New forecast for the financial services industry from the World Economic Forum
Innovation will become part of the DNA of the industry
Some of the world’s largest finance sector companies are reviewing their business models following the rapid growth of “fintech” entrants in the sector. That is the main finding of a World Economic Forum report entitled “The Future of Financial Services: How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed,” that is being released today. The report was developed in conjunction with Deloitte Consulting LLP in the U.S., an entity within the Deloitte* network.
The report draws on over one hundred interviews with industry experts and a series of workshops where executives from global financial institutions like UBS, HSBC, Deutsche Bank, Barclays, Visa and MasterCard met with leading global fintech innovators like Zopa, Funding Circle, Transferwise and Ripple to discuss the future of their industry.
“For decades, banks and insurers have employed similar, highly profitable business models. But they realize those models are coming under pressure due to fintech innovations” says R. Jesse McWaters, lead author of the report at the World Economic Forum. “Financial technology companies are deploying online platforms, have small capital bases, and make strategic use of data, to acquire customers and revenues at a fast pace. Banks and insurers noted that, and are contemplating their response.”
With global investments of $12.2 billion in 2014 in the fintech sector, more than threefold compared to 2013, disruption in the financial sector is not a one-time event but rather a continuous pressure to innovate as new entrants lay claim to more and more of the estimated $6.6 trillion on revenues at stake in global retail financial services. “Innovation will shape customer behaviors, business models, and the long-term structure of the financial services industry. Banks and Insurance firms are already starting to see the effect of disruptors, and we believe much more is to come” says Chris Harvey, Deloitte Global Leader, Financial Services.
However, while innovators will force incumbents to change – often to the benefit of the consumer - it doesn’t necessarily mean that the brand names we know will be disappearing. “Many large financial institutions are highly focused on responding to disruption” says Giancarlo Bruno, Head of Financial Services at the World Economic Forum “incumbents are learning from challengers, adapting their offerings and identifying opportunities to collaborate with new players”.
“When we look at the disruptive potential of innovation, we should not only consider the threats, but also the tremendous opportunities to reinvigorate our industry and become more relevant for our customers. Ultimately, the companies that emerge victorious will embrace innovation to build ecosystems, operationalize agility, and ruthlessly attack sources of friction for their customers,” adds Rob Galaski, Banking & Securities Leader, Deloitte Canada.
The report points out key similarities in the strategies being employed by successful disruptors, such as Future Advisor, Lending Club, and others. Marketplace lending platforms like Lending Club – which captured markets attention with a $5.4 billion IPO - threaten banks core deposit and lending functions. Automated wealth advisors like Future Advisor are contributing to the rapidly eroding margins on core wealth advisory services.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/mt/about for a more detailed description of DTTL and its member firms.
Deloitte Malta refers to a civil partnership, constituted between limited liability companies, and its affiliated operating entities; Deloitte Services Limited, Deloitte Technology Solutions Limited and Deloitte Audit Limited. The latter is authorised to provide audit services in Malta in terms of the Accountancy Profession Act. A list of the corporate partners, as well as the principals authorised to sign reports on behalf of the firm, is available here. Cassar Torregiani & Associates is a firm of advocates warranted to practise law in Malta and is exclusively authorised to provide legal services, in Malta, under the Deloitte brand.
Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 210,000 professionals are committed to becoming the standard of excellence.