I’m a 30-year veteran of the IT industry, with 20 of that in financial services, from large banks and investment funds to smaller wealth advisors, fintech businesses in payments and more. I’m that strange person who can speak to business leaders as easily as I do engineers in words they can all understand. While I haven’t seen everything, I have seen a lot. One thing is clear; new technology, especially financial technology (fintech), has become so prevalent and powerful that it is dictating the direction of the financial services industry rather than the other way around.
This happened when technology companies, which often prioritise innovation and rapid growth over regulatory compliance and risk management, began to dominate the market. As a result, traditional financial institutions feel pressure to adopt new technologies and business models without fully understanding the potential risks or benefits. Additionally, technology, in many cases, creates new and complex risks for consumers, such as data privacy and security issues.
Larger organisations service smaller businesses like accountants and wealth advisors, who are forced to interact with their systems and technologies, then face the challenge of comprehending threats and opportunities for their own smaller, generally under-resourced businesses.
The problem boils down to this; the senior leadership teams in many organisations need mental models to comprehend technological solutions to their business problems. That’s no reflection on them; finance is a complex space and a heavily regulated industry, and technology is seen as a necessary evil at worst and a business tool at best like the telephone or a computer. The lens through which senior management views technology as an operational matter or a threat to business continuity, financial impact and business reputation. Rarely is it seen as an opportunity to create a sustainable competitive advantage.
So what is the mental model or lens technology should be viewed through?
- Customer-centricity: Technology should be viewed as a means to enhance the customer experience, increase customer satisfaction and loyalty, and better serve customer needs. For example, a customer-centric organisation might use chatbots and self-service portals to provide quick and convenient customer support. They might also use data analytics and machine learning algorithms to analyse customer data and identify patterns and trends in customer behaviour. This information can then be used to personalise the customer experience, such as recommending products and services based on the customer’s preferences.
- Innovation: Technology should be viewed as driving innovation and differentiation, creating new products and services, and staying ahead of the competition. Technology is constantly evolving and has the potential to drive innovation and differentiation for organisations. By embracing technology, companies can create new products and services that meet the evolving needs of their customers, stay ahead of the competition, and gain a competitive advantage. Technology can be used to develop innovative solutions that meet customers’ changing needs and create new growth opportunities. For example, by using artificial intelligence and machine learning, companies can develop new products and services that are personalised and tailored to each customer’s individual needs.
- Agility: Technology should be viewed as improving organisational agility, enabling rapid response to changing market conditions, and allowing for rapid experimentation and iteration. Specifically, financial services companies can use cloud computing, artificial intelligence, and blockchain technology to automate processes, gain insights into customer behaviour, and streamline operations. This can help them quickly pivot their strategy and operations to respond to changing market conditions and customer demands while improving their overall efficiency and competitiveness.
- Data-driven decision-making: Technology should be viewed as leveraging data and analytics to make informed business decisions, identify trends and opportunities, and drive growth. One of the critical benefits of data-driven decision-making is the ability to identify trends and opportunities by analysing customer behaviour, market trends, and business performance. This information helps companies make informed decisions about product development, marketing strategies, and customer engagement. Additionally, technology can automate data collection and analysis, which helps financial services companies quickly identify and respond to operational challenges, detect and prevent fraud, and mitigate risk. Additionally, data-driven decision-making enables businesses to personalise offerings and improve customer experience. By analysing customer data, companies can tailor their offerings and provide personalised experiences that drive customer engagement, loyalty, and growth. Technology enables financial services companies to reach new customers, serve new segments, and offer new products and services, driving growth and expanding their reach. By leveraging data and analytics, financial services companies can improve their competitiveness and customer satisfaction while achieving greater operational efficiency and mitigating risk.
- Cybersecurity and risk management: Technology should be viewed through the lens of cybersecurity and risk management, considering the potential risks associated with implementing new technologies and taking proactive steps to mitigate those risks. Specifically, technology should be viewed through the lens of cybersecurity and risk management in the financial services industry. Financial services companies must take proactive steps to mitigate the potential risks associated with implementing new technologies, including implementing robust security measures, developing a comprehensive disaster recovery and business continuity plan, and regularly assessing and improving their cybersecurity posture. By doing so, they can help ensure the safety and security of sensitive information and prevent potential security breaches.
- Compliance: Technology should be viewed through the lens of compliance, ensuring that all technologies and processes are aligned with relevant regulations and standards. Financial services businesses must also comply with regulations related to the provision of financial services, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US and the European Market Infrastructure Regulation (EMIR) in the EU. These regulations aim to ensure the stability of financial systems and protect consumers from financial harm. In Australia, businesses must comply with relevant regulations, including Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act); Privacy Act 1988 and Financial Ombudsman Service (FOS) Act 2001, to name a few. Compliance is a critical consideration for financial services businesses. Technology must be viewed through the lens of compliance to ensure that all technologies and processes are aligned with relevant regulations and standards.
- Business transformation: Technology should be viewed as driving business transformation, streamlining processes, reducing costs, and improving operational efficiency. Technology can help financial services businesses to manage risk more effectively. By using advanced analytics and machine learning algorithms, financial services businesses can identify and assess risks more quickly and accurately and implement proactive measures to mitigate those risks.
Conclusion
In conclusion, technology drives business transformation in financial services, streamlining processes, reducing costs, and improving operational efficiency. Financial services businesses must embrace technology and take a strategic approach to business transformation to remain competitive and deliver value to their customers.
By approaching technology through these lenses, senior managers in the financial services industry can make informed decisions that balance risk and reward, and drive strategic outcomes that enhance the customer experience, drive innovation, and improve overall performance.
Peter Christo
founder Finhawk
[email protected]
