The financial services industry is at a pivotal stage, where the potential of technology like generative AI could be transformational and disruptive. However, amidst the excitement about what this means for the future, the challenges facing the industry remain prominent. From technological evolution and regulatory shifts, to a widening skills gap and the need to sustain an emotional connection with customers, the industry is at a critical juncture.
Technology has been a double-edged sword for the financial services sector. While advancements like generative AI promise faster, better working in the future, the industry still grapples with legacy systems, particularly in areas like insurance.
Nicki Crabb, Head of SME & Schemes Trading at Covea Insurance, highlights the challenge: “Our reliance on legacy systems, a result of numerous mergers and expansions, requires significant time, money, and investment to change.”
If left unaddressed, the so-called tech debt associated with these legacy systems can create friction for both insurers and customers.
James Lord, Client Partner for Insurance at Google Cloud, emphasises the need for a mindset shift to ensure this isn’t the case: “Insurance has traditionally been quite manual, lacking automation. It’s about changing the mindset and taking people on the journey rather than forcing change.”
Both addressing technical debt and embracing automation are critical for improving the customer experience and ensuring the industry remains competitive.
Antton Pena, Founder & Chief Strategy Officer at Flock, acknowledges the challenge of convincing sceptics about the value of AI and automation to ensure positive transformation is possible: “There’s been a lot of talk about how AI is going to be implemented by humans and through humans, and changing that mindset and really getting the sceptics on board and helping them understand the value that AI and automation is going to deliver, it’s going to be a challenging one.”
Bridging The Skills Gap
Diminishing scepticism and achieving worthwhile digital transformation within the industry requires a skilled workforce, but attracting and retaining talent is a pressing concern.
Jack Kennedy, Business Development Manager at the Financial Times, notes the difficulty organisations face: “It’s been tougher for financial services to retain skilled staff, making it crucial to invest in staff development and resources.”
The latest People + Technology report from the Financial Services Skills Commission highlights this concerning space in the industry, with the second largest skills gap of any UK sector. The same report found that 73 per cent of roles in the sector are now highly-skilled in comparison with just 52 per cent in 2004.
Without action, this skills gap will continue to impact productivity, growth and competitiveness, and leave the industry unable to keep up with technological advancements and ever-changing customer expectations.
David George, CEO of Bikmo, emphasises the importance of giving employees a sense of purpose whilst filling this gap: “To attract the best people to run your business, you have to give them a sense of purpose, especially the younger generations.”
The industry must redefine itself to become an appealing career destination for emerging talent, and upskill existing employees to stay at pace with technology.
Navigating Regulatory Challenges
The financial services industry is no stranger to regulatory changes, and the recent introduction of Consumer Duty by the Financial Conduct Authority has posed additional challenges as firms adapt to comply.
Philip Best, CRO & Group Head of Compliance at Evelyn Partners, highlights the ongoing struggle: “Smart firms see Consumer Duty as an opportunity to improve customer service, but it’s a lot of work, and many are still grappling with it.”
Firms are faced with demonstrating value against fees and pricing, a complex task that requires comprehensive reporting. Consumer Duty necessitates a fundamental focus on outcomes and the use of digital technology to adapt to changing ways of working. This period of transformation will force organisations to scrutinise their value propositions and make necessary modifications to comply, improving customer outcomes in the long-term.
Establishing Emotional Connections
As Consumer Duty comes into play, and technological advancements create new opportunities for connection, customer expectations are higher than ever. In an era where customers expect seamless experiences, the financial services sector must also focus on building emotional connections. This is especially pertinent for insurers, where customers want to feel a sense of trust.
Perry Ratel, Managing Director of Financial Services at Box, emphasises the challenge: “Customers are used to seamless, frictionless experiences, and insurance companies are now challenged to provide a better experience for all customers.”
This expectation places a greater responsibility on firms to understand and demonstrate their purpose whilst meeting customer needs and building relationships. Developing emotional connections with customers is not just a strategic choice, but a necessity for staying relevant and competitive in a rapidly evolving landscape.
The financial services industry is at a crossroads, facing challenges that demand proactive and innovative solutions. From embracing technological advancements to addressing the skills gap, navigating regulatory changes, and building emotional connections with customers, the industry must evolve to stay resilient and responsive to the ever-changing landscape.
Discover more on tackling the challenges facing the financial services industry at Banking Transformation Summit 2024.
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