Saturday, May 26, 2018
Business

Opportunities and risks for financial services companies that harness technology

Technology is driving a wave of disruption across the entire financial services landscape. Financial services companies are increasingly finding themselves both competing with and working alongside more agile, highly entrepreneurial technology-based entities in a new and evolving ecosystem.

There are a number of global trends creating opportunities for financial services companies:

China is growing at about 7 percent annually, roughly the equivalent of creating a country the size of Mexico every year
At the same time, China and other emerging, fast-growing economies are raising many of their people above the poverty line, creating a new class of financial services consumer
In more developed countries, people are retiring later and living longer

These trends are driving a growing need for financial services.

However, the story does not end with demographics and economics. Changes in technology are reshaping the ways these services are being delivered and consumed.

Consumers expect simplicity and mobility. Smart phones provide a wide range of financial services at our fingertips. With the rapid growth in artificial intelligence and machine learning applications, savvy financial services companies are adapting to the new ecosystem of digital service delivery and customer relationships providers. Gone are the days when customers had to visit the branch of their local bank to get all of the services and products they needed.

The shakeup in providers will make for a vastly different landscape for competing financial services organizations in the near future.

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While the adoption of blockchain technology is still in its infancy, it will potentially reshape the financial services landscape. Much of the transaction processing, matching, reconciliation and the movement of information between different parties will be a thing of the past. Once regulation has caught up with the technology, blockchain or distributed ledger technology will become ubiquitous.

Financial services companies need to understand where they fit in this digitally fueled, rapidly evolving environment. They need to decide how to take advantage of digital transformation. Many are starting to use robotic process automation to reduce their costs. But the reality is that the spread of automation will soon level the playing field in terms of cost, and these companies will once again need to look for competitive advantage, either in the products and services they offer or the way they can leverage their relationships with customers and partners.

When companies leverage technology and data to achieve their business goals in this new environment, they also introduce new risks.

Cybersecurity and data governance are two areas where financial services companies continue to struggle. The safety of an ecosystem will be dependent on its weakest link. For instance, if unauthorized breaches occur in one entrepreneurial technology company with less mature controls, those breaches can put all connected institutions and their customer information at risk. Further, automation can result in decisions based solely on data and algorithms. Without solid data governance, and basic change controls, mistakes can rapidly propagate and spiral before they can be detected, with dramatic consequences for customer trust, regulatory penalty and shareholder value.

Strategically, financial services companies will need to decide if they want to be curators of services from various providers—and focus on developing strong customer relationships—or if they want to provide the best product curated and offered by others. Investing in one of these strategies will be a key to success.

The interview was filmed with Angela Corpe, Business Correspondent of The Business Debate and Peter Brady, Principal and National Financial Services Consulting Leader, RSM US LLP.

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