Lockdowns have resulted in remote employees, internet banking, and online purchasing at major financial institutions. Customers anticipated free, personalized digital products and services prior to the epidemic. Large trading indices were reevaluating their operations, investing in technology, and testing new software. Epidemic-related efforts have stepped up.
On November 10–12, the Financial Services Leadership Summit looked at how institutions responded to the epidemic and what alternatives businesses had for system reform and change.
-Transition to Strategic Technology
-The changing influence of work on skills and values
According to summit attendees, digital maturity and sophistication will replace profitability, scale, history, and brand recognition in differentiating financial businesses.
Epidemics facilitated communication over the internet. The increasing demand caused by the pandemic has brought to light incumbents’ long-standing need to enhance their knowledge or risk losing consumers to new entrants and technological firms. Customers are turning away from subpar products and digital experiences.
Personalization is important. “Everything is headed toward hyper-personalization,” according to a FinTech CEO. Financial institutions must strengthen their data management.
Firms using cutting-edge technology survived the epidemic. “Almost immediately, the lockdown problem widened a performance gap between firms that engaged in digital innovation at scale prior to the outbreak and those that did not,” Forbes continued.
Financial and insurance organizations use technology to increase production and reduce costs. FinTechs use digital technology to address client issues, resulting in the development of new business models.
Participants learn about the trade-offs that banks must make between production and distribution. “We’re witnessing a big increase in distribution,” one participant remarked, “but there’s consolidation on the production side—fewer institutions want to generate anything.”
Despite losing clientele, financial institutions are considering strategic alliances with other sector leaders. Because many financial applications are used by young people, unbundling will be a major consumer trend. The digital behemoths may be unstoppable.
New models might help FinTech, InsurTech, and GT businesses.
Unbundling and embedded funding assist large technology firms. They are unable to join the field due to stringent regulations. Apps and platforms from technology businesses link insurance, banking, and rival financial services, making them more user-friendly.
• The willingness of policyholders to purchase critical technology-based insurance climbed from 17% in 2016 to 36% in January 2020 and 44% in April 2020.
If money management were simple, 24% of US customers would select Amazon, Apple, or Google as their principal source of financial services.
• Following bank account integration, Google Pay’s improved Insights feature gives a searchable financial summary.
In 2021, Google will provide online checking and savings accounts with banks and credit unions.
Banks are still competing with FinTechs and InsurTechs. Banks may be riskier than insurance. Although InsurTechs are younger than banking FinTechs, underwriting and distribution remain susceptible. “There are relatively few areas of the insurance spectrum that have been lost to competitors,” one delegate said, “but in banking, you can already see areas where FinTechs have excelled.”
Players were impacted by the epidemic. FinTech companies benefited in the early months of the epidemic, demonstrating their limitations. A September report warned that a pandemic and a lack of finance might undermine FinTech. New technology, urgency, and the financial services business all influence IT requirements.
The epidemic advanced artificial intelligence and machine learning. AI assists insurers with risk assessment, underwriting, and claim management. AI helps banks in lending, avoiding fraud, and engaging with consumers.
In three days, one bank with over 2,000 software bots produced six chatbots to assist customer advisers with loan demands connected to the closure. To aid policyholders in obtaining claim data, a leading life insurance company employs a natural language-based AI digital assistant. The project was completed in three weeks.
Digital competitors and their own AI product innovations are putting pressure on incumbents. Due to their unique use of AI for underwriting policies and processing claims, a $1.6 billion InsurTech company went public in July 2020.
Customers are also willing to embrace AI bots. In two years, a prominent US bank’s conversational banking bot has received 10 million downloads. During the pandemic lockdown, the bank attracted one million new customers each month.
Long-term collaborations are being formed between premier financial institutions and cloud leaders. “After years of dragging their feet,” the Financial Times said, “many (banks) have begun to abandon their cautious posture toward cloud-based services and join up with excitement.” According to EY, “the crisis has shown the significant vulnerabilities to resilience provided by insurers’ operational complexity and inflexible systems.” It emphasized the need for simple, nimble, and up-to-date technology while hastening the demise of traditional organizations.
