By Craig Wellman, Director of Financial Services at Microsoft UK 

During the last two years, UK businesses have experienced digital transformation at an exceptional speed and scale. Change that might have taken many years, happened in just a few months.  Many digital transformation initiatives that were previously discretionary quickly become mandatory for the continuity of business.  Much like the wider economy, financial services organisations were no exception to this accelerated period of technology adoption, and due to the wide-scale implementation of hybrid working and the consequent business necessity, we’ve seen the rapid adoption of cloud services to enable greater agility, resilience and innovation.

In fact, the pace of transformation in the Financial Services Industry (FSI) has been exceptional, with, in some cases, digital being completely reimagined. Big banks pivoted more to being digital natives, insurers embraced automation and fund managers used data to boost their ESG and sustainability credentials – the rate of digital growth year on year has exceeded all expectations.

As the industry continues to navigate this period of uncertainty, a changing security and regulatory environment and increasing demand for digital-native customer experiences, FSI leaders cannot afford to take their foot off the pedal when it comes to innovation. They must now press forward with the next steps, using technology to help them harness the opportunities presented by the digital-first consumer, address their ESG goals and become resilient businesses in the face of increasingly sophisticated cyber threats. The winners in the industry over the next 5 years will be those that are able to retain the momentum of digital adoption and execute it in a way that increases rather than constrains organisational agility.

Harnessing tech to target the digital-first customer

Unsurprisingly, as new consumer technologies become available and trends become embedded as expectations, customers look to all aspects of their lives to offer a digital-first experience – from their healthcare to their banking. FSI organisations are chief among those who can harness the power of cloud, AI and data analytics to offer customers personalised and digital-first services, especially due to the richness of customer data they have access to, such as day-to-day spending habits and the effects of major life events. Doing so enhances the user experience, but it also aids competitiveness in an industry where digitally-native challengers have sought to disrupt the status quo of traditional financial services business models and new, higher standards have been set by consumer tech champions.

Following successive pandemic lockdowns where reliance on digital services boomed, customers now expect their experiences to feel personal, relevant and seamless. Making it easier to log on securely, using a single app with a personalised home screen is now the bare minimum users expect when it comes to their banking needs – and the organisations that get it right are likely to attract and retain loyal customers in their droves.

Boosting security and remaining compliant

As an industry with substantial regulation, and the competitive importance of a trusted reputation, ensuring an organisation’s compliance is imperative, especially as privacy laws evolve and financial regulations are adapted and strengthened against a backdrop of growing cyber criminality. Just like the sector’s digital transformations, cybercrime has evolved during the pandemic too, to the point where it is now comparable to the global drugs trade in profitability. With high levels of sophistication allowing attackers to evade detection and move money extremely quickly, FSIs must take steps to prepare their operations for the threat landscape and boost security using all the tools at their disposal, all whilst meeting their regulatory compliance requirements.

Due to their nature as high-value targets for cybercrime, FSIs must make it an organisational priority to increase their understanding and awareness of the various threats involved. Many are looking to the cloud to seek increased security capacity, and operational resilience, as well as cost optimisation, in addition to other technologies such as multi-factor authentication. Strong cyber security is enabled by all aspects of the operating model – from people, process and technology to data and governance. Boardrooms have learned that cyber security is fundamental to every aspect of their business operations over the last few years and ongoing education is critical to this.

This is especially necessary in light of the increased importance of third parties in the emerging digital ecosystem and platform-enabled financial services business models. This directly corresponds to an increase in the threat perimeter due to an increasingly extended enterprise – which offer more touchpoints for malicious action to take place.

As well as the flexibility and agility cloud can provide for FSIs, one of the biggest benefits is having access to threat intelligence and trend reports. Cloud service providers actively monitor a variety of threat actors globally and use that intelligence to inform their customers about the evolving tactics and techniques being employed.

Propelling ESG to the forefront

As many organisations seek to execute on their net zero policies, cloud technology can also support the sector to meet its environmental, social and governance (ESG) commitments. With awareness around sustainability continuing to grow, consumers are increasingly scrutinising the environmental and social actions of the brands they select, but despite pressure from customers, stakeholders and regulators, less than 45 per cent of City investors recognise ESG as a priority. Furthermore, Microsoft research found that only 16 per cent of FSIs are on track to reach net zero by 2050.

As allocators of capital, financial services companies – whether fintechs, banks, insurers, or investment managers – have a critical role in shaping a more sustainable, inclusive future. They are the gatekeepers between finance and the organisations successfully advancing on their ESG goals. There is a huge opportunity for FSIs to utilise data and technology to accelerate climate action and boost the business value that ESG can create.  Financial firms should grasp this opportunity to be leaders in this societal obligation to allocate capital to responsible businesses, and to enable the data and help set the standards that will provide transparency on carbon and other ESG ambitions across societal progress and good governance.

Cloud technologies can help them gather a clear picture on their efforts by capturing, recording and actioning internal and external data. By measuring variables such as direct and indirect carbon emissions, raw materials sourcing, waste management and workplace pay equity and diversity, businesses can confidently report on ESG progress and build trust with key stakeholders, employees and investors alike.

Shifting to become data-driven can also open organisations up to new opportunities by creating entirely new business models that drive revenue through digital-first services whilst decreasing CO2 emissions, ensuring security and setting up investment opportunities fit for the future.