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In a world where disruption is increasingly the new “normal,” companies operating within the financial sector must remain keenly aware of potential forces that can rock the boat. How enterprises respond to change is now an indicator of whether they’re able to survive in today’s fast-paced landscape. In other words, the ability to embody agility and innovation is more important to survival and growth than ever before.
Knowing the potential sources of disruption before they fully emerge is key to reacting to change effectively. It can mean the difference between adapting and floundering in the face of transformation.
Here are four examples
Business & Supply Chain Disruptions
When we think supply chain risk and disruption, we often consider manufacturers and retailers. However, COVID-19 and its resulting economic impact have demonstrated the financial sector is just as vulnerable to the effects of supply chain disruption.
In fact, A PwC survey found more than one in five industry CFOs fear supply chain disruptions in light of COVID-19. Other prevalent anxieties include operational and financial impacts (71 percent), a possible worldwide recession (70 percent) and diminished customer confidence which results in diminished consumption (39 percent).
Businesses within the financial sector may experience service delays from third-party vendors during times of crisis and can also feel the effects of customers handling their finances differently as a result of economic strain.
Innovation from FinTech
According to research from Ernst & Young, the adoption of financial technology (FinTech) is on the rise around the world. One out of three people had adopted FinTech as of 2017. Just two years later, adoption sits closer to two out of every three people (64 percent). Furthermore, the firm defines adoption as utilizing at least two types of services to indicate a change of habit — like money transfer, financial planning, investing, insurance, etc.
What does this mean for more traditional financial services companies? Competition can emerge not only from other banks, investment firms and the like; FinTech upstarts are aiming to address consumer pain points and make financial transactions more convenient. In fact, the prevalence of FinTech options is changing how customers perceive money management altogether — pushing user expectation toward convenience, personalization and accessibility.
As Investopedia points out, FinTech often aims to serve traditionally underserved customer segments — like those living in very rural areas, for instance — or to provide “faster and/or better service.” This shapes user expectations across the board, which in turn motivates competitors — FinTech companies and traditional financial services providers alike — to keep stepping up their games as well. The risk of falling behind here is falling off the map entirely.
Artificial Intelligence (AI) & Machine Learning (ML)
AI and ML are advancing how enterprises handle everything from front-line customer service to financial data analysis. The former uses AI and ML to power intelligent chatbots capable of answering customers’ questions and offering targeted product recommendations, among other functions. The latter fuels data-driven decisions using advanced AI algorithms to automatically detect insights from deep within data, then push them to human users who can act on those insights. ML helps refine insights over time, improving relevance based on user feedback.
Both use cases demonstrate how AI and ML augment “human power” by taking over traditionally time-consuming, tedious tasks — in these cases, freeing up human customer service specialists and data analysts respectively to work on higher-order tasks. Falling behind on AI adoption in its various iterations can make companies more vulnerable to obsolescence.
Evolving Cyber Security Threats
Financial services organizations must remain constantly vigilant against evolving cybersecurity threats. Social engineering attacks — those in which hackers trick account holders into giving up information — remain at the top of the list in terms of potential disruption, closely followed by hackers potentially altering stored data and using malware to harm operations. For every new technology financial companies can use to their advantage, it’s safe to assume there are hackers trying to exploit it on the other side.
These are just four potential sources of disruption in the financial sector, but rest assured there’s no shortage of others. Remaining competitive today requires more than holding your ground; it requires actively staying ahead of the curve.