Why is this moment so important?

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Why is this moment so important?

Australia’s financial services industry can lead on a number of fronts including innovation, but first the sector needs to get the trust factor right, says Arthur Calipo.

There are three forces that are driving the future of financial institutions globally that are particularly relevant for Australian institutions.

  1. Increased regulatory intervention - and increased regulatory scrutiny
  2. Adopting technology – and its evolving pace, and
  3. Customers and workforce – and both the changing expectations of our customers and how the financial workforce actually can deliver these outcomes for their customers.
The regulatory environment

Both the regulatory environment and the risk environment have changed significantly since the financial crisis. Before 2007/8 financial services institutions invested in being compliant. Albeit with a significantly different and less level of investment, along with the response and intervention.

 

Today however, 30 per cent to 40 per cent of our major financial institutions investments in projects go straight into a regulatory and risk bucket. And of course that has a significant impact on how much these organisations can invest in newer, more interactive, smarter technologies for customers that will take their organisation to a better place.

 

Adopting technology

The two key changes that have occurred and are relevant to the industry are:

  1. The channels through which our customers engage:

         a. Mobile and online are the prevailing and growing channels.

         b. Branches in Australia remain a strong physical presence, although the nature of the competition within channels will continue to evolve between online and mobile distribution networks, and the physical distribution network.

2. The use of data and how it is lever aged to provide insights to customers.

Using data includes using analytics and machine learning, and how by intelligently combining both customers are being helped to actually achieve their financial wellbeing objectives. In our view these are the two most significant technologies financial institutions can leverage which will potentially be game changers.

Customers and the workforce

Our research is showing there is a lack of trust from customers in the financial system overall at an institutional level. However this lack of trust does not translate at an individual level. In fact customers report being both satisfied and trusting of their direct counterparts in banks. In Deloitte’s latest research into trust, consumers do report that they lack trust in either the corporation or institution itself.

We believe one of the best ways to address this key issue of trust is to find ways to empower the workforce – an already trusted entity – to be better enabled to transact.

The opportunities and the threats

Each one of the three forces that shape our financial institutions also come with threats as well as opportunities.

Threats

  1. Regulation: It is important to know where resources are being allocated. This is particularly apposite today where we know significant resources are corralled to comply with regulatory environments as opposed to generating return on investment. This impacts profitability and so sustainability.
  2. Innovation: The second threat is innovation. Our research with the World Economic Forum, shows that innovation happens where customer friction or pain points meet large pools of profits. If the financial institutions does not recognise the pain points, there will be disruption.

This type of innovation is most likely to be like a sniper type, where the disrupter will smooth the customer pain point and so take away some of those big profit pools from the banks. Agility is key and so is rapid response or speed.

Opportunities

By shifting from selling and providing customers with products, think about customer outcomes which open up real opportunities for our behemoths and our startups. In this way regulatory imposts and innovative disruptions can be turned into opportunities.
For example:

Instead of selling a product or service.
Instead of:

Think about providing a customer outcome
Think of:

A mortgage

Home Ownership

Motor Finance

Mobility to customers

Insurance

Protection for customer's assets

 

As banks move away from pure product selling to customer outcomes, it is also important to reach out to the start-ups and innovators to build a broader ecosystem, alliances or partnerships, and so generate new opportunities.

Speed: The key requirement to build these opportunities into reality is to deliver change at a much faster pace than before. Culture: But also we need to change and transform the culture of our organisations to do so.

As banks move away from pure product selling to customer outcomes, it is also important to reach out to the start-ups and innovators to build a broader ecosystem, alliances or partnerships, and so generate new opportunities.

Speed: The key requirement to build these opportunities into reality is to deliver change at a much faster pace than before. Culture: But also we need to change and transform the culture of our organisations to do so.

This article was first published in Asia-Pacific Banking & Finance.

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