Top 7 Digital Transformation Trends for the Finance Sector in 2024

The finance sector has always been slow to implement digital adoption. Banks and other financial institutions find it difficult to adopt cutting-edge technologies mainly because of excessive dependence on legacy systems, strict data privacy and security regulations, risk aversions, and organization silos. 67% of finance companies take 3 to 6 months to purchase new software and rely on reviews for decision-making.

Slowly but surely, financial institutions are starting to adopt digital transformation trends, resulting in streamlined operations and gaining a competitive advantage. Digital experience services help companies leverage advanced and emerging technologies that can completely transform company operations. 75 percent of finance companies will spend more on software in 2024 (prioritizing IT management and security) than they did in the previous year.

What are the technologies that companies will think about adopting in 2024? How can they implement digital transformation? What benefits can companies gain through technology adoption? This blog will shed light on the 7 hottest digital transformation trends for the financial sector in 2024. Keep reading to know more.

Table of Contents

1. Introduction
2. What is Digital Transformation?
3. Top 8 Digital Transformation Trends for the Financial Sector in 2024
4. Final Verdict

What is Digital Transformation?

Digital transformation ushers in massive change for a company using digital tools and technologies. These changes are different for each company. For example, some financial firms use robo-advisors to help customers make informed investment decisions. Powered by AI and ML, these robo-advisors also offer long-term services like portfolio management. The best thing about these robo-advisors is that they are cost-effective compared to traditional financial advisors.

In a nutshell, digital transformation is all about changing how your business works. This could involve internal processes, total operations revamp, or changing how you interact with and serve customers. Digital transformation is like the magic wand that gives your business the increased agility, scalability, and flexibility to sustain cutthroat competition. 

Do not be alarmed by the costs. Change your mindset and consider technologies an opportunity to elevate your game. Determine the right technologies for your business/sector, plan wisely, and invest in the right technologies and tools.

Top 7 Digital Transformation Trends for the Financial Sector in 2024

Below are the eight most crucial digital transformation trends for the financial sector 2024. These trends will play a vital role in transforming the financial sector in the future. No more talking. Let’s get started.
 

Rise of AI

Generative AI has made deep inroads into finance operations. 42% of global enterprise companies actively use AI. Furthermore, 83% of companies state that AI is a top priority in their business plans.

Besides streamlining workflows, it leverages analytical tools to obtain valuable insights and make accurate predictions to optimize operations. Let’s delve into the deep waters of AI and see what they can do for businesses.

• Automation and Data Analysis

AI models can analyze historical data, market trends, and customer behavior to create custom financial reports and forecasts. A company’s employees can focus on other productive tasks while AI handles repetitive tasks. Unlike humans, AI tools have fewer limitations. They can analyze vast amounts of data in seconds with razor-sharp accuracy. Companies can use these insights to improve financial forecasting, budgeting, and resource allocation.

• Cash Flow Predictions

Market conditions and financial fortunes may change in a blink of an eye. AI can analyze historical financial data and market trends to predict future cash flow. It identifies critical patterns that humans may miss. Accurate cash flow predictions help finance manage cash flow and take adequate measures to mitigate risks. Most importantly, AI-powered tools analyze transactions to identify suspicious patterns and anomalies and prevent fraud and other financial crimes.

• Scenario Planning

As stated above, AI can analyze vast volumes of data, market trends, and economic indicators to highlight potential risks. This available data can create and stimulate various scenarios that will provide companies with ammunition to handle market fluctuations, unforeseen events, and other threats.

Machine learning algorithms learn continuously from historical data and combine them with live data to make accurate predictions for multiple scenarios. It would take several years for humans to analyze enormous data sets, create thousands of scenarios, and predict the possible outcomes. Generative AI facilitates faster analysis and iteration. Lastly, AI can effectively perform stress tests on financial models, stimulate challenging market conditions, and determine the company’s ability to manage several risks.

 

Cloud Computing

Cloud is a powerful force spearheading digital transformation for diverse businesses. 90% of companies have adopted a multi-cloud infrastructure. 53% of IT decision-makers have admitted using multiple clouds to achieve their business objectives.

Below are ways in which the cloud fosters a 360-degree transformation for companies.

• Robust Data for Automation and Collaboration

Most companies have data scattered across multiple locations (systems, software, spreadsheets, and outdated systems), making it difficult for employees to access and utilize for decision-making. Cloud platforms provide a centralized location to store vital data and information. Everyone can access real-time data, regardless of device, whether on-site or remote teams, enabling informed decision-making.

