Stay Up To Date On Financial Industry News And Developments
by Arnab Dey Finance 09 February 2023
The financial industry has been going through a transitional phase as more and more financial institutions and banks are shifting from traditional to digital ways of doing business.
Financial services have heavily focused on the provision of more value to customers via mobile and invisible banking.
In addition to that, the BFSI sector (Banking, Financial Services, and Insurance) is continually focusing on process automation through cloud technologies. Despite this, digital data protection remains a massive challenge — and therefore, the trend to observe.
Are digitalization and customer data protection the only trends in the BFSI sector right now? Of course not — the M&A activity in the sector is booming, and the banking sector is finally partnering with fintech companies.
That said, below are the top four trends in the financial industry to look forward to:
- Digital data security
- Growing M&A activity
- The emergence of fintech companies
- More focus on digital transformation
1. Digital Data Security
The US banks had approximately 28000 scam cases in 2022, while 73% of insurance claims between 2013-2019 were due to data breaches. The BFSI sector has to engage on two fronts simultaneously — securing the customer access process and protecting their corporate data as well.
That is why financial services are moving to cloud technologies. For example, many financial institutions use online data rooms for internal and external data sharing. A virtual data room (VDR) is a cloud-based data management tool that financial businesses use to store, share, and distribute highly sensitive corporate information.
A secure VDR creates multiple digital security layers that protect information from hackers and internal users. Many data room software vendors provide 256-bit SSL data encryption (which is also used by military institutions and investment banks) for maximum data protection during data sharing. However, it is highly advised to compare the best data room services providers based on their security features to ensure maximum data protection.
Virtual data rooms are better than many digital data management tools based on their document protection features. For instance, the encryption feature encrypts files and the data inside them, while VDR administration can instantly remove any file from connected devices. Multi-factor authorization feature ensures only legitimate users can access the data room.
2. Growing M&A Activity
The financial industry in the United States saw remarkable growth in M&A activities in 2021. That said, the total deal value amounted to $284 billion, which is 38% more than that of 2020. In addition to that, 691 deals worth $195 billion were still pending at the year’s end.
Although the projections for 2023 are not as good as 2021, financial services will still afford dealmakers enough opportunities to achieve their strategic goals.
The introduction of technology in mergers and acquisitions has made the process safer and faster. Investors and private equities are keener on cross-border transactions as the process can be completed through digital routes. That is why online data rooms are a top deal management tool for deal makers.
Virtual data rooms provide dealmakers a central digital point where they can bring concerned parties and carry out the transactions smoothly.
Here is how data room software has revolutionized M&A transactions:
- Sellers and buyers can share deal documents in a controlled environment.
- All parties can communicate within the data room using different online meeting tools. Virtual data rooms provide Q&A modules for instant Q&A sessions during the transactions.
- Sellers can ensure that their sensitive information is under complete control.
- Certified virtual data rooms solve the compliance issue for digital data management during transactions.
- Contracts or agreements can be signed within the data room, and post-merger/acquisition integration can be carried out through secure VDRs.
3. Emergence Of Fintech Companies
Now, this might sound interesting, but there are more and more partnerships between banks and fintech companies. The banking sector saw fintech companies as their competition in the beginning as fintech firms were filling the void created by the banks. In fact, the banking industry lost its credibility by a huge margin that even the well-known banks only got a 48% positivity rating.
However, things have changed significantly as fintech-bank partnerships are becoming a new norm. Fintech companies are providing administration, marketing, loan servicing, and other services which enable banks to offer tech-based products to their customers, ultimately reshaping the financial services landscape.
4. More Focus On Digital Transformation
The BFSI sector continues to witness a constant and aggressive focus on digital transformation. Financial businesses are openly embracing new and emerging digital products that help them improve speed-to-market and create operational efficiencies.
Moreover, the concept of self-service digital channels is increasing rapidly. Banks are reducing their expenses on physical branches and investing more in online or mobile banking. Similarly, banks and cloud services partnerships are also on the rise.
Summing It Up
Digitalization is the crux of the modern-day financial industry. Banks, insurance companies, and other financial service providers are investing heavily in cybersecurity and digital products, while M&A transactions are also a top trend in the BFSI industry. Using technology is a natural response to these trends, which explains why virtual data rooms in the BFSI industry are so popular.
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