Technology Challenges in the Finance Sector
Financial technology, or Fintech, has sent shockwaves through the finance sector. UK investment in Fintech exceeded £10 billion ($12.5 billion) in 2022.
However, with every technological advancement come new challenges. Cyber crime continues to plague firms, and regulators promise crippling fines for those that are lax on compliance.
This article explores some of the most pressing technology challenges facing the financial services sector today and how companies can overcome them.
Cyber crime is a major threat to the finance sector and poses significant risks to firms and their customers. Online banking and digital payment systems increase convenience for customers but offer new attack vectors for criminals. Firms continuing to use outdated legacy systems have found themselves under attack from increasingly sophisticated hacking methods.
A single attack can result in significant financial losses for the firm and its customers and damage its reputation. Data breaches cost businesses an average of $4.35 million in 2022. Firms found to be in breach of regulations (such as not taking due care protecting customer data) can find themselves facing heavy fines from the FCA.
Modern attack methods can circumvent typical cyber defences. Phishing emails were once riddled with grammatical errors and easily caught by spam filters. They are now professional and near-perfect replicas of legitimate business emails.
3.4 billion phishing emails are sent every day, making it the most common form of cyber attack. Any information hackers get through phishing, such as login details or account numbers, can be used in further attacks that can compromise systems.
Financial services firms dedicate around 10.5% of their total IT spend to cyber security. Firms will need to invest in robust cyber security measures, like automated monitoring systems and dedicated incident response personnel.
Employees are often the first line of defence against attacks like phishing. Firms need to ensure that all staff follow secure password creation policies and should look at introducing training that shows them how to spot the latest threats.
Regulatory changes have forced many firms to modernise and look at digital transformation. Outdated legacy software and ‘traditional’ methods are no longer powerful or secure enough to operate in the modern workplace.
Firms have found themselves facing crippling fines after lax security policies or poor data management led to investigations by the FCA. The FCA handed out more than £215 million in fines in 2022.
Technology shouldn’t be a barrier to compliance. As such, regulatory technology, or ‘RegTech’, has emerged in recent years to help finance firms stay compliant.
RegTech is any technology that helps make compliance easier. Using the power of artificial intelligence and big data, RegTech can automate many processes to ensure firms stay on the right side of regulations.
One of the biggest challenges financial services companies face is investing in new technologies and staying ahead of the curve.
New technologies are emerging all the time. It’s difficult to determine which ones are worth investing in, particularly in a sector that has been notoriously slow to change. Here, Fintech has been disruptive; startups and early adopters have gained a competitive advantage over larger, well-established firms by using new innovations first.
Even as firms start to think about upgrading and integrating new technologies, finding the right support to implement systems and migrate data is difficult. Most firms don’t have dedicated cloud engineers or AI specialists on their payrolls, which necessitates employing third-party partners to ensure successful implementation.
Leveraging technology effectively is a challenge that makes it difficult for traditionalist firms to compete in an increasingly online space. Fintech’s availability has levelled the competitive landscape. Firms need to transform their internal cultures to be more tech-friendly to continue delivering value to their customers.
One of the greatest benefits of Fintech is its availability; vendors sell powerful tools and systems for attractive prices, giving every company in the finance sector a fair chance to compete. For those companies still relying on restrictive, outdated proprietary systems, it’s becoming harder to keep up.
Digital disruption gives firms the freedom to innovate and deliver new products and services that are often faster, more convenient, and less expensive than those offered by traditional financial institutions.
For instance, some workforces operate completely remotely. With no need to pay for offices, furniture, desktops or travel subsidies, firms can reduce their overheads and invest those savings into their products. This puts pressure on traditional financial institutions to reduce their costs and find ways to operate more efficiently in order to remain competitive.
Innovation is the key, and technology unlocks the power of innovation. Powerful tools automate tedious admin tasks and give workforces access to deeper levels of data analysis. With more time to dedicate to productive work and access to better analytics, firms can better strategise and develop services delivering more value for customers.
Customers’ expectations continue evolving, shifting their preferences towards more personalised, convenient, and tech-enabled services. Firms that are slow to change are finding their customers leaving to their competitors.
Banking is an area where this change is seen clearly. Customers of traditional banks are becoming less satisfied with their services as online-only banks offer convenience, better security and often higher interest rates on savings.
HSBC ranked 11th out of the 16 largest personal current account providers for overall service quality, with just 56% of those surveyed saying they would recommend the bank. Meanwhile, two online-only banks, Monzo and Starling, ranked joint-top for overall service quality. 81% said they would recommend the banks to friends and family.
It’s clear that digital platforms are the future of financial services, and we can already see the disruption online-only offerings are having in the sector.
Technology has the power to transform financial services
The finance sector is undergoing a period of change. Some companies are just starting digital transformation as fully digital startups gain a competitive advantage. Customers see the convenience in online services, leaving traditional companies scrambling to modernise their offerings.
Technology has transformed how businesses operate, and continuing innovations suggest that future workplaces will look very different to today. Firms that refuse to adapt risk falling behind.
The future of the financial services industry is bright, and technology will continue to be a driving force for growth and innovation.
Browse more articles from our experts and discover how to make better use of IT in your business.
As the most common form of cyber crime, phishing affects both individuals and businesses. Find out how attack vectors and trends are developing with the latest phishing statistics. Read More
Read the latest cyber crime statistics, updated for December 2023, and see how the threat landscape has changed in recent years. Read More