Also, the cloud platforms provide shared workspaces and robust communication tools to facilitate seamless collaboration. Employees and departments can use these tools to share real-time information, make quick decisions, and complete projects while meeting deadlines.

• Enhanced Visibility and Financial Control

Financial data like expenses, profits, debts, and other information often lie scattered across the organization in spreadsheets, remote devices, and even physical records. These data silos prevent managers and department heads from acquiring a bird’s eye view of the operations. 

Cloud systems provide a centralized information repository for quick and easy access and facilitate seamless integration with other business metrics, such as sales, inventory, marketing, and customer data. This integration allows for effective decision-making and enhanced operational efficiency.

The best thing about cloud services is that they offer the much-needed flexibility and scalability for dynamic business operations. Its pay-as-you-go model allows businesses to scale up/down their IT infrastructure and resources needed to meet project requirements. In this way, companies don’t have to worry about making significant hardware and software investments (also eliminates the fear of costly investments becoming obsolete over time).

• Cloud and Embedded Finance

Embedded finance integrates financial services like mortgages, loans, investment banking, and personal asset management with non-financial platforms. For example, suppose a man playing an online game wants to unlock new features or stages by making payments. In that case, he does not need to switch to a different app or platform. He can use the in-app purchase feature within the game. 

Finance companies leverage cloud infrastructure and use the same principle to provide embedded lending, investment, insurance, banking, and other solutions. Cloud services' increased scalability and flexibility allow businesses to enhance customer engagement, streamline transactions, and unlock new revenue streams. In the future, we may see the penetration of embedded financial services into sectors like E-commerce and healthcare.
 

Blockchain and DeFi - A New Dawn in Financial Services

Blockchain technology and DeFi (decentralized finance) are quickly transforming the financial landscape. The points below will provide an overview about these powerful technologies.
 

• Blockchain Technology

Most of us know that blockchain technology is the foundation of cryptocurrency. The ledger records transactions, ensures their authenticity, and stores them across a labyrinth-like network of devices. Think of it as a massive book with thousands of pages where everyone can write. However, nobody can delete anything or manipulate the information. Thus, blockchain technology ensures security and transparency without needing a central authority to regulate transactions.

The enhanced security and traceability of blockchain technology do wonders for financial transactions. Financial assets, documents, and other records remain safe on the blockchain, eliminating the chances of manipulation or alteration. Since everyone can see the transactions on the blockchain, it improves accountability and reduces the chances of fraud.

Different members or nodes in a blockchain can conduct transactions like transferring stocks, bonds, and other assets while optimizing settlements and minimizing transaction costs. Most importantly, the system automatically executes transactions upon fulfilling certain conditions. This self-executing process eliminates the need for intermediaries to supervise the agreement’s proceedings.

• DeFi (Decentralized Finance)

As stated above, cryptocurrencies use blockchain technology to store transaction details. However, every cryptocurrency has separate blockchains, such as Dogecoin, Bitcoin, Litecoin, and many others. They are digital currencies facilitating transactions between two parties and storing and retaining their value over time.

On the other hand, DeFi focuses on creating a parallel system similar to banking, trading, and lending. They eliminate the need for intermediaries like banks and other financial institutions. Depending on adoption, market demand, and speculation, the value of cryptocurrencies can fluctuate. With DeFi, cryptocurrency holders can use their tokens to do the following:

• Lending money and earning interest
• Provide liquidity incentives
• Use tokens as a guarantee to borrow funds

In this way, DeFi platforms enable direct transactions between buyers and sellers, trade using multiple financial instruments, and capitalize on a comprehensive range of investment opportunities. The opportunities include yield farming, stalking, lending and borrowing, and decentralized exchanges. From a projected revenue of  USD 26,170.0m in 2024, the number is expected to grow 9.07% (CAGR 2024-2028) to reach US$37,040.0m by 2028.

With its increasing popularity and adoption, especially by insurance companies, DeFi will play a vital role in the finance sector in the future.

Open Banking

Most companies and individuals hold bank accounts. The banks allow them to obtain loans and credit cards and access other services like mobile banking, investment banking, wealth management, etc. Open banking is a concept where other third parties get customer consent and get access to their financial information through standardized APIs. This information sharing results in limitless benefits for customers and businesses.

