For the second time in the last decade, I have been invited as a Contributing Subject Matter Expert to join in research by the World Economic Forum about how technology is changing banking. These are heavyweight projects involving years of research and hundreds of people. Therefore, I take the content seriously. Here is the latest release of knowledge ( the last report I worked on was in 2009), and you can now call me Chris Skinner, Advisor to the World Economic Forum and the White House
Wave of change: The new status quo in the financial services ecosystem
New World Economic Forum and Deloitte Consulting LLP report highlights evolution beyond fintech for the legacy financial services industry
Fintechs have materially changed the basis of competition in financial services, but have not yet materially changed the competitive landscape, according to a new report released today by the World Economic Forum with support from Deloitte Consulting LLP. The report, “ Beyond Fintech: A pragmatic assessment of disruptive potential in financial services ” explores the main drivers of future change, citing that fintechs represent the first wave in a series of disruptive forces that will likely shape the future of the industry.
The report represents the culmination of three years of research into the transformative role of fintechs . The final phase of research builds on the research of Deloitte and the Forum’s 2015 report , conducting a broader exploration of the forces reshaping the financial services ecosystem.
“Fintechs have changed the pace of innovation and reshaped customer expectations across the financial services ecosystem, laying the foundation for future disruption in the industry,” said Rob Galaski, partner, Americas FSI Regional Leader, Deloitte Canada. “The success of fintechs in changing the basis of competition, as well as the increasing pace of technology, means that incumbents have the potential to improve rapidly—but also face rapid disruption going forward.”
“However, many consumer facing fintechs have struggled to achieve scale in the face of high switching costs,” said R. Jesse McWaters, Financial Innovation Lead at the World Economic Forum. “Meanwhile incumbent financial institutions have been able to catch up faster than many expected, treating the proliferation of fintechs as a supermarket for capabilities that allow them to use acquisitions and partnerships to rapidly deploy new offerings.”
The report identifies eight key forces that have the potential to shift the financial services landscape. These forces include three core findings:
The rise of customer choice will have profound implications on the design and distribution of products, and will likely force companies to shift roles. Platforms that offer the ability to engage with different financial institutions from a single channel may become the dominant model for the delivery of financial services. The rise of these platforms, such as open banking, will likely reshape financial services from clearly defined organizations to interchangeable entities. This may require that platform owners are capable ecosystem managers, balancing the needs of the product manufacturers with customer demand.
Differing regulatory priorities, technological capabilities, and customer needs are challenging the narrative of increasing financial globalization and making way for regional models of financial services suited to local conditions. Even global firms may need distinct strategies to cultivate regional competitive advantage and integrate with local ecosystems. Meanwhile, fintechs will likely face serious obstacles to establishing themselves in multiple jurisdictions, even as technology lowers barriers to entry. Incumbents may become attractive partners for fintechs seeking to enter new markets as they look for opportunities to rapidly acquire scale.
Systemically Important Techs
Efforts by incumbent financial institutions to emulate the core capabilities of large technology firms will likely lead to an increasing reliance on those same large technology firms. For example, as financial institutions seek to enhance customers’ digital experiences and unlock data and revenues from customer platforms, they are increasingly dependent on large techs’ cloud-based infrastructure to scale and deploy processes and to harness Artificial Intelligence as a service. As financial institutions seek new advantages to grow their competitive footprint, they will be left with tough choices: become dependent on large technology companies or risk falling behind on technological offerings if they minimize engagement to protect independence.
Additional forces uncovered in the report include: