Contributed by NTT DATA Services
Written by Michael Goodman, VP of Data and Technology Advisory, NTT DATA Services

While digital forces roiled other industries, life in financial services seemed well-protected against the chaos until recently. Incumbents had cemented relationships with large customers over decades, vertically integrated business models insulated them from external shocks, and banking regulations erected difficult-to-overcome barriers for new competitors.

The digital tide traditional financial services providers thought they were escaping is now rolling onto the beach in the form of rising customer expectations, unexpected competition and the evolution of the platform economy — all driven by digital technology.

According to recent research by NTT DATA, new digital technologies, increased competition, and evolving customer expectations are driving 61% of financial services and insurance carriers (FS&Is) to shift away from traditional, vertically-integrated business models of offering customers only their own products. As a result, nine in 10 global FS&Is believe in the need for transformational digital change.

To compete effectively in the changing market and keep up with rising customer expectations, 53% of respondents indicated they must better leverage new technology. Artificial intelligence (AI), machine learning, blockchain and the Internet of Things (IoT) are making new business models possible.

FS&Is must adopt and integrate digital technologies within their legacy core systems to work with partners both inside and outside the financial industry.

These technologies also enable new business models, lower cost of prediction, more data-driven insights, quick hyper-segmentation and hyper-personalization, and inform a strategy around hyper-customization of products.

In addition to new digital technologies, 46% of executives are concerned about the competitive threat from new entrants: fintechs, insurtechs and technology giants. For a long time, the industry believed tech startups couldn’t challenge traditional financial institutions. The incumbents were too big, too entrenched with their customers and the industry too regulated. But over the last three years we have seen a major shift in attitude, as the industry has been forced to respond to the success of their new tech competitors.

This new level of industry competition hasn’t been spearheaded by established financial giants, but rather by retail and technology innovators such as Amazon, Apple, Facebook and Google. Their strategic weapon of choice is the Digital Business Platform (DBP).

Inside a friction-free, easy-to-use, mobile-accessible environment, a DBP can introduce consumers to a wide range of personalized goods and services, many of which are not even created by the platform owner. Platform businesses are anything but the traditional banking model of vertically integrated, full-service products sold through branch offices. Instead, platform participants operate in concert to provide consumers with unique value 24×7.

In order to accomplish this, financial services and insurance companies should follow suit by creating a Digital Business Platform that allows them to leverage legacy systems to seamlessly connect and operate with fintechs, insurtechs and other parties in a global ecosystem that provides consumers the unique value they have come to expect from platform-driven companies.

Survey respondents from six different countries agree as:

  • 85% indicated a Digital Business Platform represents a significant opportunity to reposition the company.
  • 83% said the integration of legacy core systems into a DBP is important for their competitive position in the next 3-5 years.

However, only 23% said their company currently has a DBP that works and provides benefits.

The industry is at an inflection point for change.  The stakes have never been higher for traditional financial services institutions and insurance carriers to evolve their business models to engage customers and partners to maintain clients and generate new business.

Michael Goodman: 704.340.4645, michael.goodman@nttdata.com

 

About NTT DATA
NTT DATA is a top 10 global business and IT services provider with 120,000+ professionals in more than 50 countries and a division of NTT Group, a partner to more than 88 of the Fortune 100. Visit www.nttdataservices.com to learn more.