Future Financial Firms

Interesting article (noted in Specialty Insurance Blog) about financial firms of the future. It says such firms must focus on core competencies and be flexible about new developments while being driven by customer relations. It emphasises technology to help with this:

New technology continues to deliver more capability at lower cost. Improvements in compression technology, the spread of consumer broadband and the impending shift to Internet Protocol (IP) communications networks will give the financial services industry the infrastructure it needs to deliver on the promise of e-finance. Institutions that do not offer an efficient multi-channel distribution strategy will not be competitive. In an environment of decreasing customer loyalty and increasing customer sophistication, technology is both problem and solution. Electronic distribution will continue to enable easier price comparisons and changes of financial provider. But technologies for enhancing CRM and improving customer experience will assume much greater importance as financial services firms seek to build new customer relationships in fast-changing mass-market segments such as pension products.

Risk management has implications for technology strategy, too. The use of predictive models will continue to expand fast throughout the financial services industry over the coming years, from refining insurers’ estimates of losses, to reducing card issuers’ acceptance of risky customers and honing the trading strategies of investment banks and hedge funds.

The industry response: Upgrading technology to track risk exposure accurately and swiftly across the whole firm will be crucial. Allocating capital to maximise returns relative to risks, real-time knowledge of the firm’s total risk exposure, and an effective, transparent dialogue with regulators, rating agencies and the capital markets will represent the minimum standards for the well-governed financial services firm.

Financial services firms of the future will be characterised by a pervasive customer-centric culture by Marie O’Connor, Finance-magazine.com, 2 February 2006.

Hm, firms that heavily dependent on the Internet will need to be concerned about the risks of Internet security and performance.

The article mentions security expilcitly:

Security will be a significant differentiator for financial institutions. The reputational and operational risks from breaches in security are growing, and franchises and brands can suffer immense damage from unauthorised release of data, or leaks from their own or an outsourced database.

What about security problems that involve customers not being able to access their information? Negligence about that sort of security can be a significant risk to a financial firm.