Ciaran Kelly, partner at PwC in Ireland, analyses the findings of a report on the real-world implications of FinTech for financial services firms and the areas these firms should prioritise to take advantage of the changing ecosystem.
The financial services (FS) industry has seen some dramatic technology-led changes over the past few years and this trend is set to accelerate. While FinTech start-ups are encroaching upon established markets, many executives look to their IT departments to improve efficiency, reduce costs and facilitate innovation. At the same time, IT departments are also trying to balance the costs associated with supporting many legacy systems, some of which are more than 30 years old.
PwC’s new report, ‘Financial Services Technology 2020 and Beyond: Embracing disruption’ captures the real-world implications of ten technological advances on the industry and those who must supervise and tackle them.
Those at the heart of financial institutions know there is no easy way to embrace this unprecedented disruption. Many organisations are now forming the view that the public cloud is safer and more reliable than on-premises solutions. Soon, Blockchain may prove to have the same impact on the future of financial services as the Internet had on many sectors such as media & entertainment, telecommunications, travel, retail etc. You get the feeling that it’s only a little while before banking operations centres are staffed by sophisticated robots, taking over manual tasks from human tellers.
Financial services leaders need to be able to quickly innovate, keeping pace with technologies, keeping ahead of competitors and respond to markets change. At the same time they need the skilled resources to do so.
Ten technology-driven forces
From that perspective, the PwC report lists the ten most important technology-driven forces that will shape competition in the financial services industry by 2020 for financial institutions:
- FinTech will drive the new business model
- The sharing economy will be embedded in every part of the financial system bringing together those who have excess capital with those that need financing, leading to the disintermediation of traditional lending models
- Blockchain will shake things up
- Digital becomes mainstream
- 'Customer intelligence' will be the most important predictor of revenue growth and profitability
- Advances in robotics and Artificial Intelligence (AI) will start a wave of 're-shoring' and localisation
- The public cloud will become the dominant infrastructure model
- Cyber-security will be one of the top risks facing financial institutions
- Asia will emerge as a key centre of technology-drive innovation
- Regulators will turn to technology.
The financial services industry is now at a cross-roads and how well you adjust to technology developments and innovations will define the leaders in 2020 and beyond. The six priorities from which financial services organisations can benefit are:
- Update your IT operating model to get ready for the ‘new normal’
- Slash costs by simplifying legacy systems, taking Software as a Service (SaaS) beyond the cloud, and adopting robotics/AI
- Build the technology capabilities to get more intelligence about your customers’ needs
- Prepare your architecture to connect to anything, anywhere
- You can’t pay enough attention to cyber-security
- Make sure you have access to the necessary talent and skills to execute and win.
Established financial institutions need to find a solution for retiring legacy systems while at the same time embracing a new innovative and agile approach to exploiting the benefits that new technologies present. While it may appear that new entrants into this sector hold all the cards, they may be disadvantaged in terms of understanding the FS ecosystem that takes into account credit risk, regulatory risk, market risk and customer centric relationships. The winners on both sides may come from those who are most able to collaborate with one-another. In conclusion, FS institutions need to start thinking quickly about refreshing their strategy for 2020 and beyond.
Another recent report by PwC on FinTech found that financial technology players are becoming a growing concern for incumbent banks, at the same time, the threat looming around the corner is inciting banks to change, include ramping-up innovation and establishing collaborations.