By Julie Coates, Bernadette Howlett, and Monty Hamilton
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Change is sweeping rapidly towards Australia’s financial services sector – and it’s coming from all directions. Here are five predictions for the years ahead, followed by our thoughts on how financial services leaders can get their organisations onto the front foot.
1. Core banking technology will be ripe for innovation
While the speed of core banking technology will increase, the cost will decrease. This will make it much easier (and less risky) for financial services providers to switch platforms and redesign solutions. Core products that have barely changed in two decades will increasingly be designed around consumer-led experience, powered by data connectivity and open architecture. This will deliver a genuine step change for Australia’s core financial services products within the next five years.
2. Customers will have multiple relationships with multiple providers
The days of customers being captives to one financial institution are numbered. Regulatory change will pave the way for more portability, and it will become ever-easier for consumers to share data. Financial services providers will have the analytics to dramatically improve consumer experience and accurately conduct risk profiling that is personalised to individual circumstances.
3. China will show the way
When people talk about innovation hubs, nations like the USA, Japan and Israel always crop up. But if you want a glimpse of what Australia’s financial services future might look like, you should instead look towards China. Already their payments architecture is years ahead of most nations, including the USA. Now there’s a whole generation of customers in China who are being served financial services products built around their lifestyle, instead of traditional models of ownership and appreciated debt.
4. Non-bank players will enter the financial services market
As the cost barriers and regulatory barriers come down, we will see new players from entirely different markets enter financial services. Trusted brands could make real headway, backed by huge capital reserves and unencumbered by legacy systems. Already in China we are seeing non-bank players such as Tencent and Alibaba aggressively enter financial services.
5. Branchless within a decade
Mobile technology has become second nature for Australians, and we are spending more time on digital platforms than in bricks and mortar retailers. The days of bank branches appear numbered. New players in the market will not establish branch networks, allowing them to minimise asset costs and pass the savings onto customers. Established financial institutions with branches will be at a disadvantage until they cut loose the asset drag on their balance sheets.
How financial institutions can prepare
Financial services institutions could benefit from a process of reinvention. This starts with reflecting upon the very core of a business and clarifying: What are we good at? What sets us apart? And then asking: In future, how are we going to make money? We expect many institutions will answer that question by focusing solely on being a distributor or a product manufacturer.
Part of the conversation also needs to focus on trust, acquisition and retention. This is a huge challenge. In a market where consumer trust in financial services is at a low ebb, and customers can easily switch between financial services providers, organisations need to quickly decide how they are going to attract and retain clients.
The focus then shifts towards legacy products and systems. These are typically expensive and unwieldy. In most cases, the sooner institutions leave these behind, the better. Customers will demand convenient and seamless experiences and new market entrants (unencumbered by legacy systems) will offer these. To keep pace, established players need to integrate their workflows from front end, through middle office, to back end.
Within this process of reinvention, regulation needs to be top of mind. In future, increased regulatory oversight will be a fact of life. Building new customer solutions, only to find they aren’t compliant with new regulations could be disastrous. Instead, compliance needs to become a core part of the innovation process.
Financial Services Council Summit
Julie Coates and Monty Hamilton will be speaking at the Financial Services Council Summit in Melbourne on 25 July 2018. More information available here: https://fsc.org.au/event-list/website-events/the-summit-2018/