The financial services industry operates in an increasingly dynamic landscape, where digital advancements play a pivotal role in shaping the sector’s future. While technology continues to transform the financial services industry, FIs must strive to meet stringent industry regulations without undermining the critical importance of sensitive financial data security and fraud/scam protection.
As we tread further into 2024, banks are poised to increase their investments in critical areas that directly impact their operations, customer experience, and regulatory compliance. In this article, we’ll explore key technology domains – compliance tech, cybersecurity, and personalization – three areas of strategic importance that will see more investment from banks this year.
1. Compliance Technology
The banking industry is one of the most highly regulated verticals on the planet. Stringent industry regulations demand consistent adherence from financial institutions. Non-compliance means institutions can be fined, resulting in loss of trust from their customers. Compliance technology ensures that banks meet these strict regulatory requirements efficiently and effectively. From Anti-Money Laundering (AML) to Know Your Customer (KYC) processes, robust compliance tech solutions can effectively streamline banking operations, reduce manual effort, and mitigate risks.
As regulations evolve and grow more complex, the need for compliance and keeping up with the changing environment increases. But while the costs can be high – 32% of UK banks surveyed in 2022 expected their compliance costs to exceed 5% of revenue – banks can make the investment in compliance technology to ultimately drive bigger business impacts.
Some of the expected impacts and benefits for FIs include:
– Efficiency Gains: Automation of compliance processes reduces manual errors and accelerates decision-making.
– Risk Mitigation: Enhanced monitoring and real-time alerts help banks stay ahead of potential risks.
– Cost Reduction: By automating repetitive tasks, banks can allocate resources more strategically.
Consumers also stand to benefit from the extra technology spend on compliance-related technologies. Most importantly, stringent compliance measures protect customers, mitigating the potential for fraud. There are also convenience benefits: more streamlined compliance processes mean quicker account openings and fund transfers.
2. Cybersecurity
The rise in cyber threats, especially as AI becomes a tool used more frequently by sophisticated hackers and crime organizations, poses a significant challenge to the banking sector. And as banks work with third-party vendors more frequently to offer more or better services, customers’ personally identifiable information (PII) becomes even more vulnerable to exposure. In fact, in November 2023 Bank of America reported that a cybersecurity breach, in which one of its vendors was hacked, resulted in the exposure of customer PII.
Increased cybersecurity investments are crucial to safeguard sensitive financial data, prevent breaches, and maintain customer trust. As cyberattacks become more sophisticated, banks must fortify their defenses and consider their relationships with third-party vendors, especially if those vendors have access to the same sensitive data that the banks themselves process.
Expected impacts include:
– Data Protection: Robust cybersecurity measures shield customer information from unauthorized access.
– Resilience: Banks can respond swiftly to incidents, minimizing disruptions.
– Reputation Management: A strong security posture enhances customer confidence.
As a result of continued investment in cybersecurity protections, consumers will have peace of mind knowing their data is secure, with the added benefit of encouraging (and hopefully increasing) engagement with digital banking services.
3. Personalization
In an era of hyper-personalization, banks must tailor their offerings to individual preferences. Seventy-two percent of customers surveyed in Forrester’s 2021 “Consumer Study on Personalization Effectiveness in FI” report reported that banking product offers are more valuable when tailored to their individual needs. And in the 2023 report, “The State of Personalization Maturity in Financial Services,” by Dynamic Yield, 86% of surveyed financial institutions reported that personalization is a clear, visible priority for the company and its overall digital strategy; and further, that 92% of FIs plan to invest further in the tactic.
Personalization technology leverages data analytics, machine learning, and AI to create customized experiences for customers. From personalized product recommendations to targeted marketing based on information they already have about a customer; banks can deepen customer engagement and increase product and service cross-selling.
Expected impacts include:
– Customer Satisfaction: Personalized interactions foster stronger relationships.
– Cross-Selling Opportunities: Tailored recommendations drive additional product adoption.
– Competitive Edge: Banks that understand their customers better can outperform rivals.
Beyond the obvious benefits to financial institutions, their customers will receive offers and solutions more aligned with their needs and behaviors. Delivering more targeted offers will reduce the time consumers have to spend searching for relevant information.
Final Thoughts
As banks navigate today’s technical advancements and increased complexities of the financial landscape, investing in compliance technology, cybersecurity, and personalization will be pivotal to their continued success. These strategic technology choices not only enhance operational efficiency to further minimize the cost of doing business under current market conditions, but also elevate the overall banking experience for consumers, an immediate win-win for the sector and a sign of what’s to come.
Link: https://www.fintechnexus.com/three-technologies-banks-will-invest-more-in-this-year/?utm_source=pocket_saves
Source: https://www.fintechnexus.com