Digital Transformation of Financial Services Sector
Technological Innovations in the Financial Services and Accounting Sector
Considering the financial sector and the technological innovations changing the nature and processes in the industry it can be said that it is not only a change but ‘disruption’ that resulted in some significant innovations in communication, service delivery, and processes performed in the industry. There was computerization of financial services since long, but a more radical transformation of the industry remained delayed due to benefits of traditional financial services providers (Rieker, 2018). Such advantages includes the developed trust between customers and service providers, barriers from regulations affecting the entry to banking and insurance sectors and supervisory approaches resulting in a biased environment towards internalizing of the value chains.
However, the recent financial crisis in 2008 resulted in a loss of trust in financial institutions and the regulatory response to such crisis (Pwc, 2018). These situations resulted in increasing the cost of compliance and increased the requirement of capital making it complex for banks to lend. Such scenarios created an opportunity for less regulatory; technology enabled financial institutions and banks to thrive as they were in a position to offer cheaper services in an efficient manner as compared to big institutions burdened with legacy of infrastructure and regulation (Pwc, 2018).
Reasons of introducing technological innovation
Here, the digital transformation proved to be the key to efficient services and the route to rebuilding of trust with the customers. This was the basic need that gave rise of increase in digital transformation and technological innovations in the field of financial and accounting industry (Dapp, 2014). Here, it is also to be noted that a simultaneous digital transformation of other industries helped in making tech-based financial solutions more trusting and comfortable for the customers (Rieker, 2018). It resulted in increasing the demand for immediate and customised solutions from the financial services sector while making it more convenient to deal in shares, transfer money, borrow money, financial planning, investing and all these at a much lower cost for the customers as well as for the service providers.
Therefore, it is clear that in the financial services and accounting industry there is a structural changes happening in parallel to the competitive changes in the industry (Dapp, 2014). In relation to this particular industry, there lies a complex relationship between the technological and competitive changes because of the multi-sided platforms of financial services where it is essential to focus on elements of network economies, subsidies and cross-price and quantity relationships (Joyce, 2018).
Motives and Employment affects of the digital transformation of Financial Sector
The motive behind digital transformation of financial services sector lies in the growing need of better and transparent communication and interaction with the customers. The financial services sectors are seriously affected by the advent of Internet and digitization of the working and private lives of people in the era of globalization. This makes it necessary to offer financial services in a more flexible manner focusing on varied relationship with people catering to their diverse identities in the online and offline worlds. Such a change is responsible to influence the value creation in a continuous manner through experimental forms of participation and collaborating (Joyce, 2018). Therefore, digital transformation of financial sector was done to ensure moving ahead in collaboration with the changing social and economic lies and the way modes and routes of communications have changed and the way people have learned to handle their personal data in future (Joyce, 2018).
The technological innovation have made it possible for the financial institutions to reduce cost of operations through leveraging technology for reinventing the business models of these institutions (Rifkin, 2014). The role of new advanced technologies is evident in their focus on strengthening customer engagement through innovation, and customised products and services. The technology in the form of block chain help in lowering down the real-time cost involved in transactions. Further, technology like machine learning results in automation of manual processes thereby reducing the cost in the form of reduction in chances of fraud, wrong calculations, reduced need of manual labour, saves time spent on manual processes and provides benefits of customer segmentation management (Joyce, 2018).
Also, the cost is reduced by streamlining of processes and end-to-end integration thereby improving the customer experience and ensures better engagement with them (Dapp, 2014).
These technological innovations are sometimes criticised for their impact on employment as automation sometimes calls for layoffs and staff reductions. There are several financial and banking institutions where the need of manual labour is reduced leading to reduction in employment opportunities at several levels. However, it should not always be viewed as a bringing a reduction in employment opportunities for the workforce in this particular sector (Petersen and Rajan, 20012). The innovation in the form of technology, digitization, use of Software have allowed staff to get free of regular tasks and concentrate on more complex yet value-adding activities. Here, humans and digital labour can work together in a flexible manner to produce effective results ensuring efficient services and customer products to target customers of the sector. There is a change in demand for the type of skill and more people are required to work in the analysis departments, data scientists and those looking for innovative products and services to improve the value-addition for the customers (Rifkin, 2014).
Digital transformation of financial sector is a part of wider social and economic trend
The changes or impact brought by the digital structural changes are macroeconomic in scale and therefore part of a wider social and economic trend. This is so as we can clearly see the influence of digitalization of personal freedom of information, offering more and better economic opportunities, making accessibility to different sources of education easy and driving technology and regulation of the Internet in a positive manner (Petersen and Rajan, 2012). The penetration of the Internet is experienced in every area and field making it necessary for the financial and accounting services sector to expand its horizons and move ahead with this changing economic trend of data-driven technologies (Dapp, 2014).
Impact of digital transformation of financial sector on society
The changing nature of financial services and accountancy sector is bringing some significant changes outside the industry too. Considering the role of Internet in the society, people are more interested in using online and mobile platforms to make financial transactions (Marr and Frazer, 2017). The role of manual accountancy is also reduced with the growing demand of automated software to meet the needs of small, medium and large business enterprises (Chua, 2013). There is a change in society where people are more comfortable in dealing with various financial transactions, selling, buying, transfer of money, lending and borrowing money etc. through online channels rather than contacting their financial institutions or bank for every small need and transaction.
Future changes expected in the Industry
There are some of the big innovations expected in near future within the financial services and accounting sector. These innovations will be seen in the form of huge amount of information processing and several new delivery channels focused on implementation of big data in the industry. The future developments of changes can move towards a comprehensive digitization strategy for the financial services sector where between compatibility, interoperability and synchronization of processes will be made possible in an efficient manner (Marr and Frazer, 2017). There will me more synergies coming up in the form of efficient and productivity benefits while keeping the cost of operations at bay.
Impact of innovation in the form of digital transformation on professional practice
The digital transformation bringing in innovations in the form of cloud computing, big data and mobile services, cyber security, digital service delivery, new payment systems and many more has transformed the professional duties and responsibilities of accountants. They are now expected to adopt every form of new technology and work in a manner where they develop sharp analytical and problem-solving skills to provide a financial insights required to guide customers, clients and the concerned financial institution also. The focus of accountants is required to be shifted only from the internal company matters to the end users also and bring some significant improvements in their communication and interaction patterns (Arseneault, 2018). The changing working patterns have resulted in better opportunities for accountants to automate and de-skills time-consuming and repetitive tasks and adopt working styles that are more flexible holding higher value work. This will help them to consolidate their role as advisers on finance and business that is necessary to sustain and move in a collaborative manner with the businesses they work.
It is recommended that professionals in the financial services and accountancy sector become more proactive to make better strategic decisions with the aim of achieving a competitive edge at the workplace. They should focus on exploring the implications of a more engaged and connected businesses, advisers, regulators and customers to share data in an automatic manner. Instead of limiting their work to calculations and analysis of financial data, accountants should improve their abilities to provide a financial insight to business leaders and guide them towards better and efficient decisions.