31st Jan 2018CIO
Stephen Ingledew - Chief Executive, FinTech Scotland
Technology and Collaboration Reinventing Financial Services
The technology advances and social revolution we are living through is giving rise to a new economy in which the established market rules are being turned upside down.
One implication is the changing the relationship between smaller enterprises and large corporations in delivering good customer outcomes.
Within the insurance and financial services sector there has always been a co-existence and relationship between large and small businesses to meet the needs of customers and deliver good financial outcomes.
However, new technologies are changing the competitive landscape and allowing small enterprises to compete and even partner with established companies in very different ways.
Hence, the much talked about financial services market disruption by what have be referred to as ‘FinTech’ and ‘InsurTech” enterprises.
One consequence is that large companies may no longer be able to rely solely on their scale and brand to maintain competitive advantages, growth trajectories and dictate market conditions.
So how will large established businesses constructively respond to this new financial services market place? Here are some emerging developments which are reinventing the financial services eco-system;
The emergence of ‘Fintech’ enterprises and how they operate is not now always seen as a competitive threat to big financial services organisations as there may be an opportunity to collaborate in new ways by tapping into their innovation.
For example, there are growing opportunities to collaborate with start-up and entrepreneurial enterprises in order to meet customer expectations by delivering propositions in a different way.
However, this will require a more collaborative and flexible partnership based relationship compared to the traditional out-source supplier engagement approach.
Such a new collaborative approach with smaller enterprises can bring a different mind-set to an existing business problem, helping larger businesses to improve and deliver results more efficiently.
Of course, for this to happen there needs to be acceptance that not everything must be done in house and with existing resources.
It would also mean looking beyond large established partner relationships, who may not be in a position to introduce new innovative and ways of working and agile processes.
There’s often a misconception that innovation only comes from those with large R&D departments, when in fact smaller enterprises DNA is all about innovation on the go, they just go about it differently.
There can, therefore, much to learn from the more dynamic approaches of ‘FinTech’ enterprises, for example, in how they embark on disruptive design led innovation with a very sharp and clear sense of purpose.
This strength of purpose around the needs of customers brings sharp clarity to how they develop new propositions for out dated practices in financial services and go about removing friction in the customer experience.
Then executing against this purpose with flexibility and agility, ensuring that testing and learning provides a deep understanding of what meets the customer and business need and what does not.
In practice this involves simultaneously thinking and creating in an iterative way, thereby avoiding the traditional linear and project based approach to responding to customer needs and business challenges.
Established large businesses have not always been set up to operate in this way and can be hindered by their in-built control processes, functional structures and conventions. However, size should not be an inhibitor to learning new more effective approaches to change.
An agile approach could be particularly relevant when seeking to introduce new advances in say artificial intelligence or blockchain to address the existing way in which financial services are delivered to customers and administered.
Innovation can be taken a step further by allowing new “FinTech’ enterprises to developed and grow within an existing financial services large corporation in order to meet an identified customer need or business challenge.
This could be especially valuable when addressing a business need that could not be met through existing skills, processes and practices within the larger organisation.
For this to happen the ‘FinTech’ team must be given the opportunity to deliver and commercialise the newly identified need in a new way and with a different way of working. In other words, to maintain an entrepreneurial business model and ethos whilst learning how to scale.
This enables the ‘Fintech’ enterprise to focus on the problems the customer has, rather than the problems the established business thinks they face. This also gives recognition to the fact that new and emerging customer needs cannot always be effectively met by delivering a proposition through existing established services and processes.
Working with small enterprises through an incubation based approach can result in greater flexibility and efficiency by blending the benefits of scale with the agility of a small enterprise, allowing a more responsive to changing customer needs.
A key aspect of these approaches, whether it is to collaborate, learn or incubate, will be how value is shared between the different parties in the financial services eco-system.
This will very much depend on the business challenge being addressed and how real mutual value is created, for example, whether through new revenue streams or cost efficiencies as well as how quickly results can be demonstrated from the initiative.
However, it will call upon a transparent dialogue in order to establish a relationship that is equitable and sustainable.
In this respect, existing procurement and supplier management models within large financial services may need to evolve in order that detailed processes and protocols do quash the very collaboration and learning opportunities the main business is seeking to leverage.
What examples are we seeing where larger organisations are working more closely with new ‘FinTech’ enterprises?
A great deal of the attention in recent times has been on ‘Fintech’ activity at the front end of customer engagement in the financial services eco-system and how such developments are a perceived threat to established businesses.
This is where there is significant opportunity to collaborate, learn and incubate new and emerging developments within the financial services market. Specifically, the models which seek to improve customer relationships by reverse engineering services around behaviours and simplifying and tailoring the experience.
Such automated and technology enabled customer interface has sometimes been referred to a ‘robo-advice’ often with a sharp focus on personalisation using analytics and artificial intelligence capabilities.
For example, the cognitive technology generating and evaluating options for customers which learn and adapt in real time to help understand and meet their needs. By its very nature it is a personalised service and supports customers at scale and in an efficient way
From one perspective, such capabilities could support large established organisations with customer retention challenges and improve outcomes by complementing phone and on-line services.
A more impactful example could be to use such customer interfaces as a virtual assistants to support financial advice partners be even more efficient and augmented the service delivered to customers.
For example, a cognitive interface which connects peoples financial accounts and on-line profiles making traditional fact finding a thing of the past so adviser time is focused on advice planning and relationship management.
Furthermore, the insight from the data would enable advisers to understand through proactive alerts when it is time for a valuable conversation with their customer.
Importantly, as well, with the appropriate data sharing, communication and security, it would facilitate a more efficient relationship between the adviser and financial services companies.
This is an example of where ‘Fintech’ capabilities can strengthen the relationship between existing parties in the financial services eco-system. However, this opportunity to enhance the eco-system extends beyond the development of customer front end technologies with ‘FinTech’ enterprises
The ‘Fintech’ developments have focused on adding value by addressing financial services ‘pain’ points and this is as relevant to the business to business aspects of the eco-system as well as the from end of customer engagement.
Therefore, there are potential opportunities to collaborate, learn and innovate in the behind the scenes technology developments in respect of regulation, security and authentication as well as the underlying technology that underpins to the eco-system.
For example, using machine learning to identify and prevent fraudulent transactions before they are completed which are a huge cost for the sector and give rise to significant administration burden. Other situations would be supporting anti money laundering requirements and helping to reduce the general high costs of compliance
These and other examples have the potential to uncover new efficiencies, ensure compliance and support the move to a more cohesive operating model all of which would facilitate a positive reinvention of the eco-system.
The evolving financial services eco-system and the way it operates will increasingly encourage established large companies to re-evaluate their strategies, partners, working methods and culture.
This includes how they work alongside the new ‘FinTech’ players who are bringing a fresh perspective to new and existing challenges in delivering improved customer engagement.
Technology is certainly driving a reinvention of financial services and this can be a positive force benefiting large and small enterprises alike as well as, importantly, delivering better customer outcomes.
Therefore, spending more time seeking to understand the critical success factors of new and emerging ‘FinTech’ enterprises across all aspects of the eco-system could be hugely beneficial.
After all, you can never be too old or large to learn, especially as some of the new ‘FinTech’ enterprises will be the big companies of the future.
Author: Stephen Ingledew - Chief Executive at FinTech Scotland – Hear Stephen’s keynote at the CIO Event on 7th June at St. Andrews University. Reserve your place today!
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