The value of open banking transactions reached USD 57 billion dollars in 2023 and is expected to reach 580 billion by 2027.

 

Open Banking Advantages for Customers
The benefits of open banking for customers include the following:

1. Tailored Financial Services
   Unlike traditional banking, open banking does not require customers to be confined to their banks to access other financial products and services. Banks, investment companies, and wealth management firms can pitch their products, and customers can choose the most lucrative options.
2. More Efficient and Convenient
   Open banking allows customers to enjoy benefits like automated money management, quicker bill payments, faster loan processing, and smooth account switching.
3. Improved Financial Management
   FinTech companies, renowned for their agile and innovative offerings, constantly push the envelope in personal finance management. Customers can consolidate their financial information from various accounts, investments, and platforms, gaining a 360-degree view of their finances and opening up a world of possibilities.
   
   Specialized apps can track your investments, monthly spending, and portfolio-building efforts. Based on the insights, it will suggest areas of improvement, opportunities, and threats, if any.
4. Increased Control and Transparency
   Customers will have the final say in what information they want to share with third parties and for what duration. For example, suppose they discontinue their stock trading or mutual funds. In that case, they no longer have to share information with those parties. Thus, customers can enjoy peace of mind knowing that nobody can misuse their financial and other confidential information.

Open Banking Advantages for Businesses
The benefits of open banking for businesses include the following:

1. Greater Efficiency and Automation
   Open banking APIs allow businesses to streamline their accounting and compliance checks. Direct access to customer data enables them to automate repetitive tasks like data entry and verification to save time and boost productivity.
2. Enhanced Customer Experience
   Businesses will recommend the right products and services to customers based on their credit score, financial health, and other parameters. This personalized service will enhance customer experiences.
3. Unlocks New Revenue Streams
   Access to customer data allows companies to acquire a better understanding of their needs and design innovative products. Also, banks and other financial institutions can partner with other Fintech companies and use their combined expertise to deliver innovative offerings.
4. Reduces Risks of Frauds
   Real-time access to data enables businesses to conduct thorough background checks and assess customers' creditworthiness effectively. Companies can identify potential fraudulent activities by analyzing spending and repayment patterns promptly. This information helps them make informed decisions about serving specific customers.
5. Personalization and IoT
   Hyper-personalization is the new normal in many sectors, especially financial services. Customers are no longer satisfied with cookie-cutter solutions and products. In 2024, companies leverage valuable insights related to customer purchasing behavior and preferences plus IoT to stay ahead of the curve. 

The global enterprise IoT market has registered a 13.5% growth in the last decade. The global enterprise market is projected to touch USD 671.4 billion in 2024 and USD 1,819.2 billion by 2032.

How does IoT help businesses achieve their personalization objectives? Let’s find out.

Decoding Customer Behavior

Every individual’s financial situation and requirements are different. Banks and financial institutions gather valuable information related to customer spending, investment decisions, long-term objectives along with market trends. This detailed analysis of such data not only reveals individual needs and preferences but also provides actionable insights for companies.

Companies can use this polished data to perform the following tasks:
 

1. Develop Tailored Products and Services
   IoT has made deep inroads into our everyday lives. A smart home can make our lives comfortable but also help us save thousands of dollars. Think beyond energy savings. Connecting the home’s smart security system with the insurance plan can help you qualify for lower premiums based on the secure setup to prevent thefts and accidents.
2. Targeted Marketing
   No individual wants spammy ads. Viewing mortgage ads does not provide value to homeowners, and a blue-collar worker would be least interested in education loans. IoT-powered insights can help companies run targeted marketing campaigns and show suitable ads to customers, resulting in higher engagement and conversions.
3. Proactive Customer Services
   Other practical applications of IoT for finance include the following:

• Telematic devices are installed in cars to track driving habits and offer custom insurance plans.
• Integrating biometric authentication and fingerprint scanners with bank accounts provides an extra layer of protection, significantly reducing the risk of fraud.
• Leverage data from wearable devices to enable contactless payments and optimize energy consumption (connecting data with customer’s financial accounts).

Data Security

Finance companies deal with vast amounts of sensitive data, including customer bank details, account histories, login credentials, social security numbers, financial statements, credit history, and more. Cybercriminals and online hackers are always prowling around to find security loopholes and steal such information for their vested interests. 93% of companies reported identity-related breaches in 2023.

