What factors are putting additional pressure on the industry in 2024?

digital transformation in finance

The growth of the finance industry has been gradual yet significant. The finance sector was the most underdeveloped one before the advent of the internet and technology. Digital transformation in finance has modernized the financial services industry. However, factors always affect businesses that bring challenges into the industry. 

Many external and internal factors affect the banking and financial services industry, forcing them to bring about digital transformation and continuously improvise. The major shift in the finance industry came after the pandemic hit two years back. The digital concept in every sector rose to the occasion during the pandemic, and the rest is history. Today people are so addicted to the comforts of the digital world that they have forced the finance sector to adopt and stand by a digital transformation strategy.

Along with the increasing digitalization, many other factors are putting additional pressure on the finance industry and pushing them toward digital transformation. Learning and understanding these factors is crucial to overcome the challenges and finding a holistic solution to all the issues. Earlier, the finance sector was the only business that did not care about customer needs. However, with the changing times, the concept of ‘Customer is God’ is returning, and the finance sector is adopting changes that support customer-oriented approaches. 

Let’s learn about the challenges and factors putting additional pressure on the finance industry in the coming segments.

Challenges in Digital transformation in Finance Industry.​

The radical shift the banking and financial services industry is undergoing toward digital transformation is significant. The advent of the internet, technology, and fintech companies has changed the shape of the finance industry in a good way. However, the pressure is acting directly on the banking and financial services sector to up their game. Here are some factors affecting businesses in the finance industry that are worth knowing for a better future.

High Competition● Have you ever heard of anyone who has performed better without competition? No, right? 

● It is almost impossible to fight without competition. The era of monarchy is over.

● The advent of the internet and innovative technological advancements led to the emergence of Fintech companies.

● These companies had a customer-oriented approach and made customer service their priority.

● However, the concept of customer-centric policy was redundant in traditional banking systems.

● With the rise of Fintech companies and their approach, they started giving massive competition to the traditional banking system.

● The banking system has increased pressure from all ends to adopt digital transformation to serve customers satisfactorily.

● Today the Fintech companies and banks have collaborated to provide better financial services to customers.

● Also, it is a multifactorial concept where the competition from Fintech companies goes hand-in-hand with the technological advancement and rising customer demands that led to the development of the digital transformation strategy.

● The best way to deal with a situation is by rising to the occasion and embracing the problem with open arms.

● Hence, the increasing competition from Fintech and large technology companies is one of the major factors affecting business in the finance sector.

Cultural Shift

● The cultural shift from traditional and manual bank operations to the incorporation of AI and ML in finance is a massive challenge for the industry.

● The current structure has no room for manual and traditional processes or systems.

● The concepts of AI, ML, Cloud Computing, etc., have taken over the finance world to provide customer-oriented customer services.

● The sudden cultural shift of the customer’s expectations, mindset, technological advancements, etc., have forced the banking financial services industry to step up and improvise.

● Hence, the cultural shift is one of the major factors affecting businesses in financial organizations.

Cybersecurity Threats

● Frauds and Fraudsters are inevitable in every sector.

● For the banking sector, the maximum chaos is caused by cybercriminals who are well-advanced in conducting data breach operations.

● Earlier, the banking sector was not completely digital, but a more significant chunk of its operations were online.

● With the emergence of the digital era and high technological usage, cybercriminals started breaching financial data from banks and other financial services. 

● The increasing cybersecurity threats were one of the factors affecting business in the financial world.

● Hence, these threats pushed the finance industry to adopt a digital transformation strategy, strict data encryption techniques, and software to prevent data breaches.

● Data is the most essential aspect of any sector, especially finance.

● When cybersecurity breaches happen, they can cause heavy losses to banks or financial services companies.

Cybersecurity Threats

● Hence, the digital transformation strategy provides higher security and data encryption to protect the finance industry from all cyber criminals.

● Some of the encryption technologies applicable in the finance world are:

○ End to End Encryption (E2EE)

○ Address Verification Service (AVS)

○ Biometric Authentication

○ Out-of-band Authentication (OOBA)

○ Location-based Authentication

○ Risk-based Authentication (RBA).

● All the above encryption technologies are the most basic in the finance sector yet crucial to keeping security breaches away from the picture.

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Shifting Business Models

● The current scenario represents an era of changing business models in the finance industry.

