The financial services industry is constantly in flux. As digital transformation disrupts all leading industries, the finance sector is not exempt from change. In fact, it is embracing it by adopting new tools and services into business functions.
Questioning the future of finance can seem like a complex task to answer. That’s because it is. There are many factors to the finance industry that play a role in how the future will turn out. We have discussed many digital transformation trends that are seen in this industry in previous posts. Getting to the bottom of how they affect each and every aspect of the industry is crucial.
“As unheard of as this notion might have seemed a few years ago, financial services firms are facing important questions about their future, driven by disruptive technologies, ranging from big data to artificial intelligence and machine learning to fintech solutions and blockchain.” Forbes reports.
It is no surprise that business is changing. Technology is creating new roles, and evolving how we communicate with one another. The role and duties of the CFO have changed to be different than ever before. In order to fully grasp the idea of change in finance, it is important to understand the different trends that are impacting this industry. We’ve touched on a few in the past, but a little recap has never hurt anyone.
Customers are on their phones more than ever before, which means they are shifting preferences when it comes to banking. According to Centric Digital, customers are no longer walking through banks.
Nearly 40 percent of Americans have not walked through the doors of a bank or credit union in at least the past six months. Furthermore, as time goes on, there are fewer of those doors available to walk through. Centric Digital reports.
So, why is this the case? Well, a lot of it has to do with convenience. Mobile banking has made banking transactions quick, and easy with less hassle using seamless operations. Those who use mobile banking are usually on-the-go and seeking a personalized experience.
Experts agree that millennials prefer mobile banking more than any other generation. This could be for a variety of reasons, but the main one may be obvious. Millennials have grown up using digital tools, like mobile phones and computers, so of course, this era will try to transition traditional business operations to be more modern and technology-driven, like mobile banking.
“But the fact remains that many users aren’t just going online, they’re going elsewhere — finding mobile “financial wellness platforms” that allow them to budget, bank, pay, and crowd-fund, all without leaving their homes. In other words, banks are no longer the only game in town when it comes to financial management.” Forbes reports.
Blockchain is disrupting the finance industry, changing how financial services like money trading operate. It has been seen in financial institutions since last year and is continuing to grow and expand.
“In 2016, nearly every major financial institution was experimenting with blockchain. Many firms have started by working with in-house innovation groups to develop proof-of-concept (PoC) projects.” PwC reports.
Blockchain essentially works by securing transactions across the internet through a peer to peer network without a middleman required. It has followed bitcoin, which has disrupted many business operations as well. Basically, it allows for the buyer and seller to be able to communicate. Normally, a third-party mediator would have to verify the transaction, but with blockchain, that is taken care of.
Blockchain is so popular because of the fact that no personal information is shared during this transaction. According to PwC, “Transactions are not anonymous, but they are pseudonymous: a transaction record is created, but identifying information is encrypted…’
There is a limited security risk when it comes to blockchain, which makes it appealing for the finance sector. This technology is holding promise for the industry. Blockchain also eliminates security risk because it eliminates elements like the cloud or servers.
“According to data from IBM, 15 percent of banks plan to implement blockchain solutions in 2017, and roughly 65 percent may implement solutions in the next few years,” CentricDigital reports.
If you are in the financial sector, chances are you have heard of FinTech. FinTech has been a disruptive force in finance, pushing this complex industry toward the digital age. FinTech is all about innovation, using technology platforms and focuses on offering services for consumers that can range from managing money or to simply perform basic financial transactions.
This goes back to the fact that consumers prefer technology over traditional finance tools.
“In today’s digital age, and with significant demographic shifts in the population, people are seeking easy access, convenience, efficiency, and speed. People want to conduct transactions via mobile technology platforms and applications, and such activities include managing their financial lives, whether that is tracking their overall spending, applying for a loan, or optimizing their investment strategies.” HuffingtonPost reports.
Fintech companies go beyond helping consumers budget money, they provide businesses with tools that drive innovation and make business functions more efficient. The word FinTech has evolved rapidly and is still growing. Being that FinTech is so young, the speed of growth has forced businesses to adapt quickly to the new set of technologies that is seen through FinTech.
To make things as least complicated as possible, think of FinTech as companies that use technology to the best of its ability, through taking an idea, matching it with technology, and executing functions. It has taken simple banking operations to the forefront of the digital age. Simple tasks like processing money, wealth management, investment services or robot advisory firms, have become comprised of mainly digitally components through FinTech.
