Though digital transformation is nothing new, the past several years have accelerated that transformation for many industries that were traditionally slow to adopt new technologies, such as the financial sector. Driven by emerging financial technologies (fintechs), businesses in the financial services industry are at a crossroads: Adopt relevant, cutting-edge tech that customers crave, or stick with the status quo and be left behind.
Legacy technologies plague traditional financial institutions (FIs) — from a lack of online presence to simply outdated tools, FIs must adapt to remain competitive in the ever-evolving financial landscape. To meet current customer expectations and stay ahead of their competitors in the industry, FIs need to embrace change and focus on the following:
1.AI empowerment. Though AI has been around for a while, the recent developments since ChatGPT’s industry-sweeping introduction at the end of 2022 have changed AI-powered tools from a “nice to have” to table stakes for businesses to compete in their industry. The most forward-thinking FIs are beginning to harness the power of AI to provide tailored, 24/7 support for their customers. By leveraging AI and conversational chatbots, FIs can provide personalized financial guidance and tools to improve financial literacy based on a customer’s profile. These AI assistants use natural language processing (NLP) technology to understand customers’ specific financial situations and provide customized advice to help them navigate the path to financial success.
For example, if a customer texts their bank’s AI assistant with a question about their credit score, the AI can understand their specific needs and explain the score in clear terms, detail the factors that influence the score and suggest personalized steps for improvement based on the customer’s unique financial situation. Customizing this conversation to the customer’s needs will help them feel like their interaction was productive and empower them to take control of their financial health.
AI-powered financial tools are easily accessible and anonymous, which gives customers space to discuss money matters without the fear of judgment. This comfortable environment for talking about finances facilitates open and honest discussions and can empower individuals to seek the guidance they need to get their financial lives on track. AI is paving the way for a more inclusive financial future where everyone has the resources they need to achieve financial goals big and small.
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2. Financial wellness. FIs that prioritize their customers’ financial wellness will be set up for success in the long run. Offering highly personalized financial guidance at scale will engender deeper customer trust and help pave the way for a clear path to better financial health. By leveraging AI and its associated data, FIs can offer insights to improve customers’ financial outcomes.
Achieving financial wellness goals can be challenging, but with data analytics capable of identifying customers at risk for financial hardships, FIs can offer proactive assistance like personalized offers, financial coaching and tools to help consumers better manage their finances. These proactive steps can cut down on customer defaults and bankruptcies — a win-win for banks and customers.
Banks that take a customer-focused approach to financial wellness will build meaningful, long-lasting relationships with their customers, improving satisfaction and loyalty over time. Banks that are genuinely committed to enhancing their customers’ financial wellness can expect to see higher lifetime values per customer, fewer operational risks and lower customer acquisition costs.
3. Fintech partnerships. Customers, especially younger customers, demand cutting-edge tools, and many FIs are working with fintechs to satisfy those demands. Though fintechs may seem like competitors to FIs at first blush, the smartest FIs are forging partnerships with innovative fintech companies to enhance their digital capabilities and product offerings while the fintech benefits from the established trust of the traditional FI.
Large-scale technology development can be cost-prohibitive for FIs to take on alone; collaboration with fintechs mitigates this concern. Partnering with specialized fintechs allows FIs to bolster their offerings with innovative solutions. Seamlessly integrating these solutions into existing platforms is crucial to encourage customer adoption and use, thus maximizing the solution’s benefits. Using fintech partnerships, FIs can bridge the technology gap and appeal to younger, more tech-savvy customers.
By embracing AI, prioritizing financial wellness initiatives and partnering with fintechs, traditional FIs can future-proof their businesses amid the rapid digital transformation happening in finance. Those who fail to adapt to the new normal risk irrelevancy. Leveraging strategic fintech partnerships, incorporating AI-powered personal finance tools and focusing on improving consumers’ financial health are critical for FIs to survive and thrive in today’s always-changing landscape.
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