● The cost of compliance management in the current business model is very high, which is one of the factors affecting business in the finance sector.

● The main drawbacks of the traditional source of banking profitability are decreased proprietary trading, lesser returns on equity, low-interest rates, and higher capital costs.

● However, the shareholders’ expectations about profits don’t change considering the above drawbacks.

● Hence, it’s time to adopt a digital transformation strategy in finance.

● Digital transformation can match the market’s changing demands and reduce the drawbacks of traditional business models.

● The digital business model will also help with the speed and accessibility of the financial services supporting the customer-centric approach of finance business.

Increased Customer Expectations.

● The dynamics of the customer’s mentality change now and then.
● Sometimes we cannot even predict the timeline of the changing customer mindset.
● However, the best way to deal with the increasing customer expectations is to innovate and find appropriate solutions.
● Earlier, the demographics of customers’ interest in finance-related matters were shallow.
● But, as financial awareness and literacy began during the pandemic, people have become concerned about their finances.
● Today the world is led by the new generation, the Millennials.
● According to five out of six surveys, millennials are the prime reason for the trending digitalization.
● The millennial generation best understands the concept of the internet and social media.
● Financial awareness and penetration have increased dramatically recently, especially during the pandemic.
● With the internet easily accessible to everyone, people have become more informed and intelligent.

Increased Customer Expectations.

● They know precisely the type of service they desire, and no one can convince them with wrong notions or logic.
● The changing customer demographics are one of the crucial factors affecting business in the finance sector.
● Hence, shifting to a customer-centric service approach is essential to satisfy the customers.
● The only way to meet the customer expects to adopt digital transformation for a better financial future.

Outdated Smartphone Experiences

● Most banks and other financial services companies think having a personal bank application for the customers is a great way to achieve digital transformation.

● However, partly the above concept is genuine, but the efficiency of the same varies significantly.

● Suppose a finance organization has a mobile application. In that case, it doesn’t mean that the customers are leveraging the full benefits of the mobile application.

● Many factors come into play while designing a mobile application, especially for financial organizations.

● The speed, accessibility, and innovative features of the bank application are crucial for its efficient functioning.

● Also, with so many technological and data advancements, the bank mobile application design can have chatbots, live chats, and digital assistance with voice.

● Another primary concern with mobile bank applications is data breaches due to lower levels of security.

● Hence, it is crucial to improvise the security of these mobile applications using biometric login and other similar features.

● Today accessibility is the most critical factor in these mobile applications, so putting digital wallets and intelligent transaction options in the applications can increase the efficiency of the application.

● An outdated mobile application can be one of the enormous factors affecting business in the finance sector.

● Hence, providing a functional and updated bank mobile application is critical to serving customers in the best possible ways.

Customer Retention

● Today the rise of customer-centric approaches in financial business is widespread.

● Most people today want customized and personalized financial services that are accessible and easy to perform.

● With the increasing demand of the customers, there is a radical shift in the business mindset too.

● Today financial businesses are looking for customer retention techniques.

● Hence, customer retention is one of the factors affecting business in the finance sector.

● It is challenging to calculate customer satisfaction; however, if the customer returns, your service is successful.

● Hence, the best way to crack the code of customer retention is by providing personalized services to your clients.

● A very old saying stands true here- ‘People may forget what you told them, but they will never forget how you made them feel.’

● Customer Retention is a technique through which you can make your customers feel satisfied and make them revisit you for their financial needs.

● More personalized and functional customer service drives customer loyalty.

● According to the Accenture Financial Services global study, around 33,000 banking customers across 18 markets, 49% of the population said customer service drives loyalty. 

● For any business to flourish, customer satisfaction and engagement are crucial.

● Using technology to personalize your customer relationship is a great way to begin this journey.

● Chatbots are great tools to provide customer service without burning your pockets.

● Hence, the best way to overcome this challenge is by creating customized services for your clients.

Antiquated Applications

● Today most finance organizations use antiquated business management applications, which are ancient.

● These applications cannot match the pace of digital applications.

● These applications can also hamper the evolution of financial businesses; hence they are one of the factors affecting business in the finance sector.

● Instead of using old-fashioned applications, it is wise to use recent technology software that can change the shape of the finance industry.

● Some of the high-end technologies that can form the future of the finance world are- Artificial Intelligence, Machine Learning, Blockchain Technology, Quantum Computing, Big Data, Open Banking, IoT, Augmented Reality, Virtual Reality, Neobanking, BPA, etc.

