6 challenges facing financial services in 2023, and how to overcome them
Digital innovation and market changes in the financial services (FinServ) and financial technology (FinTech) industries are revolutionizing how people and businesses alike manage money. In the past few years, technology has drastically changed how people engage with their finances:
- Mobile banking: 5-10 years ago, it was uncommon for banking customers to be able to do everything they could in-person, digitally. Now, if banks aren’t able to provide those experiences, they are at high risk of losing customers to other banks.
- Payments: As we’ve moved from being cash-based to increasingly digital, peer-to-peer payment services like Venmo, PayPal and Zelle have risen to replace traditional payment methods. In addition, paying by SMS and/or WhatsApp has risen by around 6x recently.
- Trading: It wasn’t long ago that trading and investing were just for brokers. Now, with technologies like Robinhood, any adult is able to trade and invest in stock with an app download and a few clicks. What was once just for Wall Street, is available to Main Street.
These FinServ and FinTech companies are on a path to enhance and better our relationship with money – aiming to retain customers and drive profitability in the process. But, as these financial leaders continue to push for innovation and disruption, they face broad challenges. In this blog, we’ll discuss the below six challenges.
- Building for the total experience
- Privacy, security, and compliance
- Fraud mitigation
- Reaching and engaging a digital audience
- Competition and customer experience
- Digital transformation
Building for the total experience
The Gartner 2021 Digital Business Acceleration Survey found that the top two reasons organizations are pursuing digital initiatives are to enhance customer experiences (CX) and improve employee experiences (EX). Taken further, the sum of these two looks like this: CX + EX = an organization’s total experience (TX).
As financial leaders think about growing their business, it’s not enough to focus on just CX or just EX. Leaders must think about TX. Why? Because total experience is not about just one audience, but intertwining intersections for multiple audiences. Put another way, each experience impacts and influences the other. If you don’t have satisfied employees, you don’t have happy customers and vice versa.
- Leaders who prioritize TX within their organization will win in the market
- Prioritizing TX means considering questions like the below:
- How do we increase engagement with customers/employees?
- How can we anticipate what customers/employees want or need?
- How can we equip employees with better tools/support?
- How do we retain valued employees with better tools and support?
Privacy, Security, and Compliance
In a recent study, IDC found that 80% of consumers in developed nations will defect from a business if their information is compromised in a security breach.
Consumers expect expert-level privacy, security, and compliance from their financial service vendors. There are few things that folks value more than protecting their finances and financial information. If companies fall victim to an attack or data exposure, your customers likely won’t think twice before leaving and won’t consider coming back. Add to that the potential for large regulatory fines and cyber-insurance premium increases.
That’s why it’s mission-critical for IT leaders at FinServ and FinTech organizations to build, implement, and maintain industry-leading privacy and security practices, and to attest compliance through formal certifications and audits such as ISO 27001, ISO 27701, SOX-ITGC, GLBA, and SOC 2 Type II among others. Doing so will not only earn your customers’ trust but help effectively manage your organizational risks, reducing liabilities and enabling future revenue and customer growth.
- Your business can’t do it all on its own. As you consider adding third-party vendors to complete your business, ensure that they commit to privacy, security, and compliance best practices as you do. As key leaders within financial companies, you need solid, trusted partners. Look for companies that are certified with frameworks such as ISO 27001. It’s also recommended that you require data protection terms (such as DPAs) with your suppliers and perform thorough vendor risk reviews on your suppliers, both at start-up and annual recurring. This must be a formal and rigorous process to help ensure that your company’s sensitive data is protected for privacy and confidentiality, and can integrate safely and securely with existing or additional technologies for payments, logistics, and commerce–all of which are critical for CX, EX, and TX.
Fraud costs businesses a lot of money each year, especially those in the financial services industry. According to LexisNexis, “The cost of fraud for U.S. financial services and lending firms has increased between 6.7% and 9.9% compared with before the pandemic. Every $1 of fraud loss now costs U.S. financial services firms $4.00, compared to $3.25 in 2019 and $3.64 in 2020.”
One of the most prevalent places fraud happens for financial institutions is in the call center. Call centers are popular targets for fraudsters for several reasons. Sympathetic agents can be vulnerable to manipulation as they think they’re actually helping a customer. Fraudsters often know the answer to knowledge-based authentication (KBAs) questions—like your mother’s maiden name—better than the account holder. Also, the call center’s toll-free number enables folks to initiate numerous anonymous fraud attempts with caller ID spoofing techniques.
