How often do you stand in line at the bank now? Once or maybe twice a year? Everything is done online nowadays. In fact, the digitalisation of financial services means you can practically conduct your banking, bookkeeping and accounts (among other things), all from a cell phone.
Innovation is a strategy that all banks, insurers and FinTech companies are now chasing. Without evolving, they’ll quickly be left behind in the face of strong competition. Challenger banks are now eating up more of the market thanks to their tech-first approach to operations and customer services.
It’s a challenge for many financial services to keep up, but it can’t be ignored. So, if you’re looking to find insight into financial services innovation, then that’s exactly what you’ll find here.
The evolution of financial services
It’s fair to say that the concept of online banking has gained momentum over the last 25 years. The 2008 global financial crisis, coupled with the release of the iPhone, sparked a new era of alternative finance and lending platforms.
Smartphone adoption has led to the accelerated growth of FinTech startups, challenging traditional financial institutions with innovative tech-driven solutions. That’s all before we throw blockchain technology, cryptocurrencies and expedited digital transformation during COVID-19 into the discussion.
Current trends don’t signal any slowing down in the evolution of financial services. Digitalisation and automation are the key trends driving a new innovation wave. Forty-five per cent of financial service organisations are already using generative AI. Plus, the global FinTech market is predicted to grow from $200 billion to $640 billion by 2029.
Customer-centric strategies in financial services
Personalising customer interaction significantly improves satisfaction and retention. AI and data are shortcuts that give financial institutions a competitive edge in this pursuit. As we speak, an earthquake of AI-driven experiences is fundamentally shifting how digital-first businesses interact with customers. It’s taking us from basic ‘one size fits all’ online services to deep personalisation.
Hyper-personalisation is now possible. AI can analyse vast amounts of data to deliver tailored product recommendations – all at the right time and place. For financial operators, this could mean offering bespoke financial advice when people need it the most or building personalised insurance policies based on individual behaviour and risk profiles.
Advanced machine learning combines data analytics and AI to predict customer churn and find cross-selling opportunities. Financial institutions can analyse customer behaviour across various touchpoints, then react to address the predicted sentiment of the consumers. At the same time, micro-segmentation for highly targeted marketing campaigns can be achieved via big data analytics.
Forty-six per cent of financial institutions are already incorporating large language models into their understanding and generation tasks. AI powers chatbots and virtual assistants to handle the majority of routine customer queries now, with some putting the figure as high as 80%. It might seem impersonal, but response times are near instant, and customer satisfaction is improving.
Omnichannel experience is now a non-negotiable for modern financial businesses. Surveys show that 90% of customers expect consistent interaction across channels. Without it, churn occurs rapidly, with 52% of customers switching to competitors after a single negative experience. Technology enables real-time synchronisation across the entire consistent experience, no matter the channel being used. Successfully implementing omnichannel experiences dramatically improves the customer’s experience, reducing frustration and churn to more digitally savvy competitors.
So what about future emerging trends? Well, voice-activated banking through smart speakers and virtual assistants is gaining traction. Twenty-seven per cent of US consumers have already expressed interest in using ‘voice commerce’ for tasks like payments. As for AR and VR, this is a sector being extensively explored to enhance customer services and experience for wealth management and real estate financing.
Harnessing technology for competitive advantage
AI systems can analyse millions of transactions in real time and identify fraudulent activity with 95% accuracy. Going a step further, machine learning continues to reduce false positives rapidly. Credit risk predictions are also benefitting from improving accuracy and wider services. The ability to incorporate alternative data sources can enable credit assessment for underserved populations. AI is miraculous for operational efficiency and customer service simultaneously. Security is enhanced, risk management is accurate, and new markets are opened up, ultimately improving the bottom line.
Blockchain technology offers opportunities for insurance companies to improve operational efficiency, reduce costs and grow customer trust. Smart contracts can decrease processing times from weeks to months with automated claim payouts and reduced administrative costs. Blockchains open up real-time policy updates alongside transparent premium calculations, while predefined conditions within smart contracts can help reduce costly disputes.
The next frontier in FinTech is embedded finance – integrating financial services and banking into nonfinancial apps. Elon Musk has already outlined his goal to turn X into an ‘everything app’, encompassing payments, social media, AI platform, the lot. It’s a massive opportunity for FinTech to build services through API-driven banking to expand their reach. The embedded finance market alone is predicted to jump to $230 billion in 2025. It will blur the lines between financial and non-financial services. Financial companies need to understand this rising trend and decide whether to become a service provider to other brands at the risk of lost direct customer relationships.
The future of financial services
Improving operational efficiency and reducing costs is the most obvious benefit of technology. AI may seem like it’s removing the ‘human touch’, but improving accuracy and response times allows omnichannel experience to deliver better customer experience. Operational losses and customer satisfaction are further enhanced thanks to more accurate risk management and fraud detection capabilities.
The adoption of these technologies does come with challenges, though. Significant investment costs and specialist skills are needed for implementation. And that’s before we get to the regulation hurdles. Embedded finance is an example of walking a fine line between customer experience and tightening regulations. This is why ERNI develops software to help financial services deliver innovative customer-centric solutions to gain a competitive advantage. We create digital business models with accelerated processes through innovative software to improve the customer experience for financial and insurance services.