The financial services industry has seen drastic technology-led changes over the past few years. Many executives look to their IT departments to improve efficiency and facilitate game-changing innovation while lowering costs and supporting legacy systems. Meanwhile, FinTech start-ups are encroaching upon established markets, leading with customer-friendly solutions. They are developed from the ground up and unencumbered by legacy systems.
Customers have had their expectations set by other industries. They are now demanding better services, seamless experiences regardless of channel, and more value for their money. Regulators demand more from the industry and have started to adopt new technologies that revolutionise their ability to collect and analyse information.
FinTech will drive the new business model
FinTech disruptors have been finding a way into the market. They are extremely fast-moving companies. Often start-ups focus on a particular innovative technology or process in everything from mobile payments to insurance. Also, they have been attacking some of the most profitable elements of the financial services value chain. This leads to damage to the incumbents who have historically subsidised essential but less profitable service offerings. According to the survey, a quarter of the old business, or more, could be at risk of being lost to standalone FinTech companies within five years.
Despite regulation and other potential barriers to entry. There is a tremendous demand for FinTech-related services in areas like consumer banking and wealth management. Hence it opens up new opportunities for both incumbents and disruptors. For example, consider the rise of ‘robo-investing platforms’ offered by online-only and traditional wealth management companies. New players are using the online-only model to reach millennials and increasingly other segments too. Meanwhile, traditional players are employing this approach to reduce their operational costs significantly.
Blockchain will shake things up
Blockchain is defined as a decentralised ledger, or list, of all transactions across a peer-to-peer network. Blockchain systems could be far cheaper than existing platforms because they remove an entire layer of overhead dedicated to confirming authenticity. In a distributed ledger system, confirmation is effectively performed by everyone on the network. This is called the ‘consensus’ process, which reduces the need for existing intermediaries.
Using this technology, participants can transfer value across the Internet without the need for a central third party. So several industry groups have come together to commercialise technology and apply it to real financial services scenarios. Therefore funding and innovation to continue as blockchain and FinTech move from a largely retail focus to include more institutional uses. While many of these companies may not survive the next three to five years.
Digital becomes mainstream
Two decades ago, many large financial institutions built ‘e-business’ units to ride a wave of e-commerce interest. Eventually, the initial ‘e’ went away, and this became the new normal. Internet development and large technology investments drove unprecedented advances in efficiency.
Today’s digital wave has the same markers like separate teams, budgets and resources to advance a digital agenda. This agenda extends from customer experience and operational efficiency to big data and analytics. In financial services, this approach applies to payments, retail banking, insurance and wealth management, and migrating toward institutional areas such as capital markets and commercial banking.
The era of mass customisation
As customers become more connected through social media. They are becoming more demanding and less loyal. Easier comparison and faster switching mean that relationships can be brief and largely transactional. The one-click transfer moves all funds, direct debit instructions and other services to the new provider with minimal effort on behalf of the customer. Recent research has found that one-third of millennials in the United States are open to switching banks in the coming days. Similarly, some people believe they will not even need a bank in the future.
Consumers now compare financial institutions to digital leaders across all industries and their industry peers, falling short. Customers have experienced first-hand that digital commerce delivers speed and personalisation. Therefore it shapes their expectation of financial services. Instead of a mortgage, insurance policy, or investment plan that broadly meets their needs, buyers want customised, adaptive solutions that evolve and deliver specified outcomes. Now, technology is opening it up to affluent mass consumers and beyond.
Looking backwards, looking forward
Financial institutions generally do not have the internal knowledge and expertise to implement a ‘what do our customers want?’ approach. . Unfortunately, IT executives or non-IT staff members and even technical personnel do not have the skills to build and operate a compelling digital channel offering. Financial institutions are now starting to realise they will need talent with very different skills to upgrade themselves.
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