Today’s financial institutions are being affected and redefined by five big data trends. Institutions keep a close eye on the regulatory capital requirements while taking into account that there are relevant technological advancements on a daily basis. All the while they need to watch out for new participants in the market, especially the ones that can cause serious changes in capital sources, returns and investments. And to top it all off, they have to watch out for the behavioral and demographic changes caused by the younger generation.
- Regulatory Complexity and Changes
Because of the series of financial crisis we had in the past, regulatory pressures have considerably increases the cost of capital. Banks have turned to divest in risky or capital intensive departments and businesses. Banks have backed away from lending to specific divisions like infrastructure and SMEs, all the while investing and recruiting majorly in compliance to new regulatory requirements. Despite the pressure from all the regulations, the non-banking financial institutions offer competitive services to any client of the bank like establishing certain funds as well as investments in brand new challenges. FinTech firms are not subject to the exact same financial pressures.
Advantages in Technology and Digitalization
Financial institutions and the services that they provide are changed by all the significant technological advancements. This has paved the way for new challenges to disturb all the traditional business models; this opens opportunities in the new market. The universality of significant technology all over the world, like mobile phones and the World Wide Web, gave birth to companies that offer affordable service for the traditional services; common examples are online trading and e-payments. The technology that we have today has significantly improved the way customers interact with any financial institution. Sure, investing in the IT infrastructure has become common but numerous traditional banks still remain as they are.
Advancements in Capital Sources, Returns and Investments
There has been significant delay on returns and additional demands for time management because of the new regulatory capital requirements. Banks all over the world comply with stress tests in responding to numerous regulatory investigations or managing ever rising regulatory fines. A handful of non-bank financial institutions are considered are more profitable compared to banks. Aside from that, they are large and significant when concerning global stability. Competitors under lighter regulatory rules have entered divisions previously taken by banks and such new opportunities are created; lending, ownership of assets and insurances are the most common.
Behavioral and Demographic Changes
The younger generation, specifically the millennial, have totally different expectations and ways of cooperating with numerous financial institutions; they opt for social media and online based platforms. Social media has been a major method of connecting or communicating their praise and complaints; not going for traditional customer loyalties. Meanwhile, retirees and more mature customers demand higher returns from their investments. Bottom line, there is tremendous regulatory and government pressure on asset managers and pensions fund to lessen the management fees but still maximize the returns as much as possible.
Global Talent and Skills Race
Due to the new challenges created by technological advancements, regulatory pressures and risk management, a lot of the top leaders can’t keep up. New leaders are needed by financial institutions, leaders that can understand, manage and identify emerging risks. New leaders are required by FinTech firms, traditional banks, regulators and NBFIs. The competition for the spot has become even fiercer since the talent pool has continued to decrease but the demand has slowly risen over the years. The advanced technology we have will diminish the physical divide but only effective leader can remove cultural differences.