DIGITAL TRANSFORMATION IN THE FINANCIAL SERVICES INDUSTRY: ADAPT OR GET LEFT BEHIND

The financial services sector is made up of a wide variety of organisations. Everything from digitally driven start-up, ‘app only’, exchange-traded fund (ETF) platforms targeting millennials, through to the more traditional commodities traders, operating open-outcry on the London Metal Exchange - both fall under the financial services umbrella.

Some of these firms are well ahead on their digital journey, many in fact have never been non-digital, while others are just at the beginning.

The one thing that unites them all is that digital change is on their board’s agenda. In a recent RSM survey exploring the current state of digital transformation across the middle market, 69% of respondents said that their digital investments will become more important over the next three years. In the financial services world, we know that this is a top priority.

Shift To Digital

The pandemic fast-tracked the growing digital transformation of the financial services sector, redefining customer behaviour and engagement. Firms are now looking to prioritise digital transformation and further innovation, with the growing application of automation, artificial intelligence, digital marketing, cloud solutions and blockchain.

Given the growing customer demand for digital interfaces, ease of use and speed of transactions, investing in digital transformation needs to be a priority for financial organisations if they are to remain competitive.

One of the biggest obstacles facing more traditional firms, and one that newer firms avoid, is the legacy infrastructure from decades of old business processes. This legacy infrastructure has made investment in core systems for digital services a strategic priority.

DISRUPTORS/ENABLERS

FinTechs are disrupting the financial services sector. They are driving innovation and are quickly adapting to changes in customer behaviour with use of their modern platforms, aided by the lack of any legacy systems to navigate.

Incumbents are increasingly viewing FinTechs as strategic partners and are seeking ways to collaborate and develop products with them to modernise their systems and offerings.

We are seeing FinTechs take advantage of the ubiquitous use of fingerprints and face recognition on smartphones, by increasing the ability to make payments simpler and more secure using biometrics, something more firm’s need to consider as they push toward digital transformation.

Talent

Vacancies in financial services saw their highest spike last year since 2001, with vacancies per 100 employee jobs being over 50 consistently during 2022 and with an already squeezed labour market, attracting and retaining talent is paramount. Only now are vacancies within the sector reducing to the previous highs, as seen in mid-2007.

To win in the fight for talent the sector must consider using process intelligence to combat workforce challenges. Extending the scope to non-traditional pools of talent, such as apprenticeships or return-towork programmes will help boost diversity. In the book Loonshots, the author and trained physicist, Safi Bahcall, suggests that rather than focusing on a corporate culture, organisations should focus more on organisational structure that harnesses innovation, and where there is a need to have creative minds focussing on innovation separately from those responsible for the steady growth of an organisation. Bahcall also suggests the investment in a chief innovation or creative officer to manage the two and generate a collaborative and harmonious culture.

Cyber Security

Given the financial services industry is a hot target for cyber criminals, a principal concern with all elements of digital transformation remains cyber security. The National Fraud Intelligence Bureau (NFIB) Fraud and Cybercrime dashboard, at the time of writing, showed that the number of reports relating to cybercrime in the last 13 months was 29,983 with reported losses of £7.6m, this reduces to 2,352 reports and £2.9m solely for organisational reports. The highest reported crimes related to hacking. Cyber security risk has risen due to various factors, inclusive of the current geopolitical uncertainty and rise in technology used to commit this type of crime. While cybercrime losses can damage an organisation financially and interfere with operations, reputational losses can be immeasurable.

During a macro-economic shift, it is essential that those operating within the financial services sphere reboot their digital transformation strategies for the next decade to keep pace with the change in technology and shifts in customer demand, attract and retain talent and maintain overall resilience. With the financial services industry going from not just creating financial instruments but to orchestrating a service in this digital transformation, organisations need to think about data privacy and protection, cyber resilience, bias within automated systems and disruptors.

ERIN SIMS FINANCIAL SERVICES SENIOR ANALYST RSM UK

RSMUK.COM