Bangkok--16 Jun--PwC Consulting (Thailand)
Executives in the financial services (FS) sector need to quickly respond to ten technology-driven trends in order to compete in the fast-evolving industry in 2020 and beyond, PwC says.
The financial services industry has seen dramatic technology-led changes over the past few years.
While Financial Technology (FinTech) start-ups are encroaching upon established markets, many executives are looking to their IT departments to improve efficiency and facilitate innovation, while also lowering costs and continuing to support legacy systems.
PwC's new report Financial Services Technology 2020 and Beyond: Embracing disruption examines the implications of ten technological advances on the industry, and those who must supervise and tackle them.
Vilaiporn Taweelappontong, partner for PwC Consulting (Thailand), said that technological breakthroughs are having a disproportionate effect on financial services. Even so, many companies are still focusing much of their IT attention on short-term strategies.
"Chief Information 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."
"To stay relevant and still be in the game in 2020, it's crucial that companies start taking steps now by identifying the imminent threats and opportunities that will be affecting its operating model, human capital approach, ability to innovate and ability to execute."
For instance, by 2020 consumers may not necessarily turn to a bank to get banking services, the report showed.
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 over the next five years, and six priorities for financial institutions to benefit from them.
The ten technology forces that matter:
1. FinTech will drive the new business model – We see tremendous demand for FinTech-related services in areas such as consumer banking and wealth management. This will open up new opportunities for both incumbents and disruptors.
2. The sharing economy will be embedded in every part of the financial system – Financial institutions should consider sharing economy opportunities such as partnerships with digital intermediaries to deliver services at lower costs.
3. Blockchain will shake things up – We believe the use of the blockchain 'public ledger' will go on to become an integral part of the technology and operational infrastructure at financial institutions.
4. Digital becomes mainstream – Over the next three to five years, digital efforts will advance in areas as diverse as robo-investing, automation of consumer lending and clearing and settlement of cash and securities transactions.
5. Customer intelligence will be the most important predictor of revenue growth and profitability – Financial institutions should leverage on data and analytics to study consumer behaviour that drives their decisions.
6. Advances in robotics and artificial intelligence (AI) will start a wave of re-shoring and localisation – With improvements in robotics and AI capabilities, machines will soon become credible substitutes for many human workers. As technology continues to drive down the cost of machines, these forces will combine to spur re-shoring of companies (that have offshored repetitive tasks to lower-cost locations) as more tasks can now be performed at a competitive cost on-shore.
7. The public cloud will become the dominant infrastructure model – We expect that the next several years will result in an increasing adoption of the public cloud within the financial services industry.
8. Cyber-security will be one of the top risks facing financial institutions – Cyber-security is already important, and it will become even more significant for institutions and their regulators in the future. The challenge will be to balance safety with customer convenience.
9. Asia will emerge as a key centre of technology-driven innovation – By 2020, the majority share of the population considered 'middle class' is expected to shift from North America and Europe to Asia-Pacific. On top of that, over the next 30 years, some 1.8 billion people will move into cities, mostly in Africa and Asia, creating one of the most important new opportunities for financial institutions.
"Asia-Pacific countries, with the world's largest middle-class growth, are expected to see the largest demand for technology-driven innovation," Vilaiporn said.
"China now has the world's largest peer-to-peer lending market and has more smartphone users than any other country in the world."
In FinTech, the Asian market is second only to the US in investor interest thanks to lower-cost but highly skilled resources, as well as a large market for testing and launching new products and services, the report showed.
"With Asia becoming the global leader in research and development across all industries, we expect that that by 2020, many US financial institutions will have fully functional Asian hubs that can act as a catalyst for technology innovations, for both local and global deployment," Vilaiporn said.
10. Regulators will turn to technology, too – Regulators are increasingly adopting a wide range of data gathering and analytical tools to monitor the industry and predict potential problems more effectively. As such, companies need to make data and control transparency priorities as they implement these tools and comply with data requests.
To fully benefit from these technology developments, Vilaiporn said that financial institutions must focus on six priorities. They include:
1. Updating your IT operating model to get ready for the 'new normal'
2. Slashing costs by simplifying legacy systems, taking Software as a Service (SaaS) beyond the cloud, and adopting robotics/AI
3. Building the technology capabilities to get more intelligence about your customers' needs
4. Preparing your architecture to connect to anything, anywhere
5. Paying attention to cyber-security
6. Ensuring you have access to the necessary talent and skills to execute and win.