Digital Innovation – An Uphill Battle for FSIs

In the modern business world, companies frequently turn to mobile platforms, the cloud, big data, and other digital enablers to stay competitive. For Financial Services Institutions (FSIs), implications of the shift to digital are broad, and the boundaries of information security are stretched as firms react to meet the ever-expanding expectations of their customers. These days, customers have greater expectations for products and services, and demand more transparency. This poses a real challenge for FSIs dealing with the heightened risk and fiduciary responsibility that comes with large amounts of personal data.

Dan Fukushima – a client experience expert at North Highland’s marketing division, Sparks Grove – recently was telling me that many retail and consumer organizations would be ecstatic to have the amount of data and insight into their clients that financial institutions have. Financial institutions obtain a huge amount of data from one person’s multiple relationships with the company – giving it access to very private information.   He said that customers are not only comparing their experience with one financial institution to that of other financial institutions, but also to every organization they deal with in the digital space.  What this means is that customers may compare their online banking experience to their online shopping experience – pressuring financial institutions to match retailers’ functionality by making more data available – a potentially risky activity.

If a customer’s account is compromised on a site selling shoes, for example, the information that is compromised may include personal identity, credit card information, and shopping habits. However, if a customer’s account with an FSI is hacked, there’s the potential to give up not only personal identity, credit card information, and shopping habits – but also information on loans, investments, checking and savings accounts, and much more. While both are distressing to a customer – the latter has incredibly damaging potential for the individual. The reality is that the information and data held by financial institutions on a single customer requires a greater responsibility for protection – which often slows or hinders the integration of cutting-edge technology.

So what can FSIs do to address the dynamic between the need for innovation and the need for information security?  The key is to balance three pillars around successfully deploying innovative ideas: cost, functionality and security.  The ideal scenario is to effectively manage all three pillars, but most companies can realistically only afford to adopt only two of the three.  With security being enforced by GLBA laws and ethical business practices, the tension lies between functionality and cost.

A half-baked or functionality-anemic solution could damage an institution’s brand or customer experience. With market share tough to come by and with ever-increasing acquisition costs for new customers, would a financial institution risk falling behind competitors by offering poor technical solutions to their customers? Cost will always be a factor in any of these initiatives, but will the added functionality realize a significant-enough return on an FSI’s investment?

So, now the ultimate question …

Will FSIs take the opportunity to innovate or will they get sidelined by extensive costs? Only time will tell, but being compared to the Amazons of the world is not making the decision any easier.

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