- Multi-factor authentication (MFA) has been shown to block over 99.9% of account compromise attacks and can provide that added layer of security that makes it incredibly difficult for attackers to navigate past. The most common use is to increase login security and password protection for users. But, there are other places where additional authentication makes sense in financial settings like authenticating trades before finalizing, making large purchases, or sending money to someone whom you haven’t paid before.
- Consider passive authentication solutions for your call center using biometrics to authenticate your customers. This enables secure identification early in the call so that customers can self-serve quickly via interactive voice response (IVR) and contact center agents can resolve faster. Additionally, this would better the customer experience. 46% of folks feel answering KBAs is frustrating or completely unnecessary.
- Enterprises don’t need to build custom call center integrations in-house, saving development resources. There are out-of-the-box solutions for voice authentication and anti-fraud solutions for contact centers that are seamlessly integrated at the carrier level.
Reaching and engaging a digital audience
Before the pandemic, digital banking was quickly becoming the preferred method for many customers to complete financial transactions and interact with their banks. But once the pandemic had its way with shutdowns, customers and financial institutions alike were forced to adopt digital-first options to accomplish their banking needs.
Now, industry leaders are trying to figure out what is the “new normal” for customers moving forward. The American Bankers Association survey shows that customers are banking via digital channels more than before the pandemic. And, according to the KeyBank 2020 Financial Resiliency Survey, 85% of Americans say they will use digital tools to complete some or all financial transactions after the pandemic.
It’s clear that customers are less willing to put up with the slow pace and bureaucracy of some traditional financial services. Now that they’ve experienced the ease of use, security, safety, and speed of new financial technology and digital interactions, there’s no turning back.
- Design products, customer experiences, and communications from a digital-first perspective
- Your offerings must meet your customer’s omnichannel communication expectations. Ensure you build with flexible development tools to account for customization that out-of-the-box solutions won’t be able to address.
- A key part of bridging the “customer experience” gap that digital audiences present is working with a partner, not just a vendor, who is an expert in these mission-critical communication channels.
Competition and customer experience
No matter where you look, one thing is clear: the financial services and financial technology industries are growing – and quickly. And, when a market is growing, new players are bound to swarm and enter. We are already seeing this as tech giants like Microsoft, Apple, Google, Amazon, and Alibaba begin to enter the financial services market from several different starting points.
Whether you are looking to stand out from the existing crowd or newcomers, customers continue to spend their money with companies that can provide exceptional and personalized customer experiences at scale. In fact, 73% of consumers say a good experience is key in influencing their brand loyalties.
- Customers expect 24/7 convenience, top-notch service, and engagements using the channel they want.
- Tech-first financial services organizations are relying on CX to differentiate themselves from legacy banking incumbents.
Due to slow progress or resistance to move, traditional financial service companies are at risk of becoming technologically obsolete. If executed successfully, digital transformation can improve these companies’ ability to compete in an increasingly crowded market.
And people have gotten the memo! Global spending on digital transformation topped $1.3 trillion in the wake of the pandemic. Additionally, as financial leaders are thinking about improving their customer experience and employee experience, it’s important to understand:
- Customer experience: Bandwidth continues to hear from IT leaders that the pandemic forced them to make years of progress in modernizing their contact centers in a short amount of time. Steve Hasker, Presider & CEO of Thomson Reuters Corp, reaffirmed this when he said, “I think we’ve seen three to four years of progress in just three to four months, in terms of acceptance of what the new world needs to look like.”
- Employee experience: within the last two years, there’s been a 240% increase in unified communications as a service (UCaaS) adoption.
Even with this, the digital transformation is far from over–as you likely know all too well! Banking organizations are still working hard to improve their customers’ experience.
A big part of this digital transformation involves migrations. Like any change, migrations can be extremely painful because they’re incredibly complex and costly–especially if things go awry.
- Your customer experience (CX), employee experience (EX), and, thus, your total experience (TX) rely on digital transformation success–the future is in the cloud!
- Plan and execute your cloud migration with a trusted partner who can help you get from here to there without breaking stuff. Start at the carrier level and not at the software level. Focus on picking the right carrier, and you can move to and around the communications cloud without disruption (or migraines!).
Prepare your financial organization for 2023 and beyond
However you are looking to tackle these problems, these problems are nothing that FinServ and FinTech leaders need to take on alone. Bandwidth has proven to be a trusted partner to financial leaders as they look to build world-class customer experiences that scale. We’ve helped companies as they:
- Look to embed communication channels like texting, calling, MFA, or in-app calling into their product or application with flexible APIs
- Build resilient contact centers with best-in-class tools like Pindrop’s authentication solution
- Consolidate telco carriers worldwide
- Navigate global telco regulations
Want to chat through how Bandwidth can help you navigate any of the above? We are ready!