With PWC predicting that 28% of Banking and Payments companies will be ‘at risk’ in 2020, the ‘adapt or die’ mantra has never been truer. We pinpoint some of the significant trends that will continue to shape the Financial Services industry as we enter the new year.
“Digital transformation is not about riding out a storm and hoping it will pass. It is about embracing change – and accelerating it” CCL Online
Tech giants will grab market share
Technology behemoths such as Google, Amazon and Apple will continue their onwards march towards world domination. With their technical expertise and market access, they represent a significant threat to any market in which they choose to play – so both incumbent banks and more agile smaller players are at risk of losing market share to them, with incumbent banks alone forecast to lose up to 50% of the $1.35 trillion in US financial services revenue to the giants.
The robots are taking over
Artificial Intelligence has been described as ‘the Fourth Industrial Revolution’ and no industry is immune from its impact. A term often bandied about; Artificial Intelligence refers to computers performing those tasks which normally require human intelligence.
With potential cost savings estimated at $447 billion by 2023, it is no surprise that banks are highly tuned in to the potential benefits that automation and AI bring, in fact, 75% of banks with over $100 billion in assets are reporting to be implementing AI strategies. Business Insider Intelligence estimate that the vast majority, 93%, of this will be through the disruption of front and middle office, from the more mature conversational banking and anti-fraud & risk to the growing influence of AI biometrics tech, personalised insights and anti-money laundering.
“When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance ”. World Economic Forum.
Blockchain Technology offers enormous transformative potential by sharing data in an efficient, secure and transparent manner. Its newness makes it difficult to predict its eventual impact, but we can already see it transforming the payments space, as complex transactions are simplified and centralised. An example of this is Wetrade, a blockchain based trading platform developed by a group of European banks in partnership with IBM, utilising smart contracts “the platform provides a secure, innovative environment for banks’ commercial clients engaged in import/ export transaction to trade in a user-friendly way”.
Cybersecurity, Privacy and Compliance
As companies race to develop new financial services propositions, it will continue to be critical for them to ensure the security of their customer and client data and with global security spending predicted to reach a sizeable $133.7 billion by 2022, it is an area which many businesses are rightly prioritising. Cyber criminals are growing in sophistication and resources and, as we have witnessed with the Travelex hacker scandal, it is becoming increasingly common for them to hack customer data and company systems and demand substantial ransoms from victim companies.
Phishing remains a consistent threat, with 32% of confirmed data breaches occurring as a result of phishing, and given the popularity of mobile use, it’s no surprise that 71% of all fraud is mobile. As institutions and governments continue to develop new regulations to improve Data privacy and Compliance, such as the EU’s General Data Protection Regulation, regulatory compliance will also continue to be an area in which the Financial Services industry has to spend considerable time, money and attention.
From the establishment of agile teams, to the development of partnerships with Fintech start-ups, and cloud-based companies, numerous incumbent banks are recognising the need to disrupt, or be disrupted, and making bolder moves to ensure they stay relevant whilst maintaining data security. Many have had innovation labs established for several years now and are simplifying or outsourcing their non-core activities.
As new players enter the market offering exemplary customer experience, incumbent banks are now taking more radical steps to put customer value and experience first. However, the question remains – is this too little, too late?
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