From crypto to DeFi, the world of finance is changing faster than ever. And financial services (like banking, insurance and money management) are trying to keep up.
Many of these new trends are due to technological change. Others are the result of a new focus on the customer.
The Financial Services Industry Embraces Blockchain
Blockchain technology has been linked to cryptocurrencies for many years. Experts anticipate that the technology will now be more thoroughly incorporated into the current banking systems.
Blockchain, for instance, would enable banks to carry out transactions more cheaply and effectively while retaining high security.
Peer-to-peer lending, a market with the potential development of up to $150 billion by 2025, can also be handled using it.
In 2023, more banks will switch to cloud-based banking, and blockchain will undoubtedly play a part in this.
Blockchain technology is already used to settle currency deals by HSBC and Wells Fargo.
Users may utilize blockchain currencies to make payments on their networks utilizing Paypal, Mastercard, and JP Morgan services.
Of course, this has to do with cryptocurrencies, but it also demonstrates how open banks are to using blockchain.
Blockchain isn’t simply being used by banks, though.
The French international insurance business AXA employs blockchain technology to provide flight delay insurance to its customers.
Following that, the insurance contract and air traffic statistics are linked through an Ethereum blockchain.
The system is alerted and initiates the insurance payout as soon as a flight is more than two hours late.
More People Download Personal Finance Apps
Personal finance app downloads increased by almost 90% during the epidemic.
When financial applications like Every Dollar, Prism, and Mint offered exactly what customers were seeking, their popularity skyrocketed.
These applications provide options to invest in stocks and cryptocurrencies in addition to helping individuals manage their finances.
People are drawn to cryptocurrency for more reasons than just being able to handle their money remotely. People particularly enjoy having the ability to virtually govern their whole financial world from the palm of their hand.
This number will probably rise when the US implements open banking, which will make financial applications increasingly secure. Additionally, consumers with security reservations could be encouraged to take another look.
The most well-liked personal financial app now on the market is Square’s Cash App, which also offers a rewards program that connects to the topic of customer loyalty programs that we covered above.
More People Get Their Money Professionally Managed
RIAs, a new kind of wealth manager, is rapidly taking over as the default money manager for many customers.
A company that is governed by the Securities and Exchange Commission that focuses on providing financial advice and managing assets is known as a Registered Investment Adviser (RIA).
RIAs have an obligation to their customers known as a fiduciary duty, unlike regular broker-dealers.
This implies that they must prioritize the interests of their clients over their own when making financial decisions.
In the US, this sort of client-centered, high-touch business strategy is becoming more popular.
A total of $110 trillion was managed by RIAs by the end of 2020 from more than 60 million clients across the US. This is in contrast to the around $20 trillion at the start of this century.
Additionally, there are already close to a million individuals employed by slightly under 14,000 RIAs nationally.
47% of RIAs still think the sector has a lot of potential to expand even at the current growth rate.
According to research by Schwab, more than half of investors prefer a fiduciary (an RIA) to any other approach for managing their money.
Overall, it appears that more Americans are considering having their money managed by a professional as a result of the expansion of the RIA business.
Loyalty Programs Drive Repeat Business
The concept of a loyalty program is not new; examples include half-full punch cards stashed in the back of your wallet and website-specific rewards schemes.
However, the number of loyalty programs is increasing in the financial sector.
To keep consumers coming back, loyalty programs have long been a popular strategy; yet, they are often only offered in the retail and food sectors.
These days, loyalty programs are all but required, especially in the financial services sector. Many people think they will only continue to grow in size, quality, and level of competition.
According to a poll of banking clients conducted in August 2021 by American Banker/Monigle Agency, “rewards and loyalty remain crucial to the customer experience” regardless of the financial institution or product.
The majority of consumers, including 80% of millennials and 68% of non-millennials, would be eager to join a deluxe loyalty program provided by their preferred companies.
The spending of loyal consumers exceeds that of new customers by at least 33%.
Additionally, whether or not they make a purchase, more than 80% of millennials and almost 75% of baby boomers like receiving rewards for connecting with their preferred companies.
CitiBank’s “thank you” rewards program, which enables users to earn points by merely utilizing their mobile applications or ATMs, is a nice illustration of this.
Consumers who participate in paid loyalty programs are 62% more likely to spend more money with that company, according to a McKinsey & Company report.
It’s interesting to note that just 30% of loyalty programs are free.
Banks are falling short in the “tender wars” against businesses like PayPal and initiatives like Buy Now, and Pay Later. One of their few remaining choices to get customers back may be to provide a strong loyalty program.
Banks Further Embrace The Cloud
Before the epidemic, banks were already leaning toward the cloud, but the outbreak accelerated the trend.
The demand for digital services is increasing as individuals become warier about making physical contact, so banks need a mechanism to scale up fast. Just that is provided by the cloud. By 2025, which is just three years away, the market research firm IDC predicts that global spending on cloud services will reach $1.3 trillion. Heavy heavyweights like JPMorgan Chase and Arvest Bank have already converted a portion of their core systems to a cloud-native platform. So banks and credit unions will play a role in that. According to Jim Marous of The Financial Brand, cloud banking is the way of the future. He bases this opinion on the fact that IBM has created cloud solutions exclusively for the financial sector. Microsoft Cloud for Financial Services, which it debuted last year, is part of its portfolio.
According to Genpact, CIOs in the banking sector stated that making their applications cloud-ready helped their businesses adapt in 2021.
83% of the 1,300 financial services leaders surveyed in a different survey by Harris Poll. And Google Cloud indicated that the cloud was their core infrastructure.
One of the businesses with a focus on the cloud banking sector is MANTL. The business supports traditional banks’ growth in the online space. MANTL accomplishes this by creating tools that enable banks to automate back-office tasks, establish an online presence, and digitally enroll consumers. With a digital offering powered by MANTL, the business claims that its clients may anticipate receiving four times as many account applications.
The adoption of cloud services is significantly influenced by artificial intelligence. AI can not only create chatbots but also analyze transactions. Keep an eye out for suspicious activities, and carry out other jobs as well as or even better than their human counterparts.
The cost of investing in AI is typically more than banks are ready to accept, but if AI is bundled with cloud services, it becomes a very alluring offer.
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