Addressing the Challenges of the BFSI Industry in 2024

Banking and financial services are inevitable for the day-to-day lives of individuals and various affairs of businesses across industries. They’re the backbone that supports a country’s economy by facilitating the financial inclusion of individuals and strengthening financial resources to business communities. The functioning of global trade and investment is impossible without the infrastructure and support of the banking, financial services, and insurance (BFSI) industry. 

The BFSI sector has evolved significantly over the years due to the changing landscape of the global economy, technology & innovation, and customer experience. One key aspect of the industry is the rapid expansion of digital banking platforms and financial services, leading to a major transformation in traditional banking systems and financial activities. As per the Statista estimation, the net interest income in the global banking market is likely to reach USD 10.3 trillion by the end of 2024. China is the leading country generating nearly half of the global net interest income.

Yet, the BFSI industry faces various challenges that require different approaches to address the challenges. In the blog, we’ve highlighted major challenges associated with the BFSI industry. Also, we’ve suggested a few solutions that can effectively address some key challenges. Now, let’s explore key trends and new developments related to the current banking and financial services landscape to provide brief ideas about the global BFSI market.

BFSI Industry Trends and New Developments

Banks and finance companies are the big consumers of new technologies. The wide integration of advanced technologies, such as Blockchain, Artificial Intelligence (AI), Machine Learning (ML), and the Internet of Things (IoT) pushes a major wave of digital transformation in the banking and financial service sector worldwide. Let’s explore major BFSI industry trends and new developments.

• Wide use of Banking as a Service (BaaS) by third-party companies to get access to banking services and facilities.
• Surge in the use of mobile-based fast payment systems and cloud platforms for banking and financial services.
• Rising collaborations of Unified Payments Interface (UPI) providers for cross-border transactions to simplify payment processes
• Growing adoption of Decentralized Finance (DeFi) in banking and financial systems to ensure automation and secure transactions
• Increasing popularity of emerging payment options such as cryptocurrencies and central bank digital currencies

The wide integration of new technologies and innovation in the BFSI sector induces various digital financial solutions, leading to more customer satisfaction and smooth business operations. Also, the rising collaborations of traditional banks with fintech companies lead to innovative financial solutions for individuals and businesses.

BFSI Industry Challenges in 2024

The BSFI industry faces several challenges in 2024. Banks and finance companies must address these challenges to ensure substantial business growth. Handling several BFSI industry challenges depends upon the new developments and effective tackling of the major challenges in the IT industry. Here are the detailed insights into some significant challenges:

Geopolitical Risks & Economic Uncertainty

Geopolitical tensions, market volatility, and trade conflicts cause high risks in global markets, leading to global economic instability. Ongoing regional wars and changing trade policies of big economies have a major impact on the normal functioning of various financial institutions. The rising market fluctuations and political tensions can affect investment portfolios, lending activities, and financial planning. 

Customer Satisfaction

Enhancing customer experience by providing personalized solutions and user-friendly digital services is a big concern for BFSI companies. Facilities like 24/7 support services and customer support services are the keys to providing real-time assistance to customers and businesses. This will help in customer satisfaction and retention.

Cybersecurity Issues and Financial Fraud

Banks and financial institutions are the major targets for cyber attacks, resulting in various cybersecurity issues. As financial functions and activities are increasingly digitalized, many customers are the victims of phishing schemes and financial frauds. Deploying sophisticated tools and advanced systems for fraud detection is a must for building robust cybersecurity measures.

Strict Regulatory Compliance

BFSI businesses operate under the strict surveillance of government bodies and mostly face challenges in navigation regulatory compliance. The companies must adhere to the stringent regulations for data privacy of customers and industry-specific laws like anti-money laundering practices. Handling cross-border compliance becomes a big headache for banks and financial institutions expanding services to different jurisdictions.

Skill Shortage and Retention Issues

With the rising competition from fintech startups and tech firms, BFSI companies often need help finding and attracting top talent. Skill shortage and retention of top talent pose a major challenge for banks and financial institutions. There are mismatches in the demand and supply of talent in fields, such as cybersecurity, data science, and cloud computing, especially in the West.

Cost Management

Reducing operational costs by maintaining product or service quality is a key challenge for banks and financial institutions. Technology investment, digital transformation, and training staff are costly affairs that demand substantial financial planning and strategies. Minimizing costs while maintaining streamlined services and operations is critical for maximizing the bottom line of BFSI businesses.

