Deloitte and The World Economic Forum second major research into innovation in financial services titled Beyond Fintech: A pragmatic assessment of disruptive potential in financial services found that fintechs materially changed the basis of competition in financial services, but not yet changed the competitive landscape.
And Australia is no different1. Fintechs haven’t provided the impetus that we first thought they would to change the competitive landscape, because they haven’t been able to convince customers to move away from incumbents.
The reality is – for now - incumbents’ market scale and broad customer bases ensure they maintain their competitive advantage.
“We believe the imminent open data regime, in combination with a broader cloud play and platforms that offer the ability to engage with different financial institutions from a single channel, will change all that.”
However we believe the imminent open data regime, in combination with a broader cloud play and platforms that offer the ability to engage with different financial institutions from a single channel, will change all that.
We expect that these forces, along with the shifts from our domestic and global regulators to level the competitive field, will cause overseas banks to eye our Australian market even more keenly.
1. Platforms Rising
The rise of customer choice will have profound implications on the design and distribution of products, and will likely force companies to shift roles. Platforms that offer the ability to engage with different financial institutions from a single channel may become the dominant model for the delivery of financial services. The rise of these platforms, such as open banking is likely to reshape financial services from clearly defined organisations to interchangeable entities. This means platform owners will need to be capable ecosystem managers, balancing the needs of the product manufacturers with customer demand.
2. Financial Regionalisation
As different regulatory priorities, technological capabilities, and customer needs challenge financial globalisation, regional models suited to local conditions and with local ecosystems are likely to come to the fore. Fintechs too will be face serious obstacles to establishing themselves in multiple jurisdictions, even as technology lowers barriers to entry. So incumbents may become even more attractive partners as fintechs seek new markets and scale.
3. Systemically Important Techs
As financial institutions emulate the core capabilities of large technology firms they are likely to become increasingly reliant on those same large technology firms. Enhancing customers’ digital experiences and unlocking data and revenues from customer platforms, will need the large techs’ cloud-based infrastructure, to both scale and deploy processes, as well as harness Artificial Intelligence as a service.
Differing regulatory priorities, technological capabilities, and emerging platforms continue to rise as key issues for the industry. But in addition to these forces, there are a number of open questions that will influence the future of all financial services sectors.
These range from the role of digital identity, to how financial services firms will mitigate risk, and how data flows will be monetised. With all of these uncertainties, it is clear that disruption and evolution is the new status quo for the industry.
Additional forces uncovered in the report include:
• Cost Commoditisation: Financial institutions may aggressively commoditise their cost bases, removing it as a point of competition and creating new grounds for differentiation
• Profit Redistribution: Technology will likely enable organisations to bypass traditional value chains, thereby redistributing profit pools
• Experience Ownership: Power is likely to transfer to the owner of the customer interface meaning that pure manufacturers must become hyper-scaled or hyper-focused
• Data Monetisation: Data may become increasingly important for differentiation, but static datasets will likely be replaced by flows of data from multiple sources and used in real-time
• Bionic Workforce: As the ability of machines to replicate the behaviours of humans continue to evolve, financial institutions will need to manage labour and capital as a single set of capabilities
However if we continue to focus on how best to protect, reframe and refresh our brands for trust, to offer convenience and pricing choice, along with the freedom of physical and digital distribution, and best of breed products, then there is no reason Australian financial services shouldn’t be able to maintain their core value proposition of providing customers with financial security for the long term.
The reality is that trust is the key.
To download the report and for more information, please visit Beyond Fintech.