In the post-GFC world, rapidly accelerating technology has emerged as the most creative – and destructive – force in financial services. What are the consequences of these seismic shifts and where do the opportunities lie?
As part of our wider analysis on the future of financial services, PwC’s paper, Financial services technology 2020 and beyond: Embracing disruption predicts the technology forces most likely to shape the industry to 2020 and beyond.
From the continued rise of fintech and blockchain, to the potential return of outsourced service industries back on-shore, here we summarise the ten trends and their implications for the financial services industry as we know it.
1. Fintech will drive
the new business model
With speed and innovation on their side, financial technology – or fintech – startups have been the Cinderella tale of the financial services industry, disrupting areas such as mobile payments, foreign exchange and insurance. Despite regulation and other potential obstacles, the abundance of funding and talent will see the tremendous demand for fintech-related services continue. This will open up new opportunities for incumbents and disruptors alike, driving new business models in the process.
2. The sharing economy will infiltrate
every part of the financial system
The sharing economy has been traditionally confined to cars and hotel rooms. Now, a ‘share-ification’ of financial services also appears imminent, driven by innovations such as peer-to-peer transactions, fintech, and smartphone payment platforms. The end result will be an embedding of the sharing economy throughout the financial system, with banks playing increasingly decentralised and intermediary roles.
3. Blockchain will
shake things up
Blockchain will continue its meteoric rise in financial services, with industry groups coming together to commercialise the technology and apply it to real-life scenarios. Challenges still remain, such as regulatory or trust issues. However, the current surge in funding and innovation will likely continue, especially as blockchain’s public-ledger technology moves from a retail focus to form part of the operational infrastructure of institutions.
4. Digital becomes
Over the next three to five years, digital will become the new normal for financial services, particularly in areas such as digital wallets and robo-investing (automated investment advice). Digital solutions will stop being novel, becoming instead ‘just how we do things’. Throughout this process, financial institutions will need to balance the need for separate digital transformation teams with the inevitability that digital will ultimately become the final platform.
5. Customer intelligence
will drive revenue growth and profitability
Formerly confined to small-sample (and unreliable) focus groups and surveys, technology advances have transformed customer intelligence. Services such as data analytics – powered by ever wider sources such as smart devices and the internet of things – will equip businesses with exponentially more information about what users say, do, and want. Those that use this data to build personalised products or keener pricing structures, for example, will be at an advantage.
6. Robotics and AI
mean services will return on-shore
Financial institutions are already using robotics and AI to reduce costs and mitigate risks. These machines will continue to advance, performing a wider range of increasingly complex tasks. While only modest and evolutionary gains should be expected in the short term, rapid growth will occur when new generations of robotics are increasingly powerful, modular, and have the ability to learn. Taking an even broader view, the improved capabilities and labour cost reductions of robotic automation may spur a movement that sees previously outsourced service sectors brought back on-shore.
7. Core activity
will move to the cloud
Until now, cloud solutions have mostly been confined to non-core or ‘point solution’ services, such as CRM, human resources or accounting. But as data storage costs continue to plummet and software offerings improve, the technology is rapidly becoming integrated into core activity. By 2020, many of finance’s core service infrastructures – such as consumer payments, credit scoring, and asset management account functions – will likely become cloud-based utilities.
8. Cyber security
will remain a top risk
As guardians of value, financial institutions are already depressingly familiar with the spectre of cyber threats. Unfortunately, this is not likely to change for the better in the coming years, due to forces such as third-party vendors, cross-border data exchanges and the vulnerability of internet-of-things devices. There is a silver lining, however: the same capabilities that make networks more vulnerable can also strengthen defence. Data analytics may be deployed to monitor covert threats, while miniaturisation of hardware means biometric security options (such as thumb prints or voice recognition) are becoming more accessible.
9. Asia will emerge
as a key innovation centre
By 2020, the majority of the world’s middle class population will be located in the Asia Pacific region. Over the next 30 years, 1.8 billion people will move into cities located mostly in Asia and Africa. Combined, these trends create important new opportunities for financial institutions. Asia has now become the global leader in research and development across all industries, accounting for about a third of corporate R&D spending. In fintech, it comes second to the US in investor interest. Over the next few years, many Western financial institutions are expected to have Asian hubs, catalysing technology innovations to be deployed both locally and globally.
will turn to technology, too
Finally, regulators are rapidly adopting data-gathering and analytical tools to improve intelligence and predict future problems instead of ‘regulating after the fact’. They will likely seek direct access (whether ongoing or during reviews) to the technology tools of many institutions. As a result, firms should prioritise transparency beyond the current regulation framework, working with authorities quickly, easily and accurately.
For the full analysis of the ten technology forces shaping the financial services industry, read PwC’s paper Financial services technology 2020 and beyond: Embracing disruption.