Ever since the seeds of modern-day financial services were planted, banks and other financial institutions have faced numerous challenges. These days, many of these revolve around how to survive and thrive in a world after the Great Recession of 2007-2009. As the Harvard Business Review noted in a recent report, it may seem like the financial system hasn’t changed much on the surface since the financial crisis of over a decade ago, but dig more deeply and you’ll find that there has been a massive expansion in terms of global regulatory framework. This drive towards regulation was designed to protect the financial system from another crisis, as well as safeguard the taxpayers who will once again be obligated to bail out a sinking ship if ever another crisis does come to pass.
Presently, banks and other financial institutions are also increasingly facing more headwinds that they will need to endure. These include tackling the challenges of evolving customer expectations, fighting criminal activities, and competing with agile and innovative rivals.
Better Addressing Customer Needs
In recent years,in the wake of the global financial crisis, financial institutions were faced with the challenge of restoring public confidence in the worldwide financial industry. For the most part, much of this confidence has been won back. However, financial institutions are now being faced with the challenge of properly engaging their clientele and meeting increasingly sophisticated customer expectations. In the words of a KPMG report, financial institutions should see“connecting with customers as a means of building new revenue streams.”
Because competition in the banking industry will continue to be tough in the years ahead, financial institutions have to be consistentlyin tune with what their customers want and need. Whether it’sbetter rewards, convenience in using services, access to financial education, or the availability of innovative financial and investment products, customers will take their business to financial institutions that deliver best on the customer service and customer engagement fronts.
Fighting Money Laundering
With the rapid development of financial technologies comes the problem of dirty money being more deeply entrenched into the banking system. According to the United Nations Office on Drugs and Crime, the estimated amount of money that is laundered around the world each year is between $800 billion and $2 trillion—some 2 to 5% of the global GDP. Since laundered money is typically used to finance transnational criminal activities like terrorism and drug trafficking, it is important for financial institutions to double down on their efforts at addressing the problem of money laundering.
Many of them have taken to using AML artificial intelligence solutions to crack down on money laundering activities. After all, artificial intelligence software with machine learning capabilities can greatly optimize financial institutions’ anti-money laundering (AML) processes.
One key area of efficiency is preventing the incidence of false positives. Whereas traditional AML processes call for subject matter experts to be the ones to determine what scenarios should trigger an investigation, an AI-equipped software can automatically predict and assemble nuanced groups among the customers of a financial institution. This allows investigators to better separate wheat from chaff, reducing the number of false positives without affecting how much suspicious activities they are able to spot. The ability to streamline AML processes can also help financial institutions avoid massive regulatory fines that can run to billions of dollars.
Competing with Financial Technology Companies
Originally a term that was used to describe technological innovations that supported traditional consumer and trade financial institutions, FinTech has recently become more associated with startup companies that use software to provide innovative financial services.
Cryptocurrencies and digital monies are perhaps the most well-known products of modern-dayFinTech. However, today’sFinTech companies also engage in activities that are the traditional domains of banks and financial institutions. For instance, many new startups are now handling services that only traditional financial institutions used to handle. These include lending, payments, consumer banking, international money transfers, equity financing, and insurance. Many of these companies use technologies and alternative financing and transaction models in order to reach customers that are not reached or are underserved by banks. Financial institutions need to be able to adjust quickly and compete proactively with these newly emerging rivals if they are to survive.
By overhauling their operational paradigm and adopting new technologies, banks and other financial institutions the world over stand a better chance at survival in today’s modern economic milieu.