Technological innovations are significantly impacting and transforming the conservative and highly regulated financial services industry as digital disruption enters into the next phase of accelerated maturity.
It is interesting to see the rapid developments that are invading the incumbent positions and creating the most impact, below the top 4:
Banking (Fintech): Smart kiosks for self service and robo-advisers will reduce banking overhead costs by half, besides reducing the complexities and turn around times and support expansion into newer markets. As retail banking transforms into a technology assisted DIY industry, banks may need to reduce the overall staff and other costs to compete effectively and survive this disruption.
Areas such as wealth management, B2B payments are also expected to be significantly impacted and one could see the emergence of technology based participants muscling in on these areas which in turn could increase the competitive intensity in this space.
Insurance (Insurtech): As more data is collected from customers (in almost real time), it is increasingly becoming possible to design custom products to suit individual lifestyles. This may see the end of traditional “one size fits many” philosophy. With sophisticated analytics on customer data, increased disintermediation and greater accuracy of calculating and distributing risk could slash the costs for customers by as much as half of the current.
As an illustration, the usage of Telematics is disrupting the vehicle insurance industry by introducing usage based insurance as versus traditional no claim based approach.
Regulatory (Regtech): With access to technologies such as Blockchain, it is now possible for governments to better analyse consumer spending and introduce subsidies and funds as part of economic boost for the citizens. The new technologies can also help ensure plugging of leakages of public funds etc making the government machinery more effective and efficient and the programmes more impactful.
Artificial Intelligence (AI): AI has perhaps the widest applications in financial industry both from the perspective of labour automation (cost savings), efficiency as well as mitigating risks and frauds. Artificial intelligence is seen as the umbrella technology that could completely replace human intervention from everything ranging from basic tasks such as data collection to more complex tasks involving analysis and decision making.
As technology use and applications become more pervasive, issues like cyber security, integration with legacy systems and risk management will also need to be addressed critically. Forward thinking regulators have started creating sandboxes to allow companies to experiment and trial these new technologies and work collaboratively as the financial services industry gets transformed.
These new technologies promise great benefits to the customers in terms of efficiency, lower costs and increased control / visibility but need to be used with the proper safeguards. For the industry participants, these developments present very new challenges and increased opportunities as digitalisation becomes the new battleground for growth.
Sanjay Singh drives Business and Financial Services Practice for Frost & Sullivan. Sanjay is based out of Singapore and can be reached at email@example.com