven, as many of these organizations see digital partnerships as a means of improving innovation and leveraging ways to build better customer relationships. So, when it comes to the future of finance, those more traditional firms that are slow to seek out these mutually beneficial partnerships may ultimately find themselves being left behind.
Other Trends: Quick Hits
Some other important trends expected to play a role in the financial services sector include:
Short-Term Survival, Long-Term Growth. In large part due to the pandemic, many smaller institutions are still trying to prioritize making it through the next 12 months as they look to cut costs while still innovating the consumer experience.
Rising Interest Rates. If and when the Fed employs another rate hike, how will financial institutions react? And what will this mean for consumers?
Bitcoin: More Than Just a Fad? When business analytics firm MicroStrategy invested more than $1 billion into bitcoin, it raised a few eyebrows. When Elon Musk and Tesla bought $1.5 billion, it got the attention of the public. But then insurance giant Mass Mutual invested $100 million into the cryptocurrency, BNY Mellon, the nation’s oldest bank, announced that it would be financing bitcoin and other digital currencies, and BlackRock, with its trillion dollars of assets, decided it was time to “dabble” in it. Is crypto here to stay?
Perhaps more than any other industry other than IT, it appears that digital innovations are going to play a prominent role in the success and failure of financial services institutions. Digital solutions and data-driven analysis in both marketing and sales will continue to be key components of any successful growth strategy, whether you’re in investment management or insurance, capital markets or payments.
We pride ourselves on helping our clients find sophisticated answers to complex challenges, no matter the industry. Contact us to find out how we can technologize your existing performance improvement strategy to optimize it for your evolving financial ecosystem. Book a meeting with us today!