Early cloud adopters fared well throughout the epidemic. According to one industry observer, Lockdown aided in the resolution of the cloud technology implementation dispute. Cloud-based solutions have assisted financial organizations in combating fraud, integrating distant personnel, and rapidly updating customer software.
Financial institutions utilize public, private, and hybrid cloud technologies, which necessitate adaptive solutions. For their requirements, Goldman Sachs recommended a financial services cloud infrastructure. The cloud strategy must be discussed by executives and directors.
Some leaders have addressed the problem, while others are concerned. Opponents are concerned about monitoring and the lack of large cloud service providers. Some suppliers are concerned about competition. “Everyone has convinced themselves that there are no threats,” stated one participant. “I have a feeling.”
Personalization and product launches necessitate system modifications for financial institutions. Upgraded core systems save money on technology because maintenance accounts for 70% of IT costs. Banks are considering their alternatives.
• API layering: Many businesses utilize APIs to supplement their main services. Wrappers are appealing, but they need system adaptation.
To explore new initiatives, several corporations are developing “greenfield” platforms outside of their regular domains. Many organizations like the “greenfield” strategy because it enables them to launch new brands and businesses while still managing innovation in a highly regulated industry.
Core replacement with a “big bang”: complete critical system infrastructure According to some participants, the common wisdom that such undertakings are too difficult, dangerous, or do not pay off is changing. Technology enables new modeling.
Nonfinancial applications and websites may provide on-demand credit, insurance, and investment services. “The number of nonfinancial enterprises supplying financial goods is growing,” remarked a prominent FinTech CEO. Finance in its entirety. Customers come first.
• Becoming a platform: Some businesses are creating platforms in order to keep up with consumer interfaces. They compete by serving all of their customers’ demands online. This indicates development.
M&As and partnerships are assisting the financial industry in its growth. Despite being competitors, several InsurTechs and FinTechs collaborate with large banks.
Because of the pandemic, FinTech organizations are strategically combining. Some businesses are suddenly more appealing candidates for acquisition. Beneficial collaborations might be chosen. “The crisis has awakened a lot of eyes about building a good ecological system,” one participant stated. Selective technical partners can help speed up growth.
The epidemic made businesses wary about relying on third parties. Third- and fourth-party risks will rise as incumbents collaborate to hasten change. Beyond the epidemic, financial CEOs examine their skills in digital transformation.
Business executives are pleased with how quickly their companies have adapted to a new environment, and many do not anticipate a return to previous methods. In November, a major UK bank proposed turning many of its 85,000 workers into “permanent flexible workers” and offering smaller, near-home offices to those who wanted them. Employee schedules are more flexible. The CEO described the lockout as “eye-opening.” “The typical banking work norms—entering a facility and sitting at a desk—were out of date.”
Several people expressed their reservations. Someone suggested moving pre-existing tribes to another planet. Another respondent expressed concern about the lack of creativity as a result of the greater use of remote work methods, which restrict human connection and the generation of new ideas. Workers may have an influence on the decision. Only 4% of bank workers expressed a desire to work during the lockout.
If technology is to drive competitiveness, the culture and aims of financial institutions must change. It is paradoxical to support digital enterprises’ fast-paced, imaginative culture while maintaining the risk profile of a regulated corporation. One member expressed fear that working from home might stifle creativity. Financial services firms must adjust to this new environment.
The strategic value of technology to business benefits, as well as the magnitude of the transition, necessitate board oversight. Boards must both invest in technology change and manage risks. They, too, must adapt to new chances. Some speakers underlined the need for robust governance, pointing out that most CIOs serve for only 18 months.
When allocating funds, boards must find a balance between long-term change and urgent needs. “It’s quite tough to have a meaningful effect within the firm while keeping your finances in order,” one participant said.
Boards should hold management accountable for project goals, costs, and timeliness from the outset, focusing on critical milestones. Directors’ boards can urge management to prepare ahead. Several audience members blamed the banking industry’s slow digital transition on risk aversion. Change, according to one audience member, should be prioritized.
Others acknowledged the need for speed but also advised prudence; development usually takes precedence over safety. The cost of getting things wrong is so high that some would rather be late to market than have a faster, riskier product.