Post-pandemic banking. 6 drivers shaping the future of finance after Covid
In fast-changing world financial services firms need to improve their ability to adapt to change – this ability is already becoming a leading indicator of their future success or likely default. Alberto Garuccio, Innovation leader at Reale Mutua and findexable’s Regional Ambassador for Italy, France and DACH explains.
The ‘6D’ chain reaction of technological progression of the last decade – digitization, deception, disruption, demonetization, dematerialization and democratization – hardly seemed to touch some corners of financial services.
Instead we ended up with an, ‘I’ll-scratch-your-back-when-you-scratch-mine,’ model based on cooperation between industry incumbents and startups in place of industry-wide disruption.
So far, so 2019
2020 on the other hand looks like it will drive transformation on another scale entirely. A scale looking increasingly like a digital tipping point for the sector.
What do we mean? Well let’s think about what we’ve seen so far during the pandemic against what we could see happening before the world was quarantined.
On the one hand, COVID-19 has already dramatically accelerated the need for incumbent firms to digitise. And whatever the final outcome when the pandemic subsides, financial service firms old and new will learn valuable lessons about what their customers want, their own business resilience and how to compete in a digital first (and potentially digital-only) market.
Pre-pandemic the concept of banking was already under threat. With ‘banking as a service’ an increasingly common, if unremarkable feature, of many companies entering the marketplace. From companies like Plaid and Synapse working to simplify and lower the barriers to entry for offering banking services, to technology firms like Shopify (an e-commerce platform) in the US or Grab (a food delivery app based in Singapore) offering financial services ‘baked in’ to their products. (‘invisible banking as service’).
It’s easy to get carried away by the froth created in the middle of a crisis as far-reaching as this one but what we can say is that there are 5 market drivers shaping the future of financial services:
Event: Low interest rates for an extended period, reduced business activity and an increase in bad debt.
Outcomes: How long the recovery will take will impact business resilience of incumbents and startups, laying foundations for collaboration or business combinations.
Event: Changing customer behaviour has already impacted business planning across the sector.
Outcomes: With individuals and businesses under increased financial pressure, adoption and customer behaviour in other, unanticipated areas may accelerate – from real-time payments, banking or lending to financial advice and customer support. Might it also create knee-jerk, stress-driven financial decisions – adding to the challenge of managing business operations or that could worry regulators?
3. Operating models
Event: Industry-wide changes to the sector will provoke adjustments to business models, while lessons learned from the lockdown in terms of companies’ ‘digital deficit’ and right-sizing the business for a digital future prioritising cyber, remote working and greater efficiency will impact financial firms across the board.
Outcome: A prelude to a new wave of restructuring, M&A and wind-downs of fintech and smaller banking firms impacted by a reduction in the money supply and making business models unsustainable (as well as new opportunities for incumbents to support the restructuring of other industries).
Event: This decade will pose new challenges for the sector beyond digital transformation but surprisingly few firms are ready to take them up.
Outcome: To succeed at increasing their resilience, incumbents or newcomers must rethink internal and external strategy, identify a valuable transformation mission for their stakeholders – building in sustainability, transparency, meaningfulness and impact, that will allow them to compete on a new battlefield.
Event: A temporary relaxation of regulators’ focus on promoting competition could change the incumbents and startups strategies.
Outcome: This may also apply outside financial services, as government and regulators encourage firms and industry bodies to collaborate, facilitating effective crisis-management, reducing implications of regulatory change and enhancing new requirements.
Something to do now: Even if it’s true that this situation was caused partly by a failure to prepare for the future, the actual scenario has a day by day evolution and will be deeply determined by which incumbents and startups are failing or succeeding now.
Companies or individuals are making daily decisions under conditions of extreme uncertainty, balancing cash reserves vs. growth, advance planning vs. a changing strategy, revenue vs. margin, while trying to maintain coordination and company culture.
There’s no easy answer to tackling the opportunities that are hiding in plain sight. The only consistent approach is to focus on maintaining business continuity, while throwing out the old assumptions – whether to drive innovation across the enterprise or adjust your positioning in the market.
5 market drivers, 1 human
Despite all the talk of technology, this process can only be led by a vital 6th driver. Our people.
As Marc Andreessen, General Partner at the venture capital firm Andreessen Horowitz wrote recently: “It’s time to build. Every step of the way, to everyone around us, we should be asking the question, what are you building? What are you building directly, or helping other people to build, or teaching other people to build, or taking care of people who are building? If the work you’re doing isn’t either leading to something being built or taking care of people directly, we’ve failed you, and we need to get you into a position, an occupation, a career where you can contribute to building. There are always outstanding people in even the most broken systems — we need to get all the talent we can on the biggest problems we have, and on building the answers to those problems.”
Together. We can (re)build.
For more information and insight – join our global briefings series over the next few weeks as we talk to fintech founders, ecosystem partners and institutions on the impact of coronavirus, and what comes next. www.findexable.com. Download the The Global Fintech Index 2020 City Rankings on http://bit.ly/2020GFI