financial services

Financial services, which account for about 20% of the global economy, are handling an increasing number of challenges, from technology impact and digitalization to financial stability, with strengthened prudential measures. 

    Financial services, which account for about 20% of global economy, are handling an increasing number of challenges, from technology impact and digitalization to financial stability, with strengthened prudential measures. Through its extensive industry experience, Arthur D. Little is focusing on 4 main trends in financial services:

    • In the next 10 years, financial services companies are going to change radically due to digitalization. These changes range from their competitive ecosystem to their operational efficiencies. 
    • In this context, customer engagement and loyalty and operational efficiency are becoming more difficult to attain. To do so, financial companies need to improve their customer management and develop omnichannel strategies, to generate a consistent, seamless customer experience.
    • Financial services companies have been deeply impacted by “smartization”, with a significant increase in the volume of structured and unstructured data related to any business lines. Incumbent financial services players have started to create business value, leveraging big data & analytics to build competitive advantage while a new generation of players arrive in the competitive arena with information-based business models – social net-banks, fintechs, tech gorillas – to provide specific financial value-added services.
    • Composition of the payments market is evolving at an unprecedented speed. The fintech revolution is posed to fundamentally change how we pay for goods and services. Mobilization of payments opens the door for new entrants from other sectors, such as mobile phone manufacturers, OS developers, telecom companies and start-ups.

     

    Digitalization

    The obligation of financial institutions to confront the current digital tsunami

    In the next 10 years, financial services companies are going to change radically due to digitalization requirements. These changes range from their competitive ecosystem to their operational efficiencies. 

    Even though new competitors are taking a still-small, but considerable piece of the market in most of the business lines, banks and insurers will face an increasing set of competitors, ranging from new players to convergent industries, entering their space.

    Facing this new competitive environment will require a new innovation ecosystem.

    With over 80% of customers interacting through digital channels of financial institutions, a big shift in frequency and typology of interactions is taking place. Banks must rethink their interactions, with a “make it easy” approach and providing value in each interaction.

    The industry is no longer brick-and-mortar, and the sooner the players get away from a brick-and-mortar model, the better.

    Also, among other changes, operational efficiencies derived from digitalization will become a considerable source of competitive advantage, implying quicker and better decision-making alongside reduced need for physical support. This, in turn, will reshape the organizational structure of companies.

    In summary, where financial services companies focus their digital efforts and the subsequent efforts into transformation will be a determining factor for their success in this new age.

     

    Omnichannel & customer management

    Why financial institutions need to rethink their customer management models in a world where 80% of corporate and retail clients use digital channels weekly

    In today’s banking ecosystem, customers have increasing expectations about the client service, because the customer experience they get at Internet providers such as Amazon or Google, or even at fintech companies, becomes their benchmark.

    Furthermore, clients are also becoming more digital and more intensive in their interactions – the number of interactions is growing, specially through digital means. 

    A traditional client interacts with a bank 1.4 times a week, while a digital client does it 0.9 per day. Ninety percent of all interactions with a digital client will be through digital means (and that excludes POS and ATMs).

    Also, the ROPO effect (research online, purchase offline) is having an impact on the way financial products are sold.

    In this context, customer engagement, loyalty and operational efficiency are becoming more difficult to attain, and sales and operations are becoming increasingly digital. It is imperative for the customer model for financial institutions to be rethought.

    • To do so, on one hand, digital platforms (CRM specifically) and better management of client information (commercial, transactional, personal, etc.) are key tools to bringing the customer model up to date, registering all customer interactions, and acting accordingly in the best way for the financial institution and the client alike. 
    • On the other hand, an omnichannel strategy must be put into place. The client paradigm has changed. As he interacts through a broader range of channels, giving him a consistent, seamless customer experience through all of them and reducing the hassle are key to securing his satisfaction and loyalty. Also, the commercial angle of digital channels is becoming more and more important and has to be included in the equation.

    Although this circumstance primarily affects banks, due to a higher frequency of customer interactions, insurance companies, too, have an important opportunity in the customer management model, particularly around better commercial effectiveness and operational efficiency.

     

    Big data & analytics

    A data journey through innovation, information and knowledge

    Financial services companies have been deeply impacted by smartization, with a significant increase in the volume of structured and unstructured data related to any business lines (e.g., larger volumes of transactions and electronic trades on digital channels), as well as to customer environment (over 80% of data generated is unstructured, personalized, and disorganized, e.g., behavioral finance, social media updates).

    This volume of data linked to the ability to draw information from all kinds of sources provides the opportunity to understand better the customer and their situation and context, to increase velocity in decision-making processes with real-time analysis in a cost-efficient manner. 

    Incumbent financial services players have started to create business value, leveraging big data to build competitive advantage, identifying and evaluating margin growth of existing business, new business models, operational cost and intelligence improvement, and organizational & cultural change.

    A new generation of players has arrived in the competitive arena with information-based business models – social net-banks, fintechs, tech gorillas – to provide specific financial value-added services.

    Advanced analytics and algorithms are applied to larger volumes and varieties of data to assess what will happen in the future, rather than reporting what has happened in the past.

    The current and next scenario moves from descriptive to predictive models. Smart-data technical architecture to consolidated data marts, or even data lakes and data analysis to determine rules and predictive modeling, can help in understanding the customer better and addressing them with suitable commercial offerings; improving operational efficiencies either through improved decision-making with machine learning, which increases the amount of operations that go straight through without human interaction, or through automated services; and improving the view of the market and the customer to make decisions that consider risks in a different way.

    The technology is there to address the computational barriers, silo approach and lack of analytics competencies; the challenge is to create business value out of this.

     

    Payments

    Staying one step ahead in an evolving market

    The omposition of the payments market is evolving at an unprecedented speed. The fintech revolution is posed to fundamentally change how we pay for goods and services.

    Mobilization of payments opens the door for new entrants from other sectors, such as mobile phone manufacturers, OS developers, telecom companies and start-ups. In addition to booming competition, increasing regulatory burden and evolving national payment schemes/switches lead incumbent players to revaluate their ways of doing business.

    Regardless of being traditional players or newcomers, the winners will be the ones that adapt and even dare to stay ahead of the curve.