The financial services sector is undergoing an intense period of transition, shaped by both external and industry-specific factors.
Rampant inflation, a faltering stock market, geopolitical tensions and high interest rates have impacted businesses globally. As a result, we’ve seen contractions in PE/VC funding (the number of funding rounds completed in May this year was down 24% compared to the 2021 figure), coupled with an uncertain M&A market.
The advent of Generative AI (GenAI) has had organisations across sectors scrambling to integrate this technology, with mixed results to show for their efforts. 65% of businesses now regularly use GenAI solutions, but Gartner predicts that 30% of these projects will be abandoned by 2030 due to poor data quality.
When we examine the financial services sector in isolation, the need for adaptability has been primarily driven by one key element: increased competition. Since the mainstream emergence of fintech, the financial services market has become increasingly saturated, with growth showing few signs of slowing – the market cap for publicly-traded fintechs has doubled since 2019.
A crowded marketplace has ramped up the pressure on financial services firms to innovate, raising consumer expectations in the process. Even established traditional banks are in the firing line – the rise of the neo-bank has offered an alternative for customers seeking a more personalised form of service.
Below, we summarise the trends that financial services organisations should be ready to capitalise on, as well as the resulting impact on the delivery of financial PR campaigns.
Curating data for GenAI-readiness
While GenAI has begun to teeter on its pedestal as the undisputed future of business operations, research, exploration and deployment of this technology is still essential – particularly in financial services. Chatbots that can answer customer queries to a high standard improve the level of service on offer. Similarly, GenAI tools that generate responses for employees can save enormous amounts of time when it comes to searching for documents, pulling up procedures and drafting copy (for example, internal emails).
However, these functions will not work to the required level of accuracy if the GenAI model in use is not built on a foundation of organised, well-structured data. If their AI deployment is to be a success, firms must begin by conducting a thorough data audit to ensure that the information the GenAI tool is using to gather responses is accurate and consistent in its construction.
AI-powered customer service
For direct-to-consumer financial companies, attracting and retaining customers is hugely dependent on going above and beyond expectations. Firms that persist with traditional customer service models, believing this will be enough to keep their client base engaged, are in for a shock – customer experience (CX) has entered a period of intense, GenAI-driven transformation.
According to the ‘CX Trends 2024’ report, jointly authored by Zendesk and AWS, 86% of executives believe CX will be utterly transformed over the next three years, citing greater AI adoption as the root cause of this change.
Human agents still have a crucial part to play in the delivery of an effective CX strategy, but their role will require enhanced technical skill as AI is rolled out at scale. Employees will be expected to pick up conversations immediately from AI agents, with no recap of information required, leveraging AI copilots to rapidly search for responses to queries. With AI chatbots handling straightforward enquiries, human agents will also need to refine soft skills to take on an increased volume of complex cases.
GenAI solutions also increase the ability of financial service providers to deliver a highly personalised level of service. In most cases, this will take the form of AI personal assistants, acting on behalf of consumers to make useful recommendations, streamline CX and ensure engagement meets the precise needs of customers.
Gamification
Another important aspect of personalisation is gamification, where banks and fintechs take elements of games and apply them to financial situations, often with the end goal of simplifying challenging concepts for customers or encouraging better habits.
One relatively straightforward method numerous firms have already deployed is offering customers the chance to round up savings to the nearest whole number every time they spend, with excess cash invested or diverted to savings accounts.
Alternative measures include in-app financial literacy courses that contain interactive elements, such as quizzes, to engage the user. They also allow customers to earn ‘achievements’ for reaching pre-set saving objectives and accumulate points for money spent that can be redeemed as rewards.
AI and ESG
AI solutions are at the very centre of many of the trends included in this article. Unfortunately, the energy-intensive nature of this technology places it in direct competition with Environmental, Social and Governance (ESG) goals that have been a focus within both financial services and the wider business landscape for many years.
It was revealed earlier this year that AI will drive a 160% increase in data centre power demand, and as a result, companies deploying this technology must share some of the accountability for the environmental impact it’s likely to cause. This should not dissuade financial services organisations from adopting this technology – firms will struggle to remain competitive without some level of AI integration – but instead they should consider the steps they can take to reduce their personal carbon footprint.
One area where business decision-makers remain in control is the data centre they choose to partner with and there are a number of collaborators making a genuine effort to ensure they operate in a sustainable way. Modern technologies such as high-efficiency cooling systems, energy-efficient servers and improved facility designs that reduce energy wastage should all be employed in data centres seeking to refine the way they operate. Similarly, companies can also look to datacentres that run on renewable energy sources to lessen the environmental damage they’re indirectly responsible for causing.
Increased threat, increased security
Cyberattacks are an industry-agnostic threat, with companies across sectors being targeted and half of UK businesses reporting a breach or attack over the past 12 months. However, for financial service providers the danger level is even higher, with bad actors setting their sights on organisations that handle large quantities of cash and sensitive data.
Such is the risk of cyber threats to the global financial ecosystem, the IMF released a report earlier this year concluding that cyber incidents “could threaten financial institutions’ operational resilience and adversely affect overall macrofinancial stability.” The study also revealed that nearly one-fifth of reported breaches have affected the global financial sector, causing $12 billion in direct losses to financial firms.
In response to a heightened threat landscape, financial service providers must ensure that bolstering security is a key business focus. Conducting regular tech audits to check IT infrastructure is up-to-date, running frequent cybersecurity training sessions for staff and leveraging AI and machine learning technologies for fraud detection are all established measures firms can pursue.
There’s also a complex regulatory landscape firms must adhere to, designed to ensure that all financial service providers have the necessary security protocols in place. For instance, GDPR legislation protects personal data, while the recently introduced Digital Operational Resilience Act (DORA) mandates compliance with a series of risk management frameworks. To avoid falling foul of regulatory requirements, financial companies should make certain they remain watchful for any new bills passed or changes to existing legislation.
Adopting a hybrid cloud approach
It’s no longer a case of selecting a single cloud provider and moving on to the next order of business. Nowadays, an effective cloud strategy includes a mix of private and public cloud computing, known as hybrid cloud.
Public clouds alleviate the need to manage infrastructure, offering significant benefits in terms of scalability, cost reductions and resilience. On the other hand, private cloud computing typically boasts superior control, security and privacy, with firms able to control the information at their disposal and ring-fence data within specific systems or for specific users.
The emergence of hybrid cloud allows companies to combine the advantages of these two approaches, storing sensitive information on private networks and non-sensitive applications on public clouds. For financial services firms in particular who handle large quantities of data requiring close attention, this method of operating can reduce the burden on infrastructure while ensuring that confidential information remains closely guarded.