Every sector is undergoing a digital transformation. Some, such as financial services have been slower to adapt, but consumer demand is motivating banks and other providers to change, or risk losing market share.
Innovation across the financial sector is sporadic, with established banks and companies struggling to innovate internally, whereas challengers are finding regulatory hurdles the biggest obstacles to growth.
Consumer banking and payment transfers are on the front lines of innovative solutions from financial tech (FinTech) startups. In time, Deloitte and PwC expect insurance will encounter the most transformative disruption, but that day has not yet arrived.
PwC anticipates that 28% of banking and payments businesses will be at risk from FinTech disruption by 2020, with a further 20% of insurance and asset management firms at risk in a few years. Most FinTech companies and challenger banks are aiming to reduce costs, whilst radically improving the customer experience. Or at least, that is the hope.
According to extensive research, there are several ways technology is reshaping the financial services sector. We explore a few of these key changes in this article.
#1: Cashless & Integrated: New Payment Solutions
Payments are changing. Blockchain technology is being explored as a next generation solution for banks, with a radical streamlining of the “the transfer of value”, according to a Deloitte report for the World Economic Forum.
New ways of moving and storing money are being built on existing systems, in response to consumers desire to move away from cash as a payment method. In time, this could lead to a deeper understanding of consumer behaviour - for banks and other firms - resulting in the opportunity to create new products and services.
#2: New Ways to Manage Risk in Insurance
We don’t need to wait for new technology to emerge that will disrupt the insurance industry. It already exists. Smartphones, wearable tech, the Internet of Things (IoT), social networks and sharing economy platforms already exist.
Investors and entrepreneurs are already investigating how to apply some of this innovation to the insurance industry. Deloitte expects that the “Ubiquity of connected devices will enable insurers to highly personalise insurance and proactively manage clients’ risks.”
Actuarial work will shift, from assessing probabilities to crunching big data and supporting AI system calculations. Proactive management of risk means that health and lifestyle choices could directly influence premium payments, potentially on a monthly basis, thereby radically altering the insurance industry.
#3: New Lending and Savings Platforms
Interest rates remain low. Once again, borrowing is cheap. Banks have a larger appetite for risk, but since the recession, a number of alternative lending platforms have emerged, and they aren't going away. Not only does this give consumers and businesses more choice, but this means banks need to start adapting to a wider range of credit source information. It is harder to evaluate someone’s creditworthiness if they have borrowed money from alternative sources, such as Peer-to-Peer (P2P) platforms.
Partnerships with these platforms, mergers or enhanced secure data sharing could take this evolution one step further, making these platforms channels for traditional banking products, or transforming the products to suit the new platforms. In this area of financial services, change is already well underway.
#4: A Droid Army of Investment Advisors?
Robb-advisors and machine learning algorithms are already making investment decisions.
Traditional, Human advisors are being forced to adapt. Even the best fund managers can’t evaluate as many investment options, or trade as quickly, or analyse data as fast as an algorithm. It simply isn’t possible. This is creating margin pressure, whilst also opening up investments to a much wider customer-base.
In this evolving landscape, mid-sized firms face the greatest pressure. New technology is levelling the playing field. As Deloitte notes: “Organisational agility will become critical to sustaining competitiveness as high-value capabilities are continued to be commoditised.” Providing personal, high-quality service will be essential for some firms to survive.
Technology is already playing a huge role in the changes the financial sector is going through. From the demise of branch networks - thanks to consumers going digital - to the race to zero in international transfers. Consumers have never had so much choice. For financial services to thrive in this brave new era, they need to take a proactive approach to innovation, either through collaboration, investments and adopting lean, consumer-focused methodologies in their research teams.
Find out how UKN Group are helping financial services firms adopt digital transformation by contact me directly. Call +44 (0)0845 643 6060 or email Mark.Watson@ukngroup.com