Deloitte and the World Economic Forum have spent the last 18 months with global financial services industry leaders, innovators and regulators researching the transformative potential of innovation and how best to respond. The result – the Future of Financial Services report – highlights which emerging innovations are the most impactful and relevant to the financial services industry.
It calls out eleven critical clusters of innovation that are changing financial services across the six key functions of the sector:
- investment/wealth management,
- deposits & lending,
- capital raising, and
- market provisioning.
“As rapid technological change reshapes traditional definitions of value, tears down barriers to entry and undermines the business models of incumbent institutions, forces such as accelerating technology, shifting customer preferences, and a changing regulatory landscape have the potential to dramatically reduce profitability and market share for incumbents,” said Deloitte Financial Services leader Australia Rick Porter.
“But they also represent an opportunity for institutions that are able to harness new innovations. And the Australian financial services sector – one sector that feels the heat of disruption the most – has the capability to take advantage of it.”
Six of the key insights from the report are as follows:
- Disruption is not a one-off but a continuous pressure so innovation will shape customer behaviours, business models, and the long-term structure of the industry.
- Innovation in financial services is deliberate and predictable. Incumbents are most likely to be attacked where the greatest sources of customer friction meet the largest profit pools.
- Innovations have the greatest impact where the business models are platform based, modular, data intensive, and capital light.
- The imminent effects of disruption will be felt in the banking sector; however, the greatest impact is likely to be in the insurance sector.
- Incumbent institutions will employ parallel strategies. They will aggressively compete with new entrants as well as use their legacy assets to offer entrants the necessary infrastructure and access to services.
- Collaboration between regulators, incumbents and entrants will be needed to understand how innovations alter the risk profile of the industry.