The financial industry is changing at an ever faster pace - external conditions are changing significantly and influencing the business models, strategies and processes of banks and financial service providers. The quantity and complexity of the challenges continue to increase - forcing the industry to rethink.
Taking a look back it shows that since the global banking and financial crisis, financial service providers have faced serious changes and far-reaching consequences. Since then, the implementation of and compliance with new regulatory requirements have presented the industry with enormous obstacles. Even today, well over 10 years later, the flood of new laws and regulations is not receding.
On the earnings side, the persistently low interest rate phase has been putting massive pressure on earnings from the interest business for years. The monetary policy of the European Central Bank is placing an ever greater burden on banks and insurance companies, leading to new dimensions on the markets. Negative interest rates, even for private customers, are no longer a rarity. In addition, the advancing digitalization has drastically changed the needs and demands of customers and employees and poses further major challenges for financial service providers. There is an urgent need for investment in digitization - but at the same time, cost pressure is growing due to low earnings from the interest business.
Finally, the industry finds itself in a rapidly changing market environment with increasing competitive pressure. Open Banking and Open Insurance are challenging banks and insurers to develop new, innovative products and services and to connect with other market players. Traditional financial service providers are in danger of losing contact with their customers. At the same time, innovative technologies are calling for new concepts. Artificial intelligence and blockchain will revolutionize the entire industry bit by bit.
Low interest rate phase and cost pressure - how can you reduce your costs?
Investment income is breaking away further every day for financial service providers - at the same time, digitization and new customer requirements are demanding spirited investments. There is cost pressure, which is increasingly putting the industry under pressure.
One solution option is to reduce IT costs. This can be achieved by optimizing processes and moving away from legacy systems toward lean IT. To achieve this, the first step is to gain full transparency about costs and services in IT so that cause and effect can be identified with precision. Only when the cost drivers and their cause are known the operationalization of the identified cost measures can be tackled. This is a challenge, but it presents a valuable opportunity. Once the foundation has been laid, new, innovative technologies can be used to optimize the day-to-day business of many financial service providers, which is characterized by an expandable degree of standardization and automation. This can free up further urgently needed resources.
Regulatory requirements - what do you need to pay attention to during implementation?
Like the industry as a whole, regulatory requirements continue to change. After initially focusing on ensuring financial market stability and investor and consumer protection, regulators have shifted their focus from combating financial crime to regulating and strengthening competition. The current trend is toward market opening: "open banking" and "open insurance" are the best-known terms in this context.
This strongly changing environment leads to the fact that the financial service providers hardly manage to meet the requirements. As a result, an approach has been established in which most banks and insurance companies can only devote the most necessary resources to regulatory issues due to a multitude of other projects.
Our experience shows: The more consistently the intention of legislators and supervisors regarding regulatory requirements is anchored in an organization, the greater are the benefits that banks and insurers achieve for themselves by implementing the requirements.
Advancing digitalization - how do you get on the fast track to a digital future?
The digitization of the industry is already in full swing - no stone is left unturned. However, the important thing is that digitization must be a development that has been thought through from front to back. Lean processes form the foundation of successful digitization. Unfinished "homework" in process optimization hurts more than ever. New, innovative technologies, starting with Robotic Process Automation, or RPA for short, must be a given. To meet customer demands, the company's own product and service offerings must be fully available online. The outdated IT infrastructure must be transformed to cloud-based standard software. In addition, the topic of sourcing must be re-evaluated.
The digitization of the industry forms the basis for long-term competitiveness, because the market players are no longer the same. New players are emerging with innovative, digital and customer-focused product and service offerings. Traditional banks and insurers have also jumped on the bandwagon already and are expanding their existing product portfolio with new, innovative and digital solutions. In addition, customer expectations have changed significantly. "Enlightened customers" expect fair and transparent dealings - and this is best done "personally-digitally", i.e. depending on the situation, either in detail in direct contact or online in the next moment, quickly and automatically.
Artificial intelligence and blockchain will further revolutionize the industry in the future. By intelligently designing and automating processes, innovative providers are achieving efficiency gains and cost savings, for example in fraud and money laundering prevention. But many other areas will also be supported by these technologies in the future - AI and blockchain will become a key lever of profitability for banks, insurance companies and financial service providers.
Open Banking and Open Insurance - what can you expect?
With PSD2 came a rapid increase in competition in the financial industry. The directive requires banks to grant third-party providers access to their accounts upon customer request. New market participants, so-called FinTechs, have quickly recognized the opportunities of PSD2 and thus of Open Banking. This is leading to increased data sharing, the removal of barriers to data access and, at the same time, greater control for customers over their data. Starting in the banking industry, this trend has long since spread to the insurance industry. The number of new InsurTechs is steadily increasing. Although PSD2 only relates to the banking industry, the trend towards open insurance can now also be seen in the regulatory environment of the insurance industry.
PSD2 and thus Open Banking as well as Open Insurance have significantly changed the way customer access, account, transaction and contract data as well as sales interfaces are handled. A change has taken place that has the potential to push the previous established banking and insurance business models out of the market. New, easy-to-use and user-friendly applications with a wide range of innovative options have shown users what is possible, thus permanently changing their expectations. The financial services of the future belong to those companies that manage to put the customer at the center of their development, act in an agile and data-driven way, and offer customers a positive and comprehensive experience.
How can we support you?
The challenges for financial service providers are huge - the risk of losing customer access and not being able to keep up with the high speed of technological and regulatory change is increasing. This makes it all the more important to actively shape the changes and the future now.
With our years of experience in the financial services industry, we support you in successfully using the current challenges as an opportunity, putting you in the fast lane. As implementation experts, we accompany you from conception to operational implementation. Let us get started!
