There is little doubt that disruption within the financial services industry is on its way and will exert considerable pressure upon businesses to keep up or be left behind. However, for savvy providers ready to use digital technology to simplify the consumer experience, it can present exciting new business opportunities.
There is a lot of buzz recently about ‘disruption’, which occurs when one or two businesses shake up an entire industry by introducing a completely new offering or new way of doing things in order to win a previously untapped market share.
A text book example of disruption occurred when Apple introduced the iPod as a means of delivering digital music. This new technology revolutionised the music industry by changing the way we receive, consume, store and pay for music. So profound was the change, that that the music industry was left with little choice but to adjust to the new expectations of its customers.
While we haven’t seen a lot of disruption in the financial services sector as yet, some examples are beginning to emerge, suggesting it is only a matter of time before we all feel its effects.
One potentially disrupting innovation is ‘robo-advice’ – the automation of the financial advice process. In both the international and domestic marketplaces, shrewd players are attracting market share with this new technology driven, consumer responsive tool. Australian firm, Stockspot, was recently ranked 45 out of the 50 Best Fintech Innovators in the world, specifically for its robo-advice offering. A report by MyPrivateBanking in 2014 suggests that even though robo-advice providers hold a very small market share they will have a large influence on consumer expectations. There is every indication that this trend is going to have major implications for the financial advice sector.
We are also seeing signs of disruption within consumer savings. A company called True Potential recently picked up the Leading Innovation Award at the Aberdeen UK Platform Awards for their investment top-up technology impulseSave. The new product enables people to add even small amounts to their savings at the touch of a button, encouraging them to reach their financial goals. Westpac in New Zealand has introduced a similar offering that enables customers to impulse save, rather than impulse spend. By taking advantage of increasing consumer demand for digital self service capabilities, these new offerings stand to transform the saving industry landscape.
A further example of disruption is evident in the payments market. Australian banks are under increasing pressure from digital competitors such as the US-based PayPal, which is successfully targeting the growing popularity of online transactions on mobile devices. With around 80 per cent of Australians already owning smartphones, competition in this arena is likely to heat up even more in the years ahead.
When you take a closer look at the ‘game changers’ outlined above, you will notice they have more in common than the novelty of offering consumers something shiny and new. Each innovation is underpinned by leading edge digital technology and each holds an intrinsic consumer appeal – simplicity.
Financial services, by nature, involve a complex web of products and services that at best confuse – and at worst alienate – most consumers. While the underlying complexity of financial services is here to stay, a new generation of entrepreneurs is seeking to disrupt the industry through digital technology innovations that distil the difficult into the simple for their customers, delivering them unprecedented convenience and far greater control over their finances.
In an interesting development, big banks are seeking to protect themselves from new digital competitors by applying the old adage of keeping your friends close and your enemies closer. Through initiatives such as the Stone and Chalk fintech hub due to open in Sydney in April, financial institutions are joining forces with high-quality start-ups as a means of fostering and capitalising on innovation, while at the same time reducing their own risk exposure .
In this rapidly evolving environment, one thing remains clear. Financial services providers seeking to capitalise on disruption – whether by leading it or leveraging off it – must ensure they have the right technology in place. Older legacy systems and messy bolt-on solutions are not suited to the new wave of digital service delivery innovations.
In the years ahead, the most successful players in the financial services industry will be those who are well prepared for the new digital landscape and who readily employ digital technology to significantly simplify the customer experience.