The coronavirus pandemic has had a dramatic impact on the finance industry, which will require a major digital transformation to get back on its feet.
Since COVID-19 was discovered in December 2019 in Wuhan, China, it has spread rapidly across the globe. Once the WHO declared a pandemic, many countries went into lockdown to curb the spread of the virus. While lockdowns have been fairly effective in reducing the number of infections, they have also put tremendous pressure on the world’s economy. Millions of people have lost their jobs, thousands of businesses have closed for good, and entire industries have been devastated. The resulting recession will possibly be the most severe the world has ever experienced. So, what does that mean for the future of finance? Is there anything businesses can do to turn the tide?
The impact of the coronavirus crisis on finance
The coronavirus pandemic has resulted in an unparallelled economic downturn that has affected every sector – and the world of finance is no exception. According to McKinsey, the sector’s credit losses will be between $400 billion and $1 trillion from 2020 to 2024. Similarly, it’s estimated that there will be a $200 billion decrease in net interest income over the same period. The global insurance industry, on the other hand, is expected to lose $203 billion in 2020, according to Lloyd’s of London.
Structural changes in finance
To minimise the risk of infection, consumers are increasingly opting for contactless banking transactions. Mobile banking apps and internet banking portals now allow clients to authorise payments, check credit scores, control credit card limits, or make investments online. To adapt to the new reality, banks will have to digitise many of their processes. The growing reliance on remote work will also make banks more vulnerable to hackers and force them to pay more attention to cybersecurity. To better cope with the sudden increase in the number of loan applications, banks and other lenders are now turning to robotic software.
The coronavirus-induced crisis will accelerate the digitalisation of the insurance industry as well. As consumers increasingly switch from physical to digital, insurers will have to provide them with new, virtual models of engagement. We can expect an increased use of drones for claims assessment and surveys, while on-boarding, underwriting, and KYC processes will also move into the digital realm. Ecosystems are expected to play a major role in the future of insurance and could bring major disruption to several key aspects of the value chain, including products, services, and customer service. The insurance sector is likely to reprioritise its technology spend in the near future, leading to a greater adoption of AI, robotics, automation, big data, cloud, and IoT technologies.
Digital transformation
To keep up with increasing customer demand and growing competition, businesses in all industries need to invest in digital technology. Digitalisation enables companies to be much more adaptable and agile, which are essential elements for building resilience and maximising chances at survival. The coronavirus pandemic has shown us that disruptive forces are not only coming from cool new startups or revolutionary business models, but can also explode into existence through something as unforeseen as a new virus. This very moment in history is showing us how levels of digitalisation and agility can be the determining factor in whether your company goes under, never to surface again, or whether it stays afloat and reaches the other side.
Visions for the future of finance
Over the coming months, we will witness the emergence of several new trends that will transform the financial services landscape, says futurist Richard van Hooijdonk. AI technology could help financial institutions improve their efficiency, reduce costs, and increase customer engagement. AI-powered chatbots can be used to handle customer queries and provide clients with quick access to information, improving productivity and reducing pressure on customer service staff. AI can also help keep hackers at bay and protect our hard earned money. AI will also assume a more prominent role in wealth management, where robo-advisors and AI-based investment options will offer investors increasingly personalised experiences and improve their chances of success. The future will also bring more secure and convenient payment methods, which will allow us to pay with our faces, fingerprints, or even our vein patterns.
Miron Lulic, founder and CEO of SuperMoney, believes that physical bank branches will increasingly be replaced by online offerings, tele-advisory services, and AI. Contactless payments and mobile wallets will also grow in popularity, leading to physical wallets gradually fading away. AI will increasingly be used to battle fraud and offer customers more personalised financial advice. Financial institutions will also employ machine learning to identify risk patterns in borrower spending behaviour. Conversational AI will play an important role in the future of the insurance industry, predicts Chetan Dube, president and CEO of IPsoft. These AI-powered digital employees can automatically handle simple tasks like gathering routine information from customers, authenticating their identity, or asking introductory questions.
Recession strategies
The pandemic has significantly disrupted the global economy, forcing financial institutions to deploy appropriate strategies to mitigate the impact of the crisis. As people start to reduce close contact with one another, financial institutions will have to find a way to meet their needs remotely. For instance, businesses can use social media platforms and online appointment scheduling solutions to engage with customers in real-time and enhance and personalise the digital service experience. Furthermore, having an agile mindset is highly preferable in times of crisis, as it allows organisations to adapt quickly to any challenges. Organisations operating within the finance industry shouldn’t be afraid to embrace innovative technology to make their service faster and more efficient. According to consulting firm BCG, companies that automate their processes can reduce costs by 80 per cent.
Younger generations grew up with technology. They seek personalisation everywhere they go and want to have their banking information at their fingertips at all times. To attract these customers, banks have to deploy a more data-driven approach. By using data analytics to process and analyse consumer data, the banking sector will be able to identify how customers respond to market shocks, and whether they like new banking tools and services. Just like banks, insurers also need to understand the new consumer. To meet customer expectations, insurers will have to rethink their product offerings and tailor their service to the consumer.
Case studies & experiments
To better cope with the crisis, banks, insurance companies, and investors need to be more proactive in identifying and resolving current issues. The Fondsdepot Bank decided it was high time to start a digital transformation and modernise its processes. The first step involved replacing its excel-based reporting system with a cloud-based solution, which helped the bank automate 98 per cent of its regulatory reporting processes and reduced the need for personnel by 90 per cent. The bank also deployed a robot financial advisor to reduce the workload of their human advisors. US Bank recently equipped its mobile app with an AI assistant, allowing customers to use voice commands to complete their banking transactions.
AI could also hold the solution to some of the biggest problems in the insurance sector. UK insurer Ageas uses AI developed by Tractable to improve vehicle damage assessments. The AI allows the policyholder to report an accident themselves and submit photos of the vehicle to the platform. AI algorithms then analyse the photos, identify the damage, and create an estimate of the damage. FRISS, a provider of AI tech for the insurance industry, recently launched a solution called Fraud Detection, which can automatically check claims for fraud and risks, and detect suspicious claims. UK-based fintech startup Tully launched a free service that uses conversational AI to help consumers understand their financial situation. The platform analyses consumer applications and assesses their eligibility for payment relief.
The future of finance
The finance sector is undergoing a major digital transformation driven by changing consumer expectations and emerging technologies like AI, machine learning, AR/VR, biometrics, and blockchain. Rather than using cash money or cards, we will soon be paying for our purchases with our face, fingerprints, or even our vein patterns. VR/AR technologies will also take on an increasingly prominent role in the future of finance, helping financial institutions improve their services and relationships with clients. AI technology has found numerous applications in the finance industry as well, with financial institutions increasingly using AI to communicate with customers, automate accounting, detect fraud, recommend products, and analyse social media.
Investing used to be reserved only for the wealthy. Now, thanks to robo-advisors, even those with just a couple of thousand dollars at their disposal can invest their savings in stocks and bonds. Another technology that could help the financial industry improve its inefficient and time consuming processes is blockchain, which could help reduce the time required to finalise property sales, or make it easier to apply for a mortgage and buy a home. To cater to constantly evolving customer needs, financial institutions will have to make their banking experience faster, more engaging, and more interactive. This will involve not only allowing them to manage their money remotely, but also finding a way to predict and satisfy their needs almost instantly.
