The new physics of financial services
How artificial intelligence is transforming the financial ecosystem
As artificial intelligence (AI) significantly changes the traditional operating models of financial institutions—shifting strategic priorities and upending the competitive dynamics of the financial ecosystem—how can financial institutions better embrace AI and prepare themselves for the future?
Much ink has been spilled on the role of artificial intelligence (AI) in financial services. But the bulk of it has been about technical requirements or near-term trends. For those trying to understand the strategic implications of AI in the industry, the body of work has been slim.
Our Deloitte Consulting team recently joined with the World Economic Forum (the Forum) to address this gap. Over ten months, we conducted a half-dozen global workshops and more than 200 interviews with experts. The results of that research are contained in the Forum report, The New Physics of Financial Services: Understanding how artificial intelligence is transforming the financial ecosystem. This article is a summary of those findings
Our aim is to help financial executives, regulators, and policy makers gain clarity around the ways that AI is changing the operating models of financial institutions, affecting strategic priorities and competitive dynamics, and raising challenges for public policy.
Since 2015, Deloitte has worked with the Forum to gauge the forces of change in financial services. Our work represents four years of research into ways that technology is disrupting the financial services ecosystem.
These advances are rapidly changing what it takes to build a successful business in financial services. Eventually, an unfamiliar environment will appear, one that has been reassembled to deliver new kinds of value, reshape operating models, upend competitive dynamics and take public policy into uncharted territory. The result? A great upheaval - of capabilities, resources, relationships, and potential. Old bonds will break. New ones will form in unexpected ways. The centre of gravity will shift, and where it comes to rest depends on the choices that stakeholders make today.
AI is changing how financial institutions get and keep customers. Even as it commoditises traditional points of differentiation, AI offers the opportunity for significant market innovation. The one certainty is that firms must adapt their products and services for the day when AI automates customers’ financial lives - or much of it, anyway - and improves their financial outcomes.
A new proving ground for customer loyalty
Historically, financial institutions relied on price, speed, and access as ways to attract customers. But online platforms are making it easier for customers to compare prices. Emerging technologies are reducing instant product and service delivery to a basic expectation. And thanks to digital distribution, there’s less need for intermediaries in the course of doing business.
As the old levers become less effective, new ones emerge in their place: customisation of offerings to customers’ specific financial needs and objectives; engagement through ongoing and integrated interactions beyond financial services (such as offering forecasting services to merchants or booking repairs for auto damage); and curated ecosystems based on data from consumers, corporate clients, and third parties. These new levers will provide stronger ways for financial institutions to compete on value, retain customers, offer differentiated advice, and provide one-stop solutions.