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How to weather the perfect storm in financial services
Responding to platformification in the financial services industry and seizing its opportunities
The rise of digital platforms, the increasing threat of disintermediation, declining trust in the financial sector and the war on talent make for a perfect storm for financial institutions. Incumbents in the sector should react now. But how? In a series of articles, we help you navigate the perfect storm.
PSD2 is doing its job. The revised Payment Services Directive aims to facilitate innovation and competition, and that is exactly what it has been doing since its entry into force in 2018. Slowly but surely, digital platforms are driving a wedge between customers and the incumbents used to their unique position in the financial value chain. This applies not only in the retail market, but also to the mass affluent, wealthy individuals and the Small and Medium-sized Enterprise (SME) segment.
At the same time, trust in the financial services industry is declining, which weakens its competitiveness. Research shows that customers are more likely to entrust their data to one of the big tech companies or fintech companies rather than to a bank. SMEs would rather give more data to their accounting software vendor if it aids them in offering better services.
And then there is the war on talent. Incumbents in the financial services industry have to deal with their stuffy image. Talented people, especially engineers, prefer to work for horizontally-organised and nimble tech players (small and large) than for big hierarchically-organised financial institutions.
A dangerous cocktail
Taken together, these challenges to the financial services industry form a dangerous cocktail, especially since incumbents are having trouble responding with speed and focus. Yes, they are investing in innovation, but most projects fail to transcend their experimental phase. And in many cases, ambitions are not clear and there isn’t an organisation-wide strategy and scale-up plan behind an innovation project. “Eat yourself before somebody else eats you” is not a practice widely used by incumbents.
If organisations respond accurately, though, they realise there are also a lot of opportunities for securing their financial future. Navigating the perfect storm means that choices need to be made. Innovating in small projects is no longer sufficient, since fintechs have millions to spend on quickly developing new services. If incumbents want to participate in the financial future, they need big(ger) innovation budgets to get there.
Platforms and banks
It’s time to get a clear view on which role your organisation wants to play in the quickly evolving digital financial landscape. There’s a fundamental difference between a platform and a bank. Do you want to offer the best possible solution for your customers together with partners in an ecosystem, or is your organisation a financial product factory?
It’s time to change your perspective on how you can serve your customers best. Instead of trying to sell as many financial or insurance products as possible, financial organisations should consider combining different services, like helping a consumer seamlessly move to a new home.
Role in the value chain
Which role do you want to play in the value chain? There’s probably room for just a few platforms. Is your organisation able to be the orchestrator of such a platform, or are you better suited to offer specific products and services on the background of those platforms?
You need to define where to play, how to win and which organisational capabilities you’ll need to sustain your advantage.
In the following articles, we’ll dive deeper into each aspect of navigating this perfect storm and the clear choices you will need to make. With a clear view of the fintech ecosystem, our market-leading methodology for building successful platforms, regulatory-proof approaches for data aggregation, data management and data analytics, multi-partner agile development and talent strategies you’ll be sufficiently equipped to hold and even improve your position in a quickly developing landscape.
Do you want to know more about the perfect storm your financial organisation may be facing? Do you need advice on strategy? Please contact Emeric van Waes or David Ruis via the details below.
Per April 2020 the amendments will be effective for EU Banks
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