Technology in the financial sector: How to rise above the competition
June 18, 2018 | Richard Harpur
Established financial sector firms will face crisis if they don't have a plan to navigate inevitable industry change. It's easy for vulnerability in established firms to go unrecognized; however, the threat is real and growing. According to PwC, financial firms may lose up to 28% of their banking and payments business to rising fintech companies by 2020. Insurance and asset & wealth management is also at risk with up to 22% of business predicted to be lost to disruptors.
Fintech is a growing industry, but competition in the financial sector isn't exclusively from new startups with agile methodologies. According to the World Economic Forum, the largest competitors for financial firms are large technology companies. For example, look at Apple Pay®—a service launched not by a financial sector firm, but instead by a technology giant. So, how do established financial firms compete and survive with competition on all sides?
A large challenge facing established financial firms is their inherent inability to move quickly. Many financial sector organizations have stringent regulations and compliance requirements, and 'breaking things' is unacceptable. These companies can ride the next wave of growth successfully, but they must learn to move faster. The following strategies can help.
Organizational focus on growth products and services
In his book Escape Velocity, Geoffrey Moore presents a model for understanding where an organization is within a lifecycle. Starting with emerging products and services, these evolve into a growth phase. After a period of growth, the products and services enter a mature phase where they can remain for a considerable period. Ultimately, all products and services decline in the long term.
The challenge for established financial sector firms is the amount of resources allocated to the products and services in the mature phase. Prioritizing products and services in this phase is common, because short term financial objectives are achieved, shareholder expectations are met and markets provide approval. But this approach can starve the growth products and services to a point where they don't mature. Organizations must classify, prioritize and nurture products and services in the growth phase.
Financial firms can be highly competitive if they learn to transform how they view technology and emerging markets. Innovation from within comes from being unconstrained by legacy technology, establishing ways to quickly adopt new ideas and driving expansion in untraditional regions.
Think like a tech company
The goal here is not to adopt the perspective of Amazon or Google, but rather to allow technology to drive business strategy. Examine at a greater level how technology can help the customer and think first about new technology; consider legacy technologies only as a second priority.
Be a fast follower
Understand and accept that an established firm may not always be the inventors of new, innovative ideas. However, they can (and must) arrange their resources to move quickly once they see an idea gaining traction in the market.
See potential in other regions
Hidden potential for innovation may exist in overseas markets as regulation isn't consistent across different regions. Just because a firm sees slow take up of a product or service in one territory, it doesn't mean the product or service won't be successful in other territories.
Getting the right team
A team driven by the possibility and opportunity in change, looks very different from a team driven by compliance. When leaders encourage their team members to embrace change, the characteristics of the team are fundamentally altered. Those characteristics look like this:
- Hungry innovators that have a desire to create something new
- Success measured by the level of adoption and not the level of revenue initially
- Driven by intense learning and training
- See personal goals in place of general organizational objectives
The financial sector is undoubtedly facing an uncertain future, but established finance firms can capitalize on change by establishing new standards of agility. Leadership must look deep into organizational structure and identify what's making them less competitive. Innovation must be fostered, so teams have the freedom to uncover new opportunities. And finally, talent must be encouraged to tackle new priorities that are evaluated not by revenue, but by adoption.
To see these agility strategies in action, check out the on-demand webinar on technology in the financial sector.