Next-gen tech signals new phase of digital transformation for financial firms
When it comes to the adoption of next-gen tech, the financial services industry is often one of the first to adapt. While there are regulatory requirements that need to be met before using next-gen tech, most financial firms normally look at how these can be implemented into their products and services.
According to the 2023 Digital Transformation and Next-Gen Tech study by Broadridge Financial Solutions, most financial services firms now view digital transformation as essential to their business and are already looking at the next wave of technology to help get ahead.
71% of the study’s respondents said artificial intelligence (AI) is now significantly changing the way they work, and 60% agree that within ten years, blockchain and distributed ledger technology (DLT) will become the core of financial market infrastructure.
Despite a more challenging economic environment, firms are also accelerating their funding of digital transformation initiatives as they anticipate further widescale adoption of new and more powerful technology. Firms now spend 27% of their overall IT budget on digital transformation – a 16 percentage point increase versus the 2022 study.
“A new chapter in digital transformation is emerging. In our work with clients across the financial services industry, we see leading firms are already reaping the benefits from digitalization and the use of technologies such as AI and blockchain or DLT, as they adapt to economic headwinds and new competitive dynamics. Firms are now looking ahead to what their customers will require five to ten years from now, and how technology can help them to deliver that vision,” said Tim Gokey, Chief Executive Officer of Broadridge.
The study categorized firms as digital “Leaders” versus “Non-leaders”, based on how advanced they are in 10 of the most essential aspects of digital transformation. These aspects include their innovation culture, use of emerging technologies, seamless customer experience (CX), internal skill-building, and adoption of security and privacy protocols.
Adapting to a digital world and embracing the potential of new technology now underpins organizations’ core business strategies. Digital leaders believe that investment in next-gen technology is essential to preparing for the future. 57% of firms also agree that falling behind in digital transformation will hurt their ability to attract and retain talent, further impeding their ability to unlock new and innovative tools and platforms.
“Organizations are willing to invest in tech, but hurdles to adoption remain. Putting budget toward these initiatives is vital, but it’s also critical that teams find ways to work together to make the most of digital opportunities,” stated the report.
Next-gen tech and the digital divide
Apart from AI, other advancements in next-gen tech include data analytics and real-world applications for blockchain and DLT. These technologies are driving momentum and optimism among leading financial institutions, with many expecting more nascent technologies to make significant progress as well.
“Data analytics, AI, cloud computing, and DLT now deliver tangible ROI. Blockchain and DLT are creating cost savings and real business value. In the longer term, we’ll see stronger use cases for decentralized finance; firms need to plan for this transition. To be precise, firms plan to increase spending in these areas by 20 to 30% in the next two years – data analysis and visualization tools, AI, cloud technology, blockchain/DLT, cybersecurity, IoT and sensors, robotic process automation (RPA), biometrics and digital identity tools,” the report showed.
Quantum computing is another next-gen technology in which firms classified as leaders are planning to increase investment. In fact, investment in quantum computing is expected to increase by 16% on average over the next 2 years. However, financial firms are still not convinced by the metaverse with investments increasing by 5% on average, indicating a “wait and see” approach to committing funds.
While the leaders of the financial firms make the most of next-gen tech investments, there are also concerns that industry incumbents face challenges from new entrants to the market. They will need to embrace digital solutions to maintain their market position. The study examined the differences between traditional financial firms and digital natives, defined as online banks, brokers, robo-advisors, and digital wealth management firms established in the last 15 years and not part of an incumbent firm.
The report found digital natives are more likely than traditional firms to make transformation their most important strategic priority, marked by greater increases in digital investments. 17% of digital natives also report being at the advanced stages of deploying AI, blockchain, cloud, and other emerging technologies, versus 7% of traditional firms.