If it seems like nothing can top the turmoil of the 10-plus years following the 2008 financial crisis, buckle up. The next five years could be just as action-packed as the past decade, according to a new report from consulting company Vuealta.
In its report “The Future of Financial Services: Planning for every eventuality,” Vuealta outlines the challenges facing financial firms, the technologies that are set to disrupt the industry and the ways that firms can prepare for the future. “The next five years look set to be just as dynamic for financial services as the previous ten — filled with challenges and disruption, but equally, opportunities for those that navigate the period well,” the report states. “What businesses need is the ability to understand the environment that surrounds them, a clear view of what is approaching on the horizon and the insight of how to connect the dots and plot a route to success.”
IT Challenges Concern Decision-Makers
Technology-related factors account for four of the top six challenges facing decision-makers at financial services firms in the U.S. and U.K. Cybersecurity claims the top spot, with 42 percent of respondents citing it as a top challenge. Regulation and compliance (36 percent), data management and privacy (31 percent) and disruption from technology (16 percent) round out the top six.
While disruption from technology trails other factors, Vuealta warns financial firms not to overlook it. “Organizations need to make sure that, despite the flurry of external influences and challenges — like data privacy, regulation and politics — they do not get complacent and take their eyes off the competition,” the report states. “Disruption can come from any angle, and the speed at which new startups can grab market share can be frightening.”
5 Sources of Disruption and Disorder
Vuealta identifies a “FinTech explosion” that saw global investment of $57.9 billion in the first half of 2018 (more than all of 2017) and warns that industry leaders may not fully grasp the amount of change that this is likely to spur. More than half (52 percent) of respondents say that their organization’s leaders “do not appreciate the potential impact of technology disruption.”
The report identifies the following sources of near-term disruption:
Artificial intelligence and machine learning: According to Vuealta, AI and ML present “huge opportunities” to divert human workers away from mundane tasks to higher-value work while also reducing costs.
Payments technology: Financial services firms, the report states, will have to embrace tech-driven payment solutions such as digital payments and mobile deposits to cater to the demands of the modern consumer.
Cryptocurrencies and blockchain: Vuealta notes that blockchain and cryptocurrencies are evolving at a “breakneck pace,” requiring financial services organizations to keep an eye on developments, so they can respond if necessary.
Big Data: While only 14 percent of survey respondents see Big Data as a potential “disruptor,” that low figure may be due to the fact that the technology is already integrated into many firms’ operations. Still, the report suggests, firms must ensure that they are taking advantage of the latest technologies to unlock the full power of their data.
Cybersecurity: New technologies typically mean new vulnerabilities, and Vuealta warns that companies must implement effective cybersecurity solutions and processes to protect their business and customers, and also devise appropriate incident response plans.
Where The Future of Financial Services Begins
Financial institution leaders appear confident in their ability to respond to change, with 86 percent of respondents saying their leadership team “is equipped to succeed in the face of market challenges,” and 79 percent saying their company “effectively plans for what lies ahead.”
However, Vuealta warns that this confidence may be unfounded.
In order to get ahead of disruption, the report states, financial organizations must engage in “connected planning” processes that use technology to connect and verify different data sources, break down silos and help humans make more informed decisions quickly. The report notes that only 50 percent of respondents claim to plan with all departments working from one tool that is updated in real time, and that 35 percent keep planning siloed within departments.
“The key is being able to move fast,” the report’s authors write. “The chaos of today might seem like it renders any form of long-term planning redundant, when in actual fact it does the opposite — it necessitates planning, continuously, at speed and as connected as possible. By being able to access and collate critical data sources, you can reduce the impact of uncertainty and build realistic, actionable responses to all … potential ‘what ifs.’”