With so much now bound up in IT, it is essential to make the right decision – so consider not just the short-term costs involved in investing in your technology but also the long-term benefits it can bring.
Ageing technology is an issue for many firms, as companies face the twin challenges of high running costs and escalating operational risks. Additionally, implementation of new technology can be a time-consuming process that can lead to further expenditure. As a result, many decision-makers rightly engage in a thorough due diligence process before deciding to invest in technology.
Technology, however, as an enabler for business transformation and innovation, is fundamental for change. At a macro level, businesses across the globe are impacted by technology and many are in the process of ‘digitalising’ their offerings – indeed, many industries are more advanced in this process than financial services. This is not just about updating websites or online services, but a fundamental transformation of the way a business operates that then leads to innovation.
A successful digital transformation can benefit a company by broadening its reach and boosting operational efficiency. Companies need to be aware of the potential technology has to bring about positive change in all areas of the business. As consumer demands evolve, companies need to ensure their technology is developing alongside this.
Let’s consider the costs of not updating technology. Legacy business is often run on expensive systems that are no longer supported by manufacturers, making any issues that do arise costly and challenging to resolve as they have to be referred to a specialist. Older tech is also more prone to technical glitches.
Equally, the skills needed to run and maintain this technology are steadily declining as successive cohorts of workers have learned to use more modern machines. Those who do still exist command high salaries and so are expensive to hire.
Regulation is another major disruptor. With new directives being forced on the financial services industry regularly, including GDPR and MiFID, it is onerous to constantly update systems so they are compliant. Furthermore, the older the system is, the more likely expensive and highly technical middleware is needed to integrate solutions – this can often translate into companies holding off from using the latest tech, or using it inefficiently, simply because it is too clunky to run.
What is often underplayed is the opportunity modernising technology can offer as a way of not just minimising costs over the long term but also enhancing the profitability of a business. Efficient technology enables clients to re-engage these back book cases as potential clients.
In financial services, where spending on leads for each client can top £300 and generate little immediate return, tapping into existing customers who already know and understand the company adds up to a vital saving. For newer companies, the benefits of keeping tech updated in order to be able quickly to access customers and new channels should not be underestimated.
Additionally, many products offered by financial services companies – particularly life insurers and pension providers can potentially run for 50 years. A lot can change in this time and, while we cannot easily foresee these changes, it is essential the technology in place is agile and makes it easy to incorporate upgrades, regulatory changes and downward pressure on fees.
With newer, more modern systems come newer, more modern products. The customers of the future will require a new, more flexible range of products. Those working in the ‘gig economy’, for example, will have uncertain hours and therefore will need a more flexible way of saving to support both their retirement aspirations and their everyday needs.
Saving is becoming increasingly conflated – whereas, in the past, pensions were seen as very separate from other saving products, the rise of the LISA and sophisticated technology is driving a push towards more flexible, on-the-move solutions. Firms who want to continue to attract, never mind retain, customers need to be aware of these.
Companies need to be in a position quickly and cost-effectively to adopt these when they need to. Insurance too is moving towards a different model. Greater personalisation as a result of increased use of artificial intelligence is contributing to a shift towards more customised insurance – companies such as Certua are able to offer real-time rates, which change multiple times a day. Companies that do not keep up with technology risk being left behind when it comes to catering for the modern customer.
Of course, it is all too easy for those in the tech industry to lecture from afar about these decisions. It is far more difficult for those at the coalface to make a convincing case for the need for modernisation – particularly given the fact poor implementation can have huge implications on a company’s reputation and bottom-line.
With so much now bound up in IT, however, it is essential to make the right decision and this needs to consider not just the short-term costs involved in investing in your technology but also the long-term benefits it can bring, and, perhaps more importantly, the perils of doing nothing.
*This article first appeared in Professional Adviser on 06th November 2017. You can view the article here