Financial Industry Challenges
Wealth management firms, insurance companies and banks all face similar challenges as they all operate within the financial sector. As such, the biggest challenge faced by these firms is the economic risks caused by the uncertain nature of the market.
- According to Citibank, wealth management firms face great challenges due to economic risks such as exchange rate volatility, market trends, and geopolitical risks.
- Economic risks refer to the potential of experiencing loss due to factors that affect the overall performance of the financial market.
- The uncertainty and the rising cost associated to these economic risk prevent wealth management firms to generate superior investment performance for their investors.
- Financial institutions are subject to an ever-growing set of regulations, putting immense pressure on financial firms to comply with each requirement.
- Wealth management firms are continuously challenged by the complexity of regulations within the financial sector such as the Foreign Account Tax Compliance Act.
- As such, wealth management firms in America have invested in the development of systems that comply with data computation and reporting requirements.
- Regulations in banking and financial services industry continue to escalate, requiring banks to spend a large part of their discretionary budget on compliance.
- There are currently more than 750 global regulatory bodies and governing businesses, which means that financial organizations need to follow specific compliance standards.
- The digitization of financial services has made it easier for new entrants to break into certain financial services niches.
- The disruption is led by the younger consumers who are open to change in their financial services provider.
- In a recent survey, Accenture found that 31% of banking customers would consider banking with Facebook, Amazon or Google if they offered the same type of services as traditional banks.
- Cyber attacks cost financial-services firms more to address and contain than in any other industry, especially since the rate of breaches in the industry has tripled over the past five years.
- The 2019 Financial Services Cost of Cyber Crime Study reported that banks stand to lose $347 billion, insurers $305 billion and capital markets $47 billion from cyber crime.
- Insights reported that more than 25% of all malware attacks were aimed at banks and other financial services organizations. In fact, the sector has experienced big yearly increases in the number of compromised credit cards (212%), credential leaks (129%), and malicious apps (102%).
- Marsh and Mclennan Agency reports that customer expectations are the biggest challenge facing banks today.
- Traditional banks are struggling to deliver the level of service that customers are demanding.
- The new advent of technologies, enabled by the widespread adoption of smart devices, cloud computing, and data accessibility and usability, has reshaped the competitive landscape, making it more challenging for banks to meet client expectations.
- It is expecting that more and more traditional financial institutions will enter in a competition to provide better options for customers.