Navigating a Changing Financial Landscape

By Venkat (Vinnie) Badinehal
Published March 14, 2019 | 4 min read

Disruptive technologies, regulations, competitors and customer expectations have created an uncertain landscape for financial institutions

Financial institutions have overcome challenges and change before. Just look at the 2008 crisis. It’s been a long road to recovery, but in a decade the industry has bounced back to (relatively) good health. Stock markets have stabilized, the job market is thriving and consumers are ready to put their trust in financial institutions again.

Yet today our sector is undergoing a series of new paradigm shifts. Disruptive technologies, innovative competitors and ever-changing customer expectations – combined with volatile macro-economies and global regulations – have created an uncertain landscape.

Turning the challenges of such accelerated, radical change into opportunity is no easy task. To succeed in such an unpredictable world, banks, specialty lenders, insurers, and asset management companies will need to recognize a universal truth – the best way to define their future is to drive it.

In the context of this backdrop of radical change, it’s crucial to find answers to the challenges – and opportunities – that innovation and disruption bring. How will economic, technological and regulatory demands limit or accelerate transformation? How will our industry evolve? Who will emerge as the leaders of our industry over the next decade and what will differentiate them from their competitors?

Geopolitics and Market Volatility

Geopolitical issues remain at the forefront. Volatility is here to stay, putting pressure on financial markets and institutions globally. Protectionist policies could continue to impact everything from foreign direct investment and monetary policy to foreign exchange, global trade and stock markets.

The global political climate may be uncertain but one thing is sure; those who have contingency plans for all of the above will be in a better position to future-proof their own success.

Frontier Technologies

Technology is continuing to blur boundaries across entire industries. Finance is no exception. Artificial intelligence is set to kick open the door to entirely new operating models, shifting strategic priorities and upending the competitive dynamics of the financial ecosystem.

The wealth of data and consumer insights – and the tools that make use of it – have raised the game. Customers now expect single-tap simplicity and experiences personalized to their needs. All against a backdrop of rising privacy and security concerns.

The Fintech Effect

The impact of Fintech firms on larger financial incumbents is often built upon an ambition to challenge the status quo. There has been a flurry of ongoing speculation in recent months about the ambitions of the “Big Four” tech giants – Amazon, Apple, Facebook and Google. 

With huge market caps, vast customer platforms and a gradual entrance into payments processing, the tech giants might appear well placed to provide full banking services. But being the most highly capitalized firms in the world doesn’t equate to becoming successfully operating banks.

Regulatory systems also have the potential to present certain roadblocks. Tech giants don’t necessarily want to invite more scrutiny in that environment, or need the scrutiny and challenges, systems and processes that come with operating under the banking regulatory framework.

Technology is continuing to blur boundaries across entire industries. Finance is no exception.

 

Incumbents Innovate

While leading banks and financial services firms face the threat of competitors in an industry that is rapidly becoming a battleground between traditional incumbents and fast-moving innovators, the larger incumbents are not standing still.

Many are taking control of innovation and investing heavily in new technologies to deliver more seamless, frictionless interactions for their target audiences. Drivers of the changing financial services marketplace include behavioral changes, technological changes, and a proliferation of data. Clients want and demand innovation.

In response, incumbent banks are appointing executives – in some cases, dedicated Chief Innovation Officers – who can make them more agile and entrepreneurial. Innovation can represent a challenge for long-established financial institutions, but many were born out of innovation and continue to innovate in select areas every day.

New alliances will be key. We’ve recently seen the re-emergence of regional bank mergers and a rise in broader consolidation trends that take advantage of a shifting regulatory landscape.

We can also get creative with collaboration. We could start considering Fintechs as partners, not competitors. In the words of Anirban Bose, Head of Capgemini’s Financial Services Global Strategic Unit, “without an agile and committed collaboration partner, both traditional and Fintech firms risk failure.”

Waves of innovation and disruption have the potential to unsettle the most central industry in our economy. Longstanding incumbents may feel under siege, but we must all be in the business of giving our clients better outcomes. Ultimately, successful firms are those who continually disrupt themselves, and are always ready to re-think who they are and what they do.

Financial InstitutionsDisruptionInnovationFintechTechnologyConsolidation

Venkat (Vinnie) Badinehal
Head, Financial Institutions Group, U.S.