The financial services industry operates in an increasingly dynamic landscape where digital advancements play a key role in shaping the future of the sector. As technology continues to transform the financial services industry, financial institutions must strive to meet stringent industry regulations without undermining the critical importance of sensitive financial data security and fraud/fraud protection.
As 2024 progresses, banks are poised to increase their investment in critical areas that directly impact their operations, customer experience and regulatory compliance. In this article, we’ll explore key technology areas – compliance technology, cybersecurity and personalization – three areas of strategic importance where more banks will be investing this year.
1. Compliance Technology
The banking industry is one of the most heavily regulated verticals on the planet. Strict industry regulations require consistent compliance by financial institutions. Failure to comply means that institutions can be fined, leading to a loss of trust from their customers. Compliance technology ensures that banks meet these stringent regulatory requirements efficiently and effectively. From anti-money laundering (AML) to know-your-customer (KYC) processes, robust technical compliance solutions can effectively streamline banking operations, reduce manual effort and reduce risks.
As regulations evolve and become more complex, the need to comply and keep up with the changing environment grows. 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 invest in compliance technology to ultimately drive account greater impact on business.
Some of the expected impacts and benefits for financial institutions include:
– Increase efficiency: Automating compliance processes reduces manual errors and speeds decision-making.
– Risk reduction: Improved monitoring and real-time alerts help banks stay ahead of potential risks.
– Cost reduction: by automating repetitive tasks, banks can allocate resources more strategically.
Users can also benefit from the additional technology spent on compliance-related technologies. Most importantly, strict compliance measures protect customers by reducing the potential for fraud. There are also convenience benefits: more streamlined compliance processes mean faster account openings and fund transfers.
2. Cybersecurity
The rise of cyber threats, especially as artificial intelligence becomes a tool used more often by sophisticated hackers and criminal organizations, presents a significant challenge to the banking sector. And as banks work more often with third-party providers to offer more or better services, customers’ personal 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 led to the disclosure of customer PII.
Increased investment in cybersecurity is critical to protecting sensitive financial data, preventing breaches, and maintaining customer confidence. As cyberattacks become more sophisticated, banks need to strengthen their defenses and consider their relationships with third-party vendors, especially if those vendors have access to the same sensitive data that banks themselves process.
Expected impacts include:
– Data protection: Robust cyber security measures protect customer information from unauthorized access.
– Resiliency: Banks can respond quickly to incidents, minimizing disruption.
– Reputation Management: A strong security posture increases customer confidence.
As a result of continued investment in cyber security protection, consumers will have peace of mind knowing their data is protected, with the added benefit of encouraging (and hopefully increasing) engagement with digital banking.
3. Personalization
In an age of hyper-personalization, banks must tailor their offerings to individual preferences. Seventy-two percent of customers surveyed in Forrester’s 2021 Consumer Research on the Effectiveness of Personalization in FI report that banking product offerings are more valuable when tailored to their individual needs. And in Dynamic Yield’s 2023 State of Personalization Maturity in Financial Services report, 86% of financial institutions surveyed report that personalization is a clear, visible priority for the company and its overall digital strategy; and further that 92% of financial institutions plan to invest further in the tactic.
Personalization technology uses data analytics, machine learning and AI to create personalized experiences for customers. From personalized product recommendations to targeted marketing based on information they already have about the customer; banks can deepen customer engagement and increase cross-selling of products and services.
Expected impacts include:
– Customer satisfaction: Personalized interactions foster stronger relationships.
– Cross-selling opportunities: Personalized recommendations drive additional product adoption.
– Competitive advantage: Banks that understand their customers better can outperform their competitors.
In addition to the obvious benefits for financial institutions, their customers will receive offers and solutions that are more in line with their needs and behavior. Providing more targeted offers will reduce the time users have to spend searching for relevant information.
Final thoughts
As banks navigate today’s technical advances and increased complexity of the financial environment, investing in compliance, cybersecurity and personalization technologies will be central to their continued success. These strategic technology choices not only increase operational efficiency to further minimize the cost of doing business in current market conditions, but also improve the overall banking experience for consumers, an immediate win for the sector and a sign of what is to come.