Here, we present a comprehensive list of security threats that finance companies face, along with robust strategies that have proven effective in combating them.

• Security Threats and Challenges
   
• Cybercriminals use multiple methods to breach security and steal data. These methods include phishing, sending malware, SQL injection, brute force, zero-day attacks, and more.
• Excessive dependence on third-party tools and software by finance companies makes systems vulnerable to attacks (in case of security breaches at the vendor’s end).
• Persisting with legacy systems that lack the necessary security features and updates.
• Employees working from home are more susceptible to phishing and other online attacks.
• Financial institutions may often share data with credit card companies, customer support platforms, payment processors, and others, compromising security and increasing the chances of breaches.

• Potential Solutions

Ensuring 100% prevention against online attacks is impossible. However, financial institutions must have robust detection and response mechanisms to ensure effective damage control. These measures include the following:

• Security Monitoring Tools
• Incident Response Planning
• Employee Training

• Implementing the zero-trust security strategy can significantly enhance data protection. Its core principles, including 'never trust and always verify ', 'least privilege ', and 'micro-segmentation ', ensure solid authentication and authorization measures for user data access.
• Data encryption conceals data by displaying it in a strange format. Only authorized users can view the data in its original form.
• We are conducting detailed training sessions for employees to familiarize them with best cybersecurity practices, identify online attacks, and minimize damage.
• Ensuring proper compliance with data privacy and cybersecurity regulations to protect sensitive data and prevent financial/reputation losses.

BaaS (Bank-as-a-Service)

Bank-as-a-Service holds immense potential to transform the financial services landscape. It's a perfect symbiosis where financial institutions and non-financial businesses support each other to benefit each other. Non-financial businesses often possess greater agility and flexibility than financial businesses. Using an example, let us understand the collaboration between a non-financial and financial business.

For example, ABC Inc. launches a new fuel-efficient, solar-powered car with advanced features. Millions of customers are dying to purchase the new vehicle. However, ABC Inc. lacks a reliable financial infrastructure to enable smooth purchases. In such a scenario, MKL Bank steps in and offers integration with their BaaS platform.

With the BaaS integration, customers were empowered with a range of convenient purchase options, including gift cards, credit cards, and even EMI/loans at the time of checkout. Powered by the Baas platform, MKL Bank efficiently handled the complexities of loan approvals, processing, and managing EMI payments, enhancing the overall customer experience.

Benefits of BaaS for All For Non-Financial Companies The benefits of BaaS for businesses include the following.

• Faster Product Launches
• Reduced Costs
• Greater Innovation
• Improved Scalability
• Enhanced Security

For Fintech Companies The benefits of BaaS for Fintech businesses include the following.

• Zero regulatory challenges. There is no need to invest in compliance infrastructure and business licenses.
• Develop innovative financial solutions to improve customer experience.
• Expand customer base and target new segments.
• Obtain valuable customer insights to create customized offerings.

For Banks The benefits of BaaS for banks include the following.

• Generate new revenue streams.
• Boost customer engagement through innovative products and services.
• Streamlined operations and greater efficiency.

The BaaS market is expected to grow at 19.5%,with a CAGR of $1486.18 billion by 2028. Banks and financial institutions can capitalize on the API-driven ecosystem to expand their reach and enter new markets. On the other hand, non-financial businesses don’t have to deal with regulatory and licensing issues.

Most importantly, the BaaS trend allows customizing financial products and services to suit bespoke customer needs.
 

Final Verdict

Some of the trends mentioned above are still in the nascent stages, and companies may have yet to embrace them. However, there is no denying that digital transformation is inevitable for businesses. Cloud services, generative AI, hyper-personalization, and cybersecurity will be the most prominent technologies for financial companies in the future.

However, not all finance companies may have the knowledge and technical expertise to embrace these technologies to kick-start their digital transformation. Hence, it makes sense for them to hire a professional company or IT consulting firm to provide top-notch digital experience services. The idea is to identify the right technologies for your company, develop a foolproof implementation plan, and implement it systematically.

It's the survival of the fittest. Companies that don't adopt these trends and cutting-edge technologies will be at a disadvantage and struggle to compete with the big players. Tridhya Tech, a reputed company with vast experience in various technologies, is here to guide you. Are you looking for a trustworthy and accomplished partner to embark on your digital transformation project?

Look no further, Tridhya Tech is at your service.