The fact that the financial services industry finds itself at a crossroads is reflected in the theme of this year’s Sibos event in London – thriving in a hyper-connected world. As the organisers explain, the event is focusing on “the challenges, and opportunities that mass digitisation and data-driven relationships present” for financial institutions.
It’s a timely conversation to be having. New technology is having a huge impact on business models, processes and customer services across the financial sector, but adapting to this shifting landscape is a huge challenge.
Our own research findings show that new digital technologies, increased competition, and evolving customer expectations are driving 61% of financial services and insurance companies (FS&Is) to shift away from traditional, vertically-integrated business models of offering customers only their own products.
This is not insignificant. Most FS&Is cannot simply rip and replace their legacy technology infrastructures – and yet the competitive landscape is shifting rapidly. The question is, what strategies do FS&Is need to put in place to ensure they are not left behind in the digitisation race?
The threat landscape
Many FS&Is may have thought the digital tide would leave their businesses untouched – indeed our research from 2016 suggested that many leaders in the industry did not see digitisation as a key threat. Now that picture has shifted almost 360 degrees.
53% of the FS&I leaders we surveyed this year agreed that they need to better leverage new technologies, such as artificial intelligence, blockchain and the IoT, and that failure to do so would represent a major threat to their business.
At the same time 44% of FS&Is that shifting customer behaviours are also a concern. Fewer and fewer customers are going to bank branches or brokerage offices. Instead, they want to interact with financial services providers in the same way they do business with retailers and other businesses: via the internet and, increasingly, using smartphones.
And these two trends come together in the looming elephant in the room – the global technology giants. According to our research, 84% of firms report that industries outside of financial services and insurance are providing a significant influence on the direction of the market, and 83% believe new entrants, such as Amazon, Apple and Facebook, could become major competitors in offering financial products.
These market forces are propelling (or dragging) the FS&I industry into the digital future. Indeed, fully nine in 10 global FS&Is believe in the need for transformational digital change.
The power of digital business platforms
In order to address these market forces, 85% of respondents in our research indicated that they are exploring the potential of Digital Business Platforms (DBP).
DBPs are a business framework that allows multiple business models to be built and supported on a single technical framework. So, for example, a bank or an insurance DBP might include unifying core systems, a digital front-end, and a data and analytics back-end, leveraged by cloud and supported by an open marketplace of fintech and insurtech partners that make up the company’s ecosystem. This would allow them to benefit not just from greater flexibility, but also open avenues for innovation through greater pooling of data – all of which will ultimately provide consumers unique value, 24/7.
Of course, this approach mirrors that of the technology titans. However, while 83% of FS&Is agreed that integration of legacy core systems into a DBP is important for their competitive position in the next 3-5 years, only 23% said their companies currently have a DBP that is working and providing benefits.
An inflection point for FS&Is
The industry recognises it is at an inflection point for fundamental digital change. The results of our survey suggest a powerful opportunity for FS&Is to improve their business strategy in the face of intensifying competition and ever-increasing customer expectations.
Sibos is a pivotal moment to discuss this opportunity. Although investing in DBPs is accepted as a crucial need, there is a limited window for FS&I incumbents to commit to profound and powerful transformation before technology giants choose to enter the industry.
To arrange a meeting at the show to discuss the DBP opportunity and the findings of our in-depth industry research please contact UK-Marketing@nttdata.com.