Business.com put together a list of the top FinTech firms that the finance industry has seen. We wanted to take from that list the ones we think are worthwhile depending on the tasks at hand.
Payment processing is a third party that handles transactions for merchants who are acquiring banks. They can be broken down into two different types: front-end and back-end. Payment processing occurs anytime a consumer uses a credit card to purchase goods. The software and credit card machine works as the processor.
These FinTech companies have kicked off mobile payments through smartphone technology.
Stripe has created mobile and app-based checkout processing through smartphone devices. It was Apple’s official partner for mobile payments and used Apple Pay to conduct transactions. You may be familiar with this if you have ever used your digital wallet through iOS systems. Stripe has changed the way consumers pay for products, making it accessible through the swipe of a mobile device.
Payfirma is an innovative payment platform on the market today. You can accept any type of payment through Payfirma since it has expanded to offer omnichannel processor.
“PayHQ makes it simple to accept any kind of payment, any way you want to do business, and creates a single view of all your payment information so that you can make smarter decisions,” Payfirma reports.
Alternative lending is basically a new approach to lending that gives customers new options. The term alternative lending is collective and describes a variety of loan options that work for businesses or individuals when they are having trouble processing a traditional bank loan. The following FinTech companies carry out alternative lending functions and have been said to be the best in the business.
Prosper was launched in 2005 and ever since has focused on providing loans through a peer-to-peer marketplace. It handles services of the loan for the borrowers and investors.
“Prosper allows people to invest in each other in a way that is financially and socially rewarding. On Prosper, borrowers list loan requests between $2,000 and $35,000 and individual investors invest as little as $25 in each loan listing they select.” Prosper reports.
“Helping Americas reach their life goals” is what you see when you enter Lending Club’s website. Created in 2007, Lending Club has worked to bring investors and borrowers together to perform seamless lending operations. You can use Lending Club to invest in your small business, in order to grow for the future. Lending Club is a technology company that makes borrowing money quick and seamless.
UpStart was created by former Google employees that uses artificial intelligence and machine learning in order to automate the borrowing process. Its main focus is to price credit and operate a direct-to-consumer lending platform.
“Upstart provides technology to banks, credit unions, and other partners via a “Software-as-a-Service” offering called Powered by Upstart.”
The Evolving Role Of The CFO
As the financial services industry embraces technology, the role of the CFO begins to evolve. A new generation of employees is now surfacing in the sector, changing the role of higher management and creating new roles. This change has forced businesses to rethink how they operate and carry out basic functions. The role of digital transformation tools like blockchain, artificial intelligence, and big data are providing business professionals with a whole new set of rules, regulations, and priorities.
(We wrote about digital regulations in a post last week. Check it out here.)
The role of the CFO is evolving. The CFO must now shift focus toward IT employees, as data security becomes a priority. Risk management now must be assessed as the digital tools surrounding the changes of digital transformation emerge.
In order for the role of the CFO to successfully adapt to technology, the CFO must shift the mindset of the organization. Digital transformation begins with a mindset and ends with the people who are adapting to the new tools and business strategies.
“In a 2015 study by IBM1, technology was identified by business executives as the most important external force shaping businesses. Technology is ubiquitous throughout modern businesses, and while CFOs may not be able to code a website or set up a database, like technology, CFOs have also have become ubiquitous throughout the organisation.” Sysco Software reports.
CFO’s are faced with more competition, as FinTech cooperations begin to develop and mature. The role of the CFO will continue to grow, as digital transformation is integrated into the industry.
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We have seen the financial services industry undergo changes as digital transformation emerges in this sector. With the rise of blockchain, big data, FinTech, bitcoin and other trends, it is only fair to assume that all operations must change, as business functions change. These tools affect the role of business professionals in the finance industry, create new roles such as IT employees and shift priorities in the business space. Leaders are now forced to adapt to a new kind of mindset, otherwise, they will fall behind competitors who are above the digital wave.
Learning from the best in the industry is one way to bring digital transformation to the forefront of your business. Innovation is key, and knowledge brings change that can position you to target your customers, engage with your employees and be apart of the digital conversation, that is happening all around us.
C-level IT leaders in the financial services and insurance sectors are dealing with many challenges as digital transformation becomes an imperative. Understanding not only the convergence of Mobile, Social, and Cloud but also the possible implications of Artificial Intelligence, Machine Learning and Blockchain is vital to stay ahead of the competition.
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