The digital revolution has transformed nearly every industry we know of – and the financial services sector is no exception. While digitization poses an enormous challenge to financial services, it also provides a huge opportunity to reach greater heights in terms of generating revenue and delivering a winning customer experience.
In the mission to deliver the best customer experience in the digital age, financial service providers are faced with challenges from several quarters. These include the rapidly changing needs of the millennial customer; need for newer revenue streams and business models; competition from non-traditional models; and overcoming regulatory pressure.
Changing customer needs
The financial services needs of millennials, in contrast to that of their predecessor’s, is changing rapidly. For example, the millennial is less focused on retirement planning but is more concerned with managing his current income and cash flows. Millennials expect real-time solutions and personalized suggestions from their financial services providers. The industry has taken note of this and are responding with solutions. MasterCard launched the ‘in reach’ service last year. The service provides personal financial mentors to help customers learn budgeting and credit-building techniques to increase their overall financial literacy.
Need for new revenue streams
Cost reduction alone with not help financial providers to maximize revenue. They must find newer revenue streams if they are to thrive in the age of the millennials. This is especially true because the millennial’s financial needs transcend those offered by traditional financial service providers. So, how do financial service providers create newer revenue streams? The answer lies in generating insights from the huge amount of data that service providers are already privy to. Service providers must identify trends and patterns in the millennial consumer behavior to create financial products.
Traditional finance service providers are facing competition not only from similar companies but from an emerging sector as well – fintech companies. Fintech services, who are mostly startups, are at the forefront of innovation in the financial sector. Fintech companies focus on leveraging technology to create new financial products. Services offered by fintechs are in many ways more socially inclusive. Take for example, Finomena, a fintech startup that provides credit to purchase goods to customers based on a person’s digital footprint, thus completely bypassing their credit worthiness through traditional rating such as CIBIL. Other examples of competition from non-traditional service providers are mobile wallet services and payment banks offered by telecom service providers.
With digitization, the regulatory pressure on financial service providers is greater than ever before. Financial service providers must comply with a plethora of regulations on various fronts. Regulations include capital planning, assessment of credit quality, with regulations on data privacy, security, and business continuity regulations. Compliance and regulatory laws, may at times, restrict the liberty of service providers. However, financial service providers are increasingly using technology to help them in complying with laws and regulations.
The challenges listed above are just a few among many that financial service providers. To overcome them, financial service providers must factor all of these elements into their business strategy, at every step of the way. Financial service providers must foster relationships with customers, leverage the use of technology, develop partnerships with non-traditional financial