● These technologies and software can help with your financial services business in a significant way.

● According to the Gartner CIO survey in 2017, around 50% of CIOs of financial services said that significant business in the finance sector will come from digital mediums with higher revenue and more value in the future.

● Agile technology is the future of the finance sector, and the above technologies, like Cloud Computing, AI, etc., are the pioneers of the agile concept.

● The antiquated applications hinder digital transformation in the finance sector, putting pressure on the finance industry.

Regulatory Changes

● Regulatory Compliances are one of the biggest challenges in the banking and financial services industry.

● There is a significant increase in the number of regulations that banks and credit unions must follow.

● Here are some of the banking regulations that are the contributing factors affecting business in the finance industry:

○     Basel III- It came forth in 2009. The Basel Committee of Banking Supervision established the regulatory framework, Basel III, for the banks. Its risk-weighted capital requirements supervise the minimum capital adequacy ratio, which all banks must maintain.

○     Dodd-Frank Act- The Dodd-Frank Wall Street Reform and Consumer Protection Act regulates the financial services industry and creates programs to prevent predatory lending.

○     CECL- The Financial Accounting Standards Board created CECL. It is an accounting standard that requires all institutions that issue a credit to estimate expected losses over the remaining life of the loan contrary to the losses.

○     ALLL is a financial reserve for institutions established based on the estimated credit risk within their assets.

● Financial organizations must pay for the heavy losses when they don’t follow these regulatory compliances. They can even put their organization at risk.

● Hence, banks and financial services companies must build a culture of compliance within the organization.

● Also, they must implement formal compliance structures and systems to comply with the regulatory changes.

● Technology is one of the most critical pillars that can help with regulatory compliance challenges.

● When financial organizations invest in technologies that collect and mine data, perform in-depth data analysis, and provide insightful reporting, it becomes helpful in identifying and minimizing compliance risk. 

● Moreover, technology can standardize processes, ensure procedures are followed correctly and consistently, and enable organizations to keep up with new regulatory/industry policy changes.

Constant Innovation

● Constant innovation is the key to success in any industry.

● Hence, it is one of the factors affecting business in the finance world.

● Nothing is stagnant in this world; everything is dynamic and changes at a very unpredictable rate.

● The only way to stay at the top of your game is by continuously innovating.

● It is ideal to keep changing your goals and products for the betterment of your customers.

● As the needs of your customer change, your financial product also must change.

● The best way to get innovative ideas is through customer interactions, organizational analysis, market demands, trends, and other insights.

● The use of technology is a great idea to leverage innovations.

● Recent business technology or cloud applications are helpful in the digital transformation strategy.

Constant Innovation

● Cloud technology is fantastic as it allows you to evolve with your business.

● Also, it satisfies your customers’ burning needs and demands from time to time.

● The advent of the internet world has given high scope for the finance sector to innovate at a higher speed to serve customers in the best ways possible.

● Hence, constant innovation in the finance sector puts additional pressure on the banking industry, but it is the key to success.


Today everything is volatile; nothing can grow or flourish while remaining constant. It is the era for the finance sector to adapt to the dynamic changes of the world and increase gradually. Digital transformation is a significant step in the finance sector, and several factors affect business. The above are the crucial factors putting additional pressure on the financial industry. 

 The customer-oriented approach, technological advancements, and increased customer expectations have forced the financial world to pull up its socks and provide a more secure and service-oriented response to the customers. One of the significant pushes to the banking industry is the emergence of the Fintech companies and startups that have broken the barriers like financial literacy, inclusion, and penetration. These companies have given a boost to the economic growth of the country with the use of technology and also made financial services easily accessible to people in the remotest areas of the country. 

 The ideal solution for the banking and financial services sector is to adapt to the changes in the world and find sustainable and reliable solutions to the challenges in the industry to serve the customers better and bring about financial inclusion and penetration at a more significant level.

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One comment

  1. […] Digital transformation in financial services is the need of the hour. Today the world is moving from wired telephones to wireless smartphones. In this technological era, providing superior customer service with traditional manual systems is impossible, especially in the banking sector. Also, with digitization, people have become more aware and knowledgeable. Hence, most people know the value of customer service, and they expect a high standard of service which is affordable and quick.  […]

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