Thursday, March 28

The challenge of technological innovation for the financial sector



Although most CEOs have a strong willingness to innovate, 94% are dissatisfied with the success of their own companies.

Increasingly, the financial sector is under greater pressure to continuously evolve and better serve the needs of its clients. Amid a wave of new players looking to develop smarter, faster ways of doing things, it’s clear that prioritizing innovation is essential to growing alongside customer expectations.

However, innovation is not an easy task: there are a number of challenges that stand in the way. According to McKinsey, while the majority of company CEOs have a strong willingness to innovate, 94% are dissatisfied with the success of their own companies.

Financial institutions manage a large number of priorities, among which are operability, protection of their clients’ assets and regulatory compliance. At the same time, they are also tasked with continuing to evolve their product and service offerings to meet customer expectations.

To understand how customer expectations are changing in the financial sector, it may be useful to review how customers are served in other sectors. Whether ordering food at home or calling a taxi with just a few taps in an app, customers have higher expectations with each new service they experience.

In this transacting industry, customers now expect international payments to be made as quickly and smoothly as those made within the borders of the same country. However, global innovation requires great cooperation and collaboration between financial institutions and the ecosystem in general, so the key to success is finding a way to incorporate innovation into business strategy.

Many of the challenges in this sector are not exclusive to each institution, but are shared throughout the industry. Therefore, working together can boost the entire ecosystem and increase the overall quality of service that financial institutions can offer their customers. For example, ensuring that the financial network is resistant to cyber attacks is an impossible task for a single institution, and the only way forward is to work together.

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Furthermore, if we compare the current landscape of financial services with that of a decade ago, one of the most important differences is the emergence of new players. Gone are the days when there were only a few solutions to a customer’s problem. At present, a large number of technology companies have emerged and fintechs They try to give simpler solutions.

So far in 2022, more than 200 startups have been valued at more than $1 billion, adding to the list of “unicorns.” This, combined with the huge amount of venture capital investment in technology start-ups, is a clear indicator of the number of emerging competitors.

Such a saturated market leaves very little room for error when trying to innovate. Anything from a minor technical glitch to a poor user experience can send customers looking for another solution. If financial institutions are not careful or do not pay attention to market trends, this innovation process can end up being extremely costly if, after much work, the end result does not solve the problem for which it was designed.

One example that comes to mind is Google, which in 2019 stated that it had made over 3,200 changes to its main search engine in the previous year alone. This serves to illustrate the incredible pace at which technology must evolve to avoid becoming outdated. And, because customer expectations are not unique to one sector, financial institutions need to ensure that they conduct regular assessments of their systems to ensure they are serving their customers in the best possible way.

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For some institutions, this may be easier said than done, as many operate with differentiated systems and may struggle to “unbundle” their technology stacks and may not be naturally innovation-oriented. Compared to more agile companies, offering “as-a-service” products that can be adjusted, upgraded, or dropped entirely from the queue, it is clear that the latter option is more in tune with the pace of technological change.

As traditional businesses continue to modernize their technologies, coming together as a community and co-developing technology solutions can enable financial institutions to accelerate this change and keep pace with today’s fast-paced consumers.

Ultimately, the main innovation challenge for financial institutions is to balance the need to innovate with the multitude of other priorities they face. However, if financial institutions can work effectively together, there is the potential to accomplish much more than they could alone.

By Tom Zschach, Chief Innovation Officer of SWIFT



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