There’s no arguing that technology disruption has and will continue to change the face of financial services. The real question is whether firms choose to proactively embrace this disruption or react to it. While each firm must decide its own course of action, first movers can reap many advantages. Read on for a summary of the opportunities – and the threats – that PwC outlines in its 48-page report: Financial Services Technology 2020 and Beyond.
Get Your Bearings
It’s tough to find a firm foothold in the financial services industry these days. Drastic technology-led changes seem to occur at every turn. Nimble startups are making waves and oftentimes outperforming financial services stalwarts when it comes to satisfying the rising expectations of tech-savvy, multi-channel customers. Executives within established firms are seeking guidance from IT on ways to harness technology in game-changing ways – but without expensive rip-and-replace scenarios. The pressure is on – and rising. No wonder 70% of CEOs at global financial services firms told PwC the speed of change in technology was one of their biggest concerns. As PwC says, “technology-driven change is so pervasive that no financial institution is immune.” So what will your firm do to survive?
Understand Key Trends
A good place to begin is by knowing what technology-related trends matter – and which ones you can afford to ignore. According to PwC, here’s the list of top 10 themes as you plan for 2020 and beyond:
1. FinTech will drive new business models, especially in banking and payments but also in insurance, asset management, and wealth management. In fact, a recent PwC Global FinTech Survey found that financial services firms feel a quarter or more of their business could be lost to FinTech disruptors within five years.
2. The sharing economy will be embedded in every part of the financial system, as peer-to-peer transactions and even peer-to-peer lending see further uptake. As a result, traditional finserv firms will play increasingly smaller roles when it comes to initiating and managing transactions.
3. Blockchain will shake things up. As PwC describes it, blockchain is a decentralized ledger of all transactions across a peer-to-peer It’s essentially a continuously growing list of records, called blocks, which are linked and secured using cryptography. And financial services firms can use it for much good because blockchain makes it possible to much more cheaply authenticate users and secure transactions. The key is figuring out how and why to apply the technology.
4. Digital becomes mainstream. For financial services firms of the future, this means digital will become the new norm and platform so digital as its own channel managed by a separate team with a dedicated budget will go by the wayside.
5. ‘Customer intelligence’ will be the most important predictor of revenue growth and profitability. Through hyper connectivity enabled by the Internet of Things, financial services firms will have unprecedented access to exponentially more data about what users do and want. The firms that use this intelligence wisely can truly set themselves apart.
6. Advances in robotics and AI will start a wave of ‘re-shoring’ and localization. Artificial Intelligence is already powering sophisticated processes and algorithms in the industry. Combine this with today’s robotics, and finserv firms can take back many of the tasks they have been outsourcing to what were once lower-cost regions abroad. Savvy firms will hire industry engineers, study other industries, and develop a vision for how they will use robotics and AI.
7. The public cloud will become the dominant infrastructure model. While some financial services firms have opted for private clouds due to security and regulatory concerns, more will likely move processes and services to the public cloud.
8. Cyber-security will be one of the top risks facing financial institutions. According to PwC’s 19th Annual Global CEO Survey, 69% of financial services’ CEOs reported being either somewhat or extremely concerned about cyber-threats, compared to 61% of CEOs across all sectors. And they are right to be worried. After all, they’re operating in an environment characterized by a growing use of third-party vendors, cross-border exchange of data, and increased use mobile technologies. And hackers and attacks are continually gaining in sophistication. The mandate is to develop a formal, comprehensive security framework that balances safety with customer convenience.
9. Asia will emerge as a key center of technology-driven innovation. Firms need to look beyond Silicon Valley and other US-based technology innovation hubs to keep their finger on the pulse of technology developments. In particular, Asia should be on their radar. Consider that investors poured US$3.5 billion into AsiaPac FinTech companies in the first nine months of 2015 alone. PwC expects many US financial institutions to operate Asian hubs by 2020 as a catalyst for technology innovations.
10. Regulators will turn to technology as well. Industry regulators are turning to the latest tools and technologies to gather and analyze financial industry data. Smart firms will take measures to put themselves in a position to quickly and easily work with regulatory bodies.
Position Your Firm for Success
The PwC report goes into much more detail on the ten key trends. But it also provides guidance on how financial institutions can take advantage of all these developments. Specifically, it outlines the following six priorities:
- Update your IT operating model to prepare for the ‘new normal.’
- Cut costs by simplifying your legacy systems, embracing SaaS beyond the cloud and adopting robotics/AI.
- Invest in technology capabilities that let you get more intelligent about your customers.
- Prepare your architecture to connect to anything, anywhere.
- Pay more attention to cyber-security – before it’s too late.
- Make sure you can access the talent and skills needed to execute and win.
For more on these priorities and trends, download the full report.
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