The financial sector is a section of the economy that is made up of firms and institutions. These firms and institutions provide financial services to commercial and retail customers. The sector is comprised of many different industries including banks, investment companies, insurance companies, and real estate firms. A sign of a healthy economy means the country has a strong financial system. The financial sector generates a good portion of its revenue from generating loans and mortgages and thrives in a low-interest-rate environment.
Financial industry challenges are largely generational and are facing many challenges today. Most of it has to do with the rapid changes in technology. While the vast majority of financial firms have embraced the technology revolution, there are still many challenges financial companies/ sectors or even financial managers have to face.
CHALLENGES FACED IN THE FINANCIAL SECTOR:
Use of Big Data in Finance:
Using Big Data in the financial sector can be turning out as both opportunities as well as obstacles at the same time. Big data helps us to reveal the upcoming patterns, trends, and associations. Using and organizing Big data is a necessity but also an obstacle for financial service firms. Big data is getting bigger because a lot of data is being created by a number of sources. This new data is both structured and unstructured.
Tapping into social media for information, consumer databases, and even news feeds can help banks better serve their customers, while better protecting their own interests. But at the same time when sorting through torrents of unstructured data for useful information is no small undertaking. It requires powerful data analytics technology if institutions are to reap a benefit. The various types of data coming in are one of the biggest challenges facing financial service companies. The challenge for financial service companies is to sort through all their data and determine what is useful and beneficial for the company and what isn’t.
Incorporating AI use in Finance:
It is believed that AI technology will be able to transform nearly every aspect of the financial service industry. Automated wealth management, customer verification, and open banking all provide opportunities for AI solution providers. Powerful advances in deep learning technology are paving the way for AI. If a person, say, Mr. X, has been alerted by his bank of some suspicious activity on his account, then he has likely already benefited from AI.
The main challenge that financial services face is learning how to benefit from the power of AI, without being victimized by it. AI is definitely the future in financial services. Companies that want to thrive need to incorporate it as soon as possible.
Regulatory Compliance In Finance:
The ever-changing regulatory environment poses a constant challenge for financial institutions of all types. Regulations in the financial service industry continue to increase. Banks are spending a large part of their income on making sure they’re compliant. They have to make sure there are systems in place to keep up with ever-changing regulations and industry standards. Traditional banks have to constantly evaluate and improve their operations to keep up with fast-changing consumer and shareholder expectations, technology, and industry regulations.
Regtech is an emerging industry that can help ease the burden of compliance. By using the latest FinTech technologies to address regulatory compliance, RegTech startups are bridging the gap between regulators and the financial service industry. Automated reporting, automated audits, and process streamlining are only a few of the benefits offered by RegTech applications. Financial service companies need to create a strategy to innovate and stay in compliance.
Up to date with Technology:
Technology is very dynamic in nature as it keeps on changing. It keeps on getting better and better. Keeping up with the technology is a much need for the firms or companies if they want some real business growth. But in order to grow, financial firms must spend money updating their technology from time to time whenever needed. Financial service firms must continue to invest in technology such as robotics and other workflow automation tools to increase their efficiency and reduce the costs associated with operational, risk management, and compliance. Firms must also modernize their technology platforms and data storage so they can enable big data solutions such as AI-supported digital customer support assistants.
Exceeding Consumer Expectations:
Consumers continue to expect a lot from their financial institutions so competition for financial service clients has never been fiercer. They want more benefits from the services which they are opting for. Many want more personalized services from their financial providers. According to the 2019 Accenture Global Financial Services Consumer Study, one in two consumers wants personalized advice from banks based on their personal circumstances. They want an analysis of their spending habits and advice on how to handle money. Half the survey respondents say they still want an in-person banking experience along with a digital one. The key to not losing the battle is recognizing that customers are less concerned with brand familiarity than getting the services they want. Providing customers those services is the key to client retention.
Surpassing the Competition:
Being in the financial sector one can literally guess that how much strong the competition is. Competition within the financial services industry is still very strong and keeps getting stronger every day passing. As consumers want more personalized service. They also want more automated services with easier access to them. Institutions that provide and fulfill all these services or needs of their customers will dominate their share of the market. Today, consumers are less concerned with brand loyalty and identity. They just want what they want. Organizations that provide those services will keep their customers happy and satisfied.
Cybercrime In Finance:
According to a report, Data breaches involving financial service firms increased by 480% from 2017 to 2018. Each attack is costing financial service firms and they lose millions of dollars. Firms need to continue coming up with innovative solutions to stay ahead of these cybercriminals and protect the data at all costs. Whatever cybercrime solutions emerge to protect financial services, blockchain technology must be the foundation. Integrating DLT with existing financial infrastructures poses some serious obstacles that must be overcome. Blockchain is a key component in the battle against cybercrime. A blockchain is essentially a digital ledger of transactions.
In order for an economy to remain stable in the market, it needs to have a healthy financial sector. The financial sector advances loans for businesses so they can expand, grants mortgages to homeowners, and issues insurance policies to protect people, companies, and their assets. The financial sector generates a good portion of its revenue from loans and mortgages. These gain value in an environment where interest rates drop. When rates are low, the economic conditions open up the doors for more capital projects and investment. It also helps build up savings for retirement and employs millions of people. When the financial sector benefits or grows it directly results in more economic growth.