For at least the past decade, wealth management providers and financial institutions have worked toward building a more digitally literate finance sector.
Now, the world is moving forward again — to digital transformation 2.0.
Digital transformation 2.0 goes beyond basic transformative services, encompassing the idea of creating modern experiences for customers that are data-driven and technologically advanced. In the Wealth Management industry, some of the key trends to watch include the use of open finance, omnichannel, and blockchain technology.
In this article, we help to define what digital transformation 2.0 is and how it can impact wealth management. Plus, we will explore the three trends mentioned above in greater detail and cover several of the key benefits wealth management providers can gain from digital transformation 2.0.
What is Digital Transformation 2.0?
Digital transformation 2.0 (often abbreviated as DT 2.0 or DX 2.0) is the next phase of technological progress and evolution to hit businesses across all industries.
According to a 2022 report from the IDC (International Data Corporation), global spending on digital transformation will grow at a sustained pace of 16.6% annually from 2021 to 2025. As for the amount spent on DT, the total amount is expected to reach $1.8 trillion in 2022.
The IDC further states:
“ — the financial services sector will deliver the fastest DX spending growth over the 2021-2025 forecast period, with the securities and investment services, insurance, and banking industries all forecast to have five-year CAGRs of 19% or more.”
Like DT 1.0, this second phase of digital transformation is heavily focused on creating more digitally-based business platforms and enhancing digital experiences for clients. Unlike DT 1.0, however, DT 2.0 will see much greater emphasis placed on moving away from legacy technology and more widespread adoption of open finance business models.
What Does DT 2.0 Look Like for Wealth Management?
For the wealth management industry specifically, DT 2.0 stands to make sweeping changes to the traditional ways of doing business.
In April 2022, Research and Markets published its Wealth Management Global Market Report 2022. This report estimates that the wealth management market will grow from its value of $475.8 billion in 2020 to roughly $730.7 billion by 2025 at a rate of 9.0% annually.
With this influx of business to the wealth management industry, providers need the support of DT 2.0 now more than ever.
Here are three of the top trends making waves in wealth management to watch in 2022 and beyond:
Open Finance: Wealth management clients are increasingly expectant of services powered by open finance. Open finance takes the foundation that open banking laid in DT 1.0 and expands it to improve the accessibility, data sharing, and security of financial services beyond traditional banking services.
Omnichannel: Going hand-in-hand with open finance is an omnichannel experience that focuses on offering more engaging and effective touchpoints for clients across all communication channels. Clients no longer only want the ability to access their accounts from anywhere at any time — they also want their preferred channels to offer them the freedom to manage their accounts and access to a wider variety of wealth management services.
Blockchain: Although a lack of regulation is still inhibiting the widespread adoption of blockchain technology, there is no denying the disruption it has caused in the financial industry. DT 2.0 will take a closer look at blockchain technology and how it can be applied to wealth management, particularly in the way of enabling better digital ownership of assets and shifting toward a more decentralized asset management and trading system.
Benefits of DT 2.0 for Wealth Management Providers
While there are undoubtedly many benefits that can result from DT 2.0, three of the most important ones for wealth management providers include:
Greatly Enhanced Client Experiences: In the early days of DT 1.0, wealth management clients and providers alike were slow to accept new technologies, such as digital cloud-based platforms. Now, evolving client expectations are one of the main forces driving DT 2.0. By embracing DT 2.0, wealth management can provide clients with the top-notch digital services they expect with enhanced efficiency and confidence.
Improved Financial Accessibility: With the powers of technology like open finance and an omnichannel approach, wealth management providers can vastly improve the accessibility of their services. While wealth management once had an air of exclusivity to it, nowadays, more and more financial consumers are taking charge of their own wealth and looking for solutions that enable them to use their preferred channels.
Accelerated Digital Development: DT 1.0 focused heavily on utilizing AI and machine learning to create a more reliable digital infrastructure and connected financial industry. Using this as a stepping stone, DT 2.0 will take digital development involving these technologies even further, with the goal of moving away entirely from legacy technology and toward a fully-digital, flexible infrastructure.
If you thought that digital transformation was here to stay, then you thought right.
While there have been many naysayers when it comes to the adoption of new technologies in the finance sector — and, more specifically, the wealth management industry — the impact of DT 1.0 is undeniable.
To remain competitive in the coming years, wealth management providers must embrace DT 2.0 with open arms and open minds. From enabling open finance and omnichannel touchpoints to exploring the possibilities of blockchain-based wealth management, DT 2.0 has many advantages to offer.
New to our digital transformation implementation services is Robotic Process Automation (RPA) as more and more businesses are turning to RPA to transform their operations.