By 2030, the purpose, size and operations of incumbent financial institutions are expected to change substantially. As technology disrupts business models, generates new customer expectations and introduces strong competition from startups, it is essential established banks and insurers take a central and collaborative role in the new ecosystem
The global financial services sector is undergoing a customer experience overhaul and as a result the threat of new competitors is evermore real. As a new ecosystem of organisations emerges, established banks and insurers need to act quickly and assertively if they are to remain at the forefront.
Incumbents have the scale to take advantage of the myriad technological opportunities in front of them, which enable them to respond. But to do so successfully often requires a significant reconsideration of strategy, as well as how they structure operations, incentivise staff and define services, and this remains a tough challenge.
“Banks have certainly invested extensively in technological innovation, but many haven’t made the extensive progress they would have liked,” notes Rav Hayer, head of fintech at consultancy PwC UK. “On the flip side, numerous new challengers demonstrate deep innovation and scalability, and they are aligned to customer expectations for better bank experiences, adaptive insurance, smart payments and access through online marketplaces. This is creating urgency among the incumbent players.”
Smart use of data will be essential to future innovation. Developments such as open banking legislation, which ensures consumers can share and consolidate account data from, and with, multiple organisations, are raising awareness within established financial organisations about the potential impact of information-driven change.
Arthur Hughes-Hallett, financial services disruption lead at PwC UK, expects the highly data-empowered banks of the future to be able to provide sharply different services from today. “By 2030, banks won’t just be somewhere that people store money, they will be much more integrated into the way consumers manage products and address their ‘financial health’ on a daily or even minute-by-minute basis,” he says.
Incumbent players must also keep pace with the demand for more seamless and personalised user experiences. “Banks and insurers have always focused on products such as current accounts, loans and mortgages, and now they need to ask what additional experiences and platforms they can bring into the mix,” adds Mr Hayer.
Britain is very much at the forefront of fintech innovation and is transforming quickly
As banks and insurers find ways to “self-disrupt” in these areas, they will be innovating in an ecosystem that contains inherently more agile startups, which have begun with a blank canvas and often focus on a specific area rather than offering a full-service model. To preserve success, incumbents may become umbrella organisations that tap into the capabilities of myriad smaller businesses to excel in new areas.
Some will turn to mergers and acquisitions (M&A), which have long been a crucial route for accessing new business models, cultures, technology and customers, but these are not necessarily an easy solution. “M&A takes a considerable amount of time, effort and money, and even when there is a great culture and skillset on offer, it can be difficult to integrate and then react quickly enough to changing customer demands,” says Mr Hayer.
This means many banks and insurers will instead consider partnerships with these fast-growing startups, including offering each other a route to specific markets and even sharing services. “In most cases, we see fintechs and incumbents working together to drive solutions and services forward,” he notes.
Such partnerships will be essential to help banks access a more innovative culture, given that many have wanted to recreate the spirit of innovation seen among the likes of rapid-growth fintech businesses Klarna, Stripe and Monzo. They may also enable smarter incentives for staff around ideas and experimentation.
“If a bank incentivises staff based on the success of a longstanding product, where is the motivation to think about longer-term innovation?” asks Mr Hughes-Hallett. “Banks will increasingly think about incentivising people in a different way, in which there is value placed on trying out new ideas.”
For the new ecosystem of innovative, collaborative partnerships to thrive, transparency between all participants is essential. Regulators may empower the change by working more closely with all players, to ensure innovations and new technology, including artificial intelligence and robotics, can be delivered to customers safely and effectively. Regular industry-wide engagement will also help ensure access to talent meets demand.
The banking sector of 2030, therefore, will be a complex ecosystem that centres on collaborative innovation and experimentation. Mr Hughes-Hallett adds: “Incumbents need to find agile ways of working, enabling more integrated and personalised customer experience, rather than the approach of one size fits all. The new ecosystem will be essential to this step-change.”
Indeed, incumbent organisations are increasingly establishing teams across the globe to identify the best innovators to work with. Many large banks and other established financial services organisations, and newer firms, turn to PwC to ensure they choose the right route to collaborate, be it through partnership, shared services, outsourcing, mergers or acquisitions.
PwC guides businesses throughout identification, selection and due-diligence processes for partnerships, and into the long term of working together. It has extensive experience helping incumbents to build a fintech strategy, transform existing operations through smart technology and collaboration, and foster a culture of innovation. Meanwhile, it works with numerous startups to assist in growth and partnering, explore funding opportunities and maximise the success of collaborative development.
“Making the most of this ecosystem is of high importance for incumbents and newer players,” says Mr Hayer. “The number of banking licences issued in the UK in recent months is a clear indication that Britain is very much at the forefront of fintech innovation and is transforming quickly. As a new ecosystem grows, those acting consistently to be at the forefront will gain a very substantial competitive advantage.”
To find out how to make the most of the new financial services ecosystem please visit pwc.co.uk/currency-collision