The new year brings new challenges and opportunities across the financial services industry as banks, brokerages, and life and P&C insurance companies prepare to enter it with enthusiasm and caution.
To help shed some light on what might be in store, I’ve compiled a list of the top predictions in 2021 across financial services:
- The industry will need to brace itself from further credit losses and balance sheet exposures: According to Forbes, Forrester Research predicts, “In 2021, banks will move from benevolence to risk management: increasing foreclosures, cutting down on small business lending and high loan-to-value mortgages, and introducing negative rates on deposits in some countries.”
- We will see rising cases of payment and insurance claims fraud: COVID-19 accelerated the global adoption of electronic payments, which has generated an equally aggressive increase in payment fraud. Similar trends are predicted across the insurance industry as criminals look to attack life insurance, auto, and property insurance companies.
- Customer experience needs to be strengthened across new digital investments: Customer experience is the new competitive landscape as financial services organizations look to find new ways to differentiate themselves other than by product or price. This has been especially true during the pandemic, from small businesses needing access to Paycheck Protection Program (PPP) loans to beneficiaries filing claims for a recently deceased life insurance policyholder.
- There will be increased focus on wallet share growth: As banks, credit unions, and insurance carriers seek to recover from the pandemic, marketing and sales teams are investing in creative and intelligent ways to increase revenue from existing customers vs. trying to acquire new ones to meet their revenue goals.
- We will see a ramp up in mergers and acquisitions: In 2020, we saw the mergers of TD Ameritrade and Charles Schwab and E*TRADE and Morgan Stanley, as well as Venerable Annuity’s decision to acquire Equitable Financial Life Insurance Company. With historically low interest rates, access to cheap capital, and smaller firms being impacted by the pandemic, experts predict higher M&A activity across financial services.
- There will be a renewed focus on industry regulations: From regional data privacy laws to the new Capital Requirements Directive and Regulation (commonly referred to as CRD 5 and CRR 2 in Europe) to the extended expiration for transitioning off of LIBOR, enforcement and refinement of industry regulations will be back on the agenda in 2021.
To address these predictions, here are my recommendations for executives leading transformation and change across financial services in 2021.
- Data governance processes will need to be more automated and agile. Chief data officers (CDOs) will need to reimagine and operationalize their data governance processes by adopting AI-driven data governance solutions, decentralizing data stewardship, and enabling self-service stewardship to reduce the cost of data governance while addressing the data requirements for all of the business. For data governance to scale, CDOs should consider decentralizing and democratizing it by leveraging solutions that enable self-service data access without requiring IT to be involved.
- Increase data lineage and transparency. Companies across all sectors of financial service suffer from not having detailed insights into where data is created, processed, and consumed. This level of data lineage is important for compliance teams to know what data is used to calculate risk to data engineering architects to troubleshoot a client onboarding error across a hybrid architecture.
- Make resolving data quality issues a priority. This will ensure recent investments prior, during, and after COVID-19 are not subject to data quality errors that can impact customer experience, increase risk exposures, and lower profit margins. Data quality management should be proactive, measured, monitored, and communicated across all data stakeholders, from data engineers, data analysts, and data stewards to executive business decision makers. This will ensure data quality management is transparent, predictable, and measurable.
- Establish integration Competency Centers (ICC), or centers of excellence (COE). These will benefit organizations that spend more than 20% of their IT budgets annually on data management–related activities. ICCs can help companies adopt lean data integration principles by leveraging a common platform. Data migration, test data management, data quality, and metadata management processes, teams, and technologies can also improve throughput, reduce operational costs, and boost economies of scale.
- Evaluate customer experience investments. Driven by the impact of COVID-19, customer experience investments are at risk of not delivering business value as many organizations lack a single master of customer relationship and profile information. Designed to govern, share, and deliver deep insights to help support sales, customer service, and marketing investments, such solutions should improve customer experience. Chief customer experience officers should take this time to evaluate the effectiveness, quality, and completeness of the data used to support ongoing customer acquisition and cross-sell marketing campaigns.
No matter how you look at it, 2021 will be an exciting year for the financial services industry and for Informatica. (Stay tuned for our shiny new financial services website, coming soon.) In the meantime, happy holidays and have a happy new year!