Between ever-evolving technology and a new federal administration, the financial industry is paying close attention to the new innovations disrupting their market as well as new legislation that will affect their sector and the customers they serve. This industry is watching carefully to see just how these developments will affect the economy, their customers’ expectations, and ultimately — their bottom lines.
With so much to address, it can be challenging for professionals in this field to decide which issues to tackle first, let alone decide how to – which is why we’ve done some of the work for you. Here are some key issues professionals in finance should consider addressing and recommendations for how to approach them:
Challenges From Innovators and New Market Entrants
Emerging technology such as financial technology (FinTech) are disrupting the market by offering innovative ways and products to sell to consumers. These products are usually focused on being user friendly, saving time and delivering the more personalized experience consumers are increasingly demanding. To enable innovation, building partnerships between the financial sector and emerging FinTech is a must.
Why Your Institution Should Address It: Successfully partnering with these new market entrants will help traditional institutions stay competitive, as well as help both the technology companies and brick-and-mortar institutions better address regulatory concerns about customer protection.
Example of a Company Addressing it Well: MicroBank is using a FinTech developed psychometric scoring model and machine learning to improve risk modeling and assess creditworthiness. The new model led to a 70–80 percent approval rate of credit requests, up from a 10–20 percent approval rate with traditional risk models. The adoption of this model has helped the start-up to scale their technology and access the capital they need to grow, as well as enabled the bank to improve product offerings, increase efficiency, and lower costs, all without making significant investments in creating new solutions themselves. Best of all, this partnership and others like it have enabled the financial sector to better serve the world’s three billion financially underserved people.
Banking Malware, Ransomware & Other Cybersecurity Risks and Regulations
As financial institutions continue to collect greater amounts of personal data from customers than ever before, they face more cybersecurity challenges and risks than any other industries. In fact, Infosecurity Magazine recently reported that financial services firms are a whopping 300 times more likely to be hit by security incidents compared to other industries. As data breaches become more common, the pressure for institutions to protect their data and consumer privacy continues to increase exponentially. Institutions should be evaluating their internal cybersecurity policies and implementing best practices to mitigate risks from potential breaches. They should also consider offering identity protection services as an added demonstration of their commitment to protecting their customers’ data.
In addition, companies in the financial sector should be watchful of any Congressional activity concerning cybersecurity as the Trump Administration plans to review all U.S. cyber defenses and vulnerabilities for both the government and private sector. While some predict his pro-business stances and support of the financial sector indicate that he will not advocate for stricter cybersecurity regulations, others worry about his previous calls to boycott Apple when they refused to unencrypt the San Bernardino shooter’s iPhone suggest that he may support or even champion legislation that would require businesses to share highly-sensitive customer data with the federal government. Such legislation, especially if left unclear or developed without adequate understanding of the cyber threat landscape, has the potential to hurt businesses and consumer privacy more than these laws effectively protect it.
Partnering with organizations who can advocate on your behalf and educate Congress about cybersecurity best practices that will help to protect both consumers and businesses. Consider supporting cybersecurity focused non-profits such as the National Cyber Security Alliance (NCSA) or a political action group within industry organizations that work on these issues like the NAFCU Political Action Committee.
Why Your Institution Should Address It: Successfully educating Congress about the cybersecurity risks the financial and insurance sectors are facing may enable lawmakers to pass legislation that is clearer. Doing so may actually effectively help lessen consumers’ and businesses’ risks of falling victim to banking malware and other cybercrimes, as opposed to inadvertently increasing them.
Example of a Company Addressing it Well: Bank of America (BOA), one of National Cyber Security Alliance board member companies and government partners, is committed to furthering cybersecurity best practices for their company and across the financial industry. In addition to supporting the NCSA’s mission, they have shown their commitment to thwarting cybercrime by taking a blank check approach – their cybersecurity business unit has no budget cap. According to BoA “There really are no spending limits when it comes to battling cybercrime.”
Expanding Use of Big Data – Benefits, Risks, and Challenges
Thanks to technology and the use of mobile devices, websites, and social media – collection of consumer data is probably at its highest. Industries are gathering, analyzing and interpreting this data to determine trends and consumer behavior – a practice often referred to as Big Data. Financial institutions can use this information in many ways to enhance the customer experience, improve pricing, create efficiencies in processes, and identify new opportunities. However, use of Big Data can come with concerns around consumer privacy and appropriate use. As you continue to gather more information, your company should implement cyber security best practices. This is another area where offering identity protection can be a timely and visible sign that your organization cares about protecting customer data.
Why Your Institution Should Address It: Institutions can benefit greatly from using new sources of data and analytics to identify potential new customers, help prevent fraud, and better address customer needs with relevant, value added services.
Example of a Company Addressing it Well: One of nation’s largest insurers, a current GGA client, found that customers who had purchased identity protection and another insurance product, as opposed to a single insurance product alone, retained customers at a 2% higher rate year over year. Once they were armed with this valuable insight, they changed their sales strategy to encourage customers to purchase both products together. While this percentage increase may seem small, it had a big impact on their bottom line. Moreover, offering identity protection was not only an additional revenue stream, but it also helped to build customer loyalty by demonstrating their commitment to protecting another valuable asset of their customers’ – their identity.
As you strategize your next steps to address these challenges and more, it’s crucial to consider not only the most effective way to achieve your goals, but also the most cost-effective way. For our partner above and many other companies in the financial sector, they found partnering with trusted industry leaders as opposed to developing new tech or services in-house allowed them to best and most profitably achieve their goals. When evaluating partners your institution would trust to protect your customers’ data, as well as your own, it’s critical to look for partners who have long reputations working with best-in-class institutions like your company. To learn more about turning industry challenges into growth opportunities with value-added identity protection services, sign up for email updates.