Financial service innovation in the years ahead: The challenge to businesses, regulators, and the marketplace

BY / Lawrence Chia and Ken Dewoskin

　　Financial service innovation is proceeding ahead at sizzling speed, enabled by advances in digital technology, the dynamics of globalization, massive aggregations of data, and shifts in consumer buying habits and activities overall. Innovation is changing the mix of products and services related to transactions, investment, and lending, improving the efficiency of financial services, and most importantly, bringing entirely new players into the arena of financial services. For financial service providers, both traditional and new, sources of growth and profitability are in flux, consumer reliance on credit and stored value systems in transition, and the potential to scale innovative products and services to global reach is unprecedented and essentially unlimited.

An overview of the future

　　There are no sectors of industry and commerce being more strongly impacted by innovation than financial services, especially the range of financial services that traditionally has been the purview of banks. Not only is the impact of innovation on financial services both broad and profound, but the pace of change driven by innovation is accelerating. The key role of financial services in commerce means that financial service transformation will create huge growth opportunities.

　　Financial service innovation has proven to be a huge creator of value, for entrepreneurs and investors. The cutting edge of digital technologies—hardware and software—is enabling financial activity, even at micro-scale, to be global, always "on" 24/7, instantaneous, inexpensive, secure, and mobile. This list of benefits is driving very rapid change.

　　At the same time, the pace of change is challenging traditional banking enterprises to remain competitive, and it is challenging regulators to maintain order, stability, and security in the financial service marketplace. This is not a phenomenon limited to one economy or another. It is a global phenomenon changing the service landscape within all major economies and across national borders.

　　Innovation in financial services is enabled by technology but not motivated by it. At the heart of financial service innovation are business model and product inventions that are motivated by market demand and opportunities, in turn generated by changing consumer and commercial needs. Financial service innovation is integrally linked to major changes in retail, investment, wealth management, lending, and ultimately, by the forces of globalization. Just as B2C eCommerce makes the location of both the seller and the buyer almost irrelevant, innovative financial services make distance vanish, and physical location all but irrelevant. The major new players entering financial services did not do so with the intent of entering financial services, but as consumers of financial services themselves, they saw the needs and the opportunities and stepped into the realm.

　　Auction houses, on-line gaming companies, and retailers have driven digital infrastructure in the virtual world, logistics infrastructure in the physical world, and financial service innovation linking both worlds.

Lawrence Chia
Deloitte China / CEO

Ken Dewoskin
Deloitte China / Senior Advisor