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Financial Executives Expect Tech Adoption To Accelerate In Post-COVID Markets – Forbes


Last year, the unexpected arrival and spread of COVID-19 set financial services organizations on a sprint to implement new technologies to serve the new and urgent needs of their clients. Now, in 2021, the pace of that sprint is approaching a Usain Bolt–like pace as firms try to meet clients’ needs with digital engagement.

More than half of financial services firms worldwide are planning on increasing their spending on next-generation technologies such as artificial intelligence (AI), blockchain, Cloud computing and digitization—what Broadridge

BR
calls the ABCDs of Innovation®—over the next two years. This data comes from a Broadridge survey of 1,000 C-suite executives and their direct reports globally, and represents a window into how these companies are preparing for the future.

Leaders we’ve surveyed about their IT planning and budgets suggest future spending is a function of two separate needs: meeting day-to-day operational challenges in a world where technology adoption is occurring at a much quicker pace than before, and the need to ensure that investments in long-term initiatives are not starved, which would risk stifling long-term growth.

Individual retail investors adopted new technology out of necessity in the past year and are now starving for more. Firms that have built a digital-first experience are taking market share from well-known brands. Financial services firms that understand this are creating digital experiences that show they “get their clients.” The benefits for the firms are both financial (revenue and profit growth; cost reductions) and operational (accelerated time to market; better decision-making; improved risk management). Perhaps the biggest benefits come from the ability to gather new clients, onboard them swiftly and do so using a less expensive digital model that is also more dynamic and interactive. If you examine the account growth at Robinhood and Acorns, you can readily discern why adopting digital tech is attractive: Robinhood reportedly had 13 million accounts last May, up from 1 million in 2016; Acorns had 8.6 million users last year, up from about 2 million in 2017.

As firms have increased their rate of technological adoption, they’ve also been able to gather more data about almost every aspect of their operations, and can make determinations about what works best in diverse areas such as underwriting standards, security selection and customer service. Next-gen technologies have been particularly useful because they are the most powerful tools for turning that information into actionable insights that lead to better products and services.

These next-gen technologies are impacting all areas of financial services. Executives in the survey came from diverse segments within the financial industry, including commercial and investment banks, bank broker-dealers, insurance companies, hedge funds, asset management, private equity or debt firms and wealth management.

The benefits are being felt broadly. In the survey, 56% of respondents reported a decrease in costs, while 51% said revenues had risen and 42% said profits had grown as a result of next-gen technologies. Executives are projecting additional gains in these measures in the coming years.

The study shows that it is now more critical than ever for senior leaders to have a clear next-gen technology strategy. The data suggests that having a tangible technology strategy is a must, and choosing the right partner is imperative, because going alone means firms miss out on the benefits the wider ecosystem of fintech providers can bring. Firms leading in this area are widening the competitive gap through these technologies, which means it may become harder to keep up without following suit. Firms that have been most active in implementing these technologies said emerging technologies had driven a rise in their profit margins of 2.55 percentage points on average in the past year. Even firms that adopted these tools at a more modest pace still reported that they produced a 1.25-percentage-point improvement. Firms that were faster adopters also reported greater revenue gains, of 4.04%, compared with 1.74% for other organizations. This suggests that while the leaders in next-gen technology adoption have seen significant cost savings, they are much more likely to also use the technologies to create new revenue streams and business models. The impact on costs was similar for both categories of business, with the leaders seeing a 2.47% reduction, while non-leaders notched a 2.78% decline.

Respondents to the Broadridge survey report that they expect spending on these technologies to consume an increasing share of an already growing IT budget. By 2023, the executives we surveyed at firms that are leaders in technology adoption are projecting that spending on AI, blockchain, the Cloud and digitization will account for nearly 20% of their technology budgets. More broadly, the survey showed that spending on these technologies at all firms is expected to rise to 15.7% of IT spending in two years, from 11.8% now.

The new technology that financial services firms have become most reliant on is the Cloud. Firms report that they are using it throughout diverse parts of their organizations, including product development (68%), customer management (66%), sales (68%) and trading (54%). One reason the technology has been so widely adopted is its ability to facilitate work for employees who have had to work remotely during the pandemic. The ability to have stronger security through a Cloud provider and ubiquitous access to data for agile app development is huge.  

Our survey shows that, in aggregate, firms are planning to increase spending on all four next-gen technologies in the next two years. Of the respondents, 60% said they are planning to increase spending on Cloud technologies, closely followed by AI, at 56%, and digital and blockchain, each at 53%.

Firms that are leading the charge in developing next-gen technologies are more likely than slower adopters to both outsource work on them and to recruit new talent to work within their companies. They are also more likely to purchase services and solutions from fintech providers.

In practice, it is important to note that the cumulative impact of these emerging technologies is a case of the sum being greater than its parts. Leading firms are using the Cloud to modernize their IT infrastructure and to increase scalability and resilience. This enables them to innovate and launch new products more quickly while centralizing huge volumes of data created by growing digitization across silos. They can then leverage this data to fuel increasingly powerful AI and predictive analytics to enhance the customer experience with personalized products and digital communications across multiple channels. They are also using AI and digital to improve operational processes, manage risk and drive strategic decision-making.

Each new investment is likely to increase the likelihood of future investments, as they help solidify the importance of these next-gen technologies within the financial markets’ ecosystem, making continued investment a strategic imperative.



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