How Will the Industry Respond to Trends In FinTech?
In this series of articles, We’ll be taking an in depth look at the report “Blurred Lines: how Fintech is Shaping Financial Services”. Due to the size of this report, each article will be broken down into sections based on 3 industries – banking, wealth management, and insurance. This article will focus on what exact risks and opportunities arise due to the disruption and how to counteract the disruption that FinTech is causing. .
What is the FinServ industry doing for the disruption?
From the inside of the industry, FinTech appears to be affecting a broad range of financial services. Although, the companies specializing in certain aspects of financial services believe that consumer banking and fund transfer and payments will be disrupted in the next 5 years. The graph below shows the results of the survey.
The recent development of online banking platforms has greatly impacted consumer banking and fund transfers. Purely online banks, or banks with fewer physical branches, have begun to gain popularity due to the added value that is convenience. As an organic development from online banking, the technology to safely transfer funds and pay bills online has been developed.
There is also a high level of disruption in the insurance and asset management sector. 74% of insurers and 51% of asset managers believe that FinTech is going to cause disruption in their sector over the next 5 years. At the same time, outsiders believe that FinTech will disrupt those industries significantly less, signalling that there is industry knowledge of upcoming developments that hasn’t been diffused yet. The graph below shows the divide between industry insiders and outsiders.
What is the main cause? Digital experience. Clients are used to the experience other digital giants give, such as Google, Amazon, or Facebook, and they expect the same level of customer and digital experience from their financial service provider.
75% of respondents said that FinTech has made an impact on meeting changing customer needs and 51% said it has also made an impact on leveraging existing data and analytics. If these items were not on the to-do list for a company in the financial service industry, they sure are now – thanks to FinTech.
What are the members of the financial service industry going to do to counter the disruption?
- Banks are going for a renewed digital customer experience
The most important response from this sector is to implement solutions that banks can easily integrate or incorporate to improve and simplify solutions. Meaning, processes that increase customer experience just by reducing the amount of steps to perform an action or making it easier to do that action. The next biggest response is to move toward non-physical or virtual channels. While a portion of the consumers prefer a physical approach, banks must have virtual channels to compete with the changing industry.
- Fund transfer and payment priorities are security and increased ease of payment
The fund transfer and payments industry’s response to emerging FinTech trends included: creating advanced tools and technology to protect consumers from identity theft, fraud, and account falsification. This response isn’t necessarily one that could combat the emerging FinTech options, but it adds to the current value proposition. Since the existing companies specializing in fund transfer and payments have created a brand and acquired trust with their consumers, they only need to offer better value in comparison to the new FinTech companies. In addition to developing a more secure method of online payment and transfer, increasing speed of transfers in another common step to take in this industry.
- Asset and wealth management shifts from technology-enabled human advice to human-supported technology-driven advice
This industry will respond by improving data analytics to better identify and quantify risk and increased automation of asset allocation. The responses, however, will be leveraged with a human touch that can interpret the data and offer personalized solutions that fully automated solutions can’t.
- Insurers leverage data and analytics to bring personalised value propositions while proactively managing risk
Much like banks, the most important response the insurance industry will have is an emphasis on self-directed services. The increase in convenience increases customer experience as they are able to access all the information through an online portal. It can allow them to make claims, see their coverage, or access important documents. The next biggest thing is to differentiate their services by offering a usage-based insurance. As underwriting changes and technology becomes more advanced, the math behind underwriting can allow for more complex plans that allow for this. Usage-based coverage is another example of established brand to create and underwrite a complex solution.
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Developments in FinTech are causing financial service providers to move forward and innovate towards a better consumer experience. Part 2 will examine the future of FinTech and what strategies financial service providers should use to counter FinTech.
