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The financial services industry is currently facing many technological challenges. The growth of digital ecosystems presents new opportunities and challenges for financial institutions. New technologies are disrupting the industry rapidly, creating a demand for professionals with a deep understanding of data analytics. In fintech, financial institutions are looking to embrace digital banking solutions that help increase efficiency and customer experience. Professionals at Managed IT Services Denver help financial institutions to embrace digital solutions in their business.
With digitalization comes a host of new channels for data exchange, which has led to increased efficiency in the financial system. However, some areas of finance require a more traditional approach, such as banking operations. The future brings a variety of exciting possibilities for financial institutions, but it will be critical for them to stay updated with the latest technology trends.
In this blog, we will address the most significant IT challenges of financial services industry.
5 Biggest IT Challenges For the Financial Industry
1. Cybersecurity and Data Breaches
The finance industry is constantly under threat from cybercrime. The most common cyberattacks target financial institutions and financial services, such as banking and credit card processing. More specifically, the financial sector has been a frequent target of malware-related attacks. These include email-based intrusions, viruses, Trojans, keyloggers, and botnets that can harvest financial data or disrupt financial services. Additionally, financial institutions are often infected with financial-focused ransomware like CryptoLocker.
However, cybersecurity threats and data breaches are a daily reality for financial institutions as they deal with billions of digital transactions. IBM estimates the average cost of a data breach in the financial service sector was US$5.85 million compared to US$3.86 million across respondents in all industries in its survey. That’s more than the global ransom payments made in that year.
Financial institutions must have comprehensive cybersecurity plans to prevent these incidents. In addition, they must have adequate cyber security personnel, policies, and procedures. It will help them identify cyber threats quickly and keep their systems secure.
2. Regulatory Compliance
Financial institutions face a variety of regulatory challenges in the financial services industry. These include customer due diligence and risk management requirements under anti-money laundering and counter-terrorism financing (AML/CT) regulations and data protection requirements under data privacy regulations. Financial institutions must also have a robust compliance program to comply with these regulations. Financial institutions must keep up-to-date with the latest regulation changes to stay abreast of new requirements and avoid potential penalties.
Over the last decade, banks and financial institutions are reported to have spent more than $321 billion on compliance operations as well as fines. In addition, banks are estimated to disburse nearly $270 annually through compliance-related processes. This amount represents 10% of a bank’s overall operating expenses.
Financial institutions must maintain solid cybersecurity defenses to ensure the safety of their systems, data, and assets. These measures ensure that financial institutions can operate successfully in digital transformation. Financial institutions also need to maintain a close relationship with regulators to ensure they follow all applicable regulations and protect their customers from financial crime.
3. Going Digital: Not all tech is equal
Financial institutions are also facing many technological challenges in these areas. For example, the finance industry is struggling to manage data more rapidly and effectively due to the growth of digital banking and financial services. This has led to heavy data management and various cybersecurity risks as financial institutions move from paper-based transactions to digital ones.
Some finance companies have also automated specific processes and operations, creating a potential for errors in automation. Automation has gained popularity among financial services companies because it reduces human error and time spent on repetitive tasks. However, there is a need for finance companies to integrate data from various sources, which involves cleaning and preparing the data for analysis.
4. Lack of Technology Expertise
Financial institutions are often slow to adopt new technologies, especially the ones that can bring a competitive advantage. This is because of a lack of technological expertise. If a financial institution is not technologically sound, it becomes more vulnerable to cyberattacks and data breaches. Poorly designed or implemented technology can also lead to inefficiency, wasted resources, and a negative customer experience.
In addition, inadequate technology infrastructure can hamper the flow of business information and disrupt operations. As financial institutions invest more in technology, they should thoroughly understand the benefits and challenges the technology brings to their business.
5. Adapting to Growing Technology that will Change the Industry
The finance industry invests heavily in new technologies to improve efficiency and transparency. For example, artificial intelligence and machine learning enhance financial analysis and decision-making processes. It has led to increased automation, with banks using automated systems to process transactions and communicate with customers.
Banks also invest heavily in digital banking, helping them reach a more extensive customer base across geographies. This has resulted in a boom in mobile banking services, with clients using various app-based solutions to access their bank accounts and perform transactions online.
Lastly, the fintech industry trends is adapting rapidly to newer technologies like blockchain and artificial intelligence, which will play an essential role in shaping its future as a sector.
Conclusion
Digital transformation is a journey that demands a new way of thinking and a change in approach. Digitalization is here to stay, and financial institutions must adapt to the industry’s changing needs. To remain relevant in a digital world, financial institutions must think beyond their customer experience and embrace technology to provide a personal experience. With a digital strategy, financial institutions can transform a traditional industry into a digitally evolved one.
Post courtesy: Greystone Technology – IT Services Provider in Denver, Colorado.
