Technological innovations may alter profile of financial services by 2020
Except financial institutions seriously consider sharing economic opportunities, they may encounter new challenges in the next few years when technological innovations disrupt present mode of service delivery in the financial services sector, latest report by PwC has shown.
According to the report, titled: ‘Financial Services Technology 2020 and Beyond: Embracing disruption’, by 2020, consumers will need banking services, but they may not turn to a bank to get them, or at least, maybe not what we think of as a bank today.
The report noted that while the financial services industry may have seen drastic technology-led changes over the past few years, with many executives looking to their IT departments to improve efficiency and facilitate game-changing innovation systems, FinTech start-ups are encroaching upon established markets, leading with customer friendly solutions developed from the ground up and unencumbered by legacy systems.
Commenting on the report, Partner and Chief Economist at PwC Nigeria, Andrew Nevin said: “There are many large forces sweeping society, from demographic and social changes to shifts in global economic power. But one force in particular – namely, technological breakthroughs – is having a disproportionate effect on financial services. By 2020, consumers will need banking services, but they may not turn to a bank to get them.
“This is not fantasy; it is where things are headed. It is now becoming obvious that the accelerating pace of technological change is the most creative force – and also the most destructive – in the financial services ecosystem today. In this report, we set out to capture the real world implications of these technological advances on the financial services industry and those who must supervise and use it.”
Partner and Financial Services Leader, PwC Nigeria, Patrick Obianwa, noted that “those at the heart of financial institutions know there’s no easy way to embrace this unprecedented disruption. The public cloud is already safe and reliable enough to out-compete on-premises solutions. Soon, Blockchain may prove to have the same impact on the future of banking as the Internet had on physical stores. 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.”
Experts at PwC noted that chief information technology officers and other executives need to be able to quickly innovate when technologies, competitors and markets change, and have the skilled resources to do so, adding that it is vital they can identify the imminent threats and opportunities that will be affecting their operating model, human capital approach, ability to innovate and ability to execute.
Indeed, the report stated that the so-called sharing economy may have started with cars, taxis, and hotel rooms, but financial services will follow soon enough.
“In this case, the sharing economy refers to decentralised asset ownership and using information technology to find efficient matches between providers and users of capital, rather than automatically turning to a bank as an intermediary.
“In the new digital age, when businesses as well as individuals, are increasingly techsavvy, new customers will gravitate toward lower fees, convenience, and ease-of-use. And once there is enough critical mass and liquidity, the network effect takes over, and the disruptors’ market share could grow exponentially, as it has in Kenya”, the report stated.
Furthermore, the PwC report identified the ten most important technology-driven forces that will shape competition in the financial services industry by 2020 and six priorities for financial institutions to benefit from them.
The 10 technology forces that matter, according to the report, include FinTech, which will drive the new business model; the sharing economy will be embedded in every part of the financial system; 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 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; while regulators will also turn to technology.
“Financial services providers in Nigeria may feel that they are familiar with this story. The priorities we list – like updating your IT operating model and slashing costs by simplifying legacy systems – have always been good things to do. But how they will do it, and why, is quite different from what they may have thought about until now is the critical issue. What worked for the client server world won’t work for cloud. What worked to secure card-not-present transactions will not work with the Internet of Things”, Obianwa added.