Top 5 Financial Services Issues Affecting the Industry
As new tech-centered business models are adopted by more firms, the financial services industry must change to meet their clients’ needs. The question is: what issues are causing the industry to change? And, how can players in the industry seamlessly navigate those changes? Let’s explore the top 5 financial services issues, and how best you can approach them as the landscape evolve.
Top 5 Financial Services Issues
1. Digitization Disrupts The Industry Threatening Customer Lifetime Value (LTV)
The single biggest financial services issue that most institutions face is the inability to actively engage customers. Now, retail banking customers, for example, are reliant on digital services to meet their needs. There’s less of a need for them to visit brick and mortar branches.
For example, PwC‘s 2017 Digital Banking Survey found that 46% of customers skipped banking branches altogether. They instead primarily used their smartphones, tablets, and other online applications. So, customers are flocking more towards direct-to-consumer channels. If financial institutions fail to adopt a digital structure, their customer retention could drop significantly.
This begs the question: what is the best way to understand your consumers’ evolving needs? By implementing an API, firms can learn more about their customers, in real-time. With WealthEngine’s API, you can receive real-time updates on consumer activity. Not only will you be able to understand your consumers’ individual needs, but you’ll also be able to personalize your outreach. For instance, when a new prospect fills out an inquiry form for a personal loan, you can immediately access their wealth, demographic, lifestyle and affinity data. So, your offer to them can be highly personalized and relevant.
2. FinTech Companies Are Set to Outrun Traditional Companies in the Sector
In the same vein, another significant financial services issue is the emergence of FinTech. Unlike traditional financial services, FinTech addresses the growing customer need for direct-to-consumer services. So, when customers seek advice or information, robo-advisors or tech-savvy companies can provide answers instantly. This can take business away from financial services companies that have remained traditional.
A FICO Report on Millennials stated that nearly a quarter of millennials listed that the lack of mobile banking apps were their main deterrents in engaging with banks. Additionally, millennials are three times more likely than other generations to manage their bank account through their smartphone. So, since more customers want to manage their money online, it’s important to adopt an omnichannel marketing approach. Regardless of channel or device, it’s important that consumers feel that their experience is seamless. For example, although Bank of America experienced a 28% drop in their number of physical branches in 2018, their mobile banking users increased by 11% to 25.3 million that year.
So, by creating an easy-to-use platform for users, you can engage customers in ways that are most convenient for them. This isn’t to say that you should get rid of your physical branches. You should just adapt to the needs of your consumers, and identify what works best for which people. Using WealthEngine’s Analyze tool, you can understand your prospects and clients on a deeper level. You can evaluate past successes and use those insights to score your customers. You can then use these scores to inform your prospecting and help you see which of your clients have the greatest propensity and capacity to spend. See what makes your audience tick, and harness this knowledge to create relatable outreach.
3. Volume of Data Increases, Posing Challenges for Analysts
The scope of Big Data is also presenting itself as a potential financial services issue. Both retail and commercial financial institutions have more data on their customers than in any other industry. However, some still struggle to extract meaningful information from it. This makes it harder to make subsequent business decisions that would have been informed by this data.
For example, according to PwC, businesses only use 0.5% of available data. But, 37% of respondents believe that internal data will drive their next big decision. So, with the volume and speed of newly available data escalating, firms need new ways to store, classify, and use data. This client data needs to be accessible across departments. Your wealth management team must interact with the same database as your home loans department. With one centralized database, everyone has a complete picture of your customer before interacting with them.
By using WealthEngine’s screening tool, you can sift through client data seamlessly. You can upload lists of contacts and look through high volumes of data. Not only will you be able to go through demographic information, but you’ll also be able to find, segment, and prioritize prospects and existing clients. Screening helps you deal with large volumes of data efficiently. WE Insights can also help you find key patterns in your screening files. This means that your team will not have to spend hours trying to extract meaning from your data. Screening data helps you find relevant client information, which will help you personalize your outreach, and engage your clients effectively.
4. Data Stored on Unsecure Platforms and the Rise of Cyberattacks
Another financial services issue that many firms face is the rise of cyberattacks. Since financial services firms are in the midst of digitizing their services, using open banking platforms, they are at increased risk of attack. In 2018, fraud (both offline and online) increased by more than 130%. This resulted in significant monetary losses. Due to the monetary loss, firms were seen as less secure, which would deter individuals from using their services.
It’s necessary for firms to recognize what their potential vulnerabilities are. So, to manage these risks, it’s important to have a savvy security team. In addition, it’s also just as important to train other members of your firm, along with your leadership team. It’s also important to store your data in external platforms that are even more secure.
For example, WealthEngine goes through regular security updates and rigorous audits by third-party evaluators. Furthermore, we have a SOC Type II security certification, which goes over and above industry standard requirements. This helps us ensure data security and privacy for ourselves and our clients.
5. The Growth of AI/ML Adds Pressure to Balance Automation and The Human Touch
The last financial services issue that most firms are facing is the growing complexity of solving business problems. This includes tax planning, product design, surveillance to manage financial crime, tailoring outreach for individual customers and prospects, and more. This can all be managed and regulated using Artificial Intelligence and Machine Learning.
Although 30% of financial consumers are on their way to adopting robotic process automation, they need to invest more in those areas. It’s also important to notice which parts of your business would benefit from AI/ML and which would benefit from human touch. For example, AI/ML may be able to help bypass data issues you may face. However, if you want to improve customer service, that is a human-centered service that should be handled by and for people. So, businesses primarily use AI/ML for data management, where insights are derived from analytics. However, when it comes to customer service, a human touch makes all the difference.
WealthEngine uses AI to analyze our database and build predictive models. This can help you identify your next prospects. Additionally, with ML, you can receive refined and personalized insights. So, the more you use the platform, the more it adapts to your needs.
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