Remote Setting: A Key Solution to BFSI Industry Challenges

Many challenges related to the BFSI functions can be efficiently addressed using a remote workforce. According to a report by McKinsey & Company, the finance and insurance sector has the highest potential for remote work. In the US, 76-86% of the activities related to the banking and finance sector are done remotely without losing productivity. Some key business functionalities of the BFSI sector that are often getting done remotely are as follows: 

• Accounting and finance management
• Customer services
• Loan processing
• Investment and risk management
• Market research and analysis
• Marketing and sales
• Data management and security
• Financial planning and advisory services
• Compliance and regulatory reporting
• Cyber security and risk monitoring

Over the years, many BFSI businesses have taken advantage of getting their work done remotely outside their home countries. The rising popularity of offshore remote work among banks and financial institutions is mainly due to cost efficiency and abundant expert availability. Exploring remote work opportunities in different countries serves two key purposes. 

• Accessing Talent Locally Unavailable: When expanding remote teams in another country, there are more chances for finding talent who aren’t locally available. BFSI companies can take advantage of hiring the best talent from different countries who can rightly fit the skill requirements. This way, you can address the issues of skill shortage.  

• Reducing Cost: Hiring talent in a country with low labor and living costs can reduce the overall cost of your operations. Also, you can effectively address the problems related to cost management. For instance, the hiring cost of an account manager in India is 2-3 times less than that of the US.  

• Customer Care Services: One of the most important practices to increase customer experience and satisfaction is to provide 24/7 customer service. Besides operational cost benefits, building a care service center in another country can also support multilingual customers and services in different time zones.

EOR Solutions and Advantages of Building Remote Teams Using EOR Services

Offshore remote working for BFSI functions can be done through several routes. BFSI outsourcing, hiring contractors, or employer of record (EOR) are the most popular ways to handle your business functions remotely. The EOR service stands out among business models as it’s the most economical way to get work done remotely. Also, with EORs, you won’t face those challenges associated with outsourcing and hiring independent contractors. For instance, hiring contractors have compliance risks and high attrition problems. Similarly, BFSI outsourcing can be risky for

intellectual property issues and lack of control over the employees handling your tasks.  Although EOR services are useful for BFSI companies irrespective of the size, the services are mostly appropriate for small & medium enterprises (SMEs) in the banking and financial services sector. Cost efficiency is the key factor that drives SMEs using the services. Also, BFSI companies often use EOR services for IT-related business functions, such as software development. Let’s explore how EOR services help address major BFSI industry challenges and the advantages of building remote teams through EORs.

EOR Solutions for BFSI Industry Challenges

Using EOR service support, you can effectively handle several challenges associated with the BFSI industry. Here are the insights into how EORs offer solutions to the industry challenges.

• Compliance Assurance: When expanding a team in a foreign jurisdiction, you don’t need to worry about legal responsibilities and regulatory compliance. An EOR is the local guardian of your employees, solely handling the legal matters and employment laws on your behalf. EORs ensure that team expansion and operations comply with the target country’s existing laws and regulations. 

• Talent acquisition: EORs provide recruitment services for BFSI companies to find the right talent in the target country. Your EOR partner will scout for the right candidates as per your requirements. They’ll conduct screening, interviewing, and shortlisting candidates for you. Hence, you can solve skill shortage problems in your company.

• Cost Efficiency: You can efficiently address the problems related to budget constraints and cost management. It’s because the cost of keeping your employees under the EOR paychecks is almost 2.5 times less than outsourcing. Also, in the EOR model, you don’t need to invest the upfront capital required in subsidiary incorporation.

• Minimal Risk During Uncertain Geopolitical Times: Expanding a team through EOR services minimizes risks during uncertain geopolitical situations. With EORs, you can easily enter a foreign market with minimal capital investment and exit the market if the geopolitical situation deteriorates. 

Advantages of EOR services for BFSI Companies

In addition to the above solutions, EOR services offer two more advantages for BFSI businesses—human resource (HR) services and payroll execution. 

• HR functions: EORs provide a streamlined process of handling the HR functions of your international employees. They handle all your administrative responsibilities for your employees including recruitment, employee benefits, onboarding, and offboarding. While your EOR partner takes care of the HR functions of your employees, you can focus on your core business goals, such as productivity and profitability. 

• Payroll execution & tax withholding: EORs provide payroll and tax processing services for BFSI businesses. Besides handling administrative responsibilities, your EOR partner ensures that your employees get their monthly salary on time, pay taxes, and file tax benefits as per the existing regulatory compliance of the target market. Also, EOR services make cross-border payment easy for you.    

Conclusion

The BFSI industry has constantly evolved to meet the changing landscape of the global economy and consumer preferences. Also, the BFSI sector is no exception to the increasing adoption of advanced technologies to strengthen its digital financial services.

Yet, BFSI companies have to deal with several challenges, such as skill shortage, compliance regulations, cost management, enhancing customer experience, and more. As solutions to these challenges, banks and financial institutions can build remote teams in different countries to get advantages, like finding the best talent, cost-saving operations, compliance assurance, etc. 

Despite several challenges and global economic challenges, the BFSI sector remains resilient and adaptable to new challenges and disruptive technological advancements through innovations to meet the evolving needs of individuals and businesses.