Disruption isn’t a new idea. Just ask Henry Ford, who changed the world with his assembly-line-built Model T. Disruption has always been unfolding and reshaping our world. The financial services sector is no exception. Technology, globalization and demographics are shifting rapidly and changing the future with their impact on businesses, economies and societies. Their interaction is fueling a new wave of convergence that’s blurring lines between conventional banking and other industries in a way we’ve not witnessed before. And it’s having tectonic impacts on the way today’s businesses operate, grow and plan for the future.
Technologies such as cloud computing, intelligent automation and the Internet of Things are providing platforms to combine with new data sources to drive convergence in ways that have never been possible before. Think of the impact of today’s app-based sharing economy on the hotel and taxi industries. Retailers in the US are becoming major health care providers. Car manufacturers are working with partners to build connected cars that can pay for your gas or parking.
These are just some examples where convergence is especially apparent. But the fact is every sector is experiencing convergence. According to Constellation Research, the corporate landscape has been DEMOLISHED by digital disruption. Since 2000, 52% of Fortune 500 companies no longer exist. If you don’t think you’ll face disruption, it’s not because you won’t — it’s because you don’t yet know how it will happen.
The reduction in the cost of computing power and storage, and the increased availability of data sets, has enabled FinTechs to solve problems that were previously too difficult to tackle. Technology is intervening in personal and commercial finance in ways that no one could have predicted even a decade ago. Our EY FinTech Adoption Index 2017 shows that, globally, one in three digitally active individuals are regular users of FinTech, and adoption rates have doubled in the last 18 months. Though adoption rates are lower in Canada, awareness is increasing rapidly.
All this activity is driving fascinating examples of overlapping industries, especially in the payments sector. A global fast-food and beverage leader is amassing enormous deposits from prepaid cards and apps, propelling it to be a major deposit-holder in the US. That’s a venti-size shock to those who think these are “just” coffee retailers. Several Indian mobile telcos launched payment bank operations with the ability to take deposits, facilitate remittances and dispense payments. More and more, these wireless providers are signing up retailers to sell telecom services that double as banking touchpoints.
For all that global momentum, there’s still lots of room to grow in Canada. Our EY FinTech Adoption Index 2017 reveals that awareness of FinTech options among Canadian respondents is — for the moment — still relatively low, but it’s rising quickly. I think it’s safe to say that we’ll see a tremendous uptick in the awareness and willingness to embrace FinTech and FinTech-like products in the coming months. And that’s going to drive even more convergence in our market.
So what does it mean for Canada’s financial services players, old and new?
Let’s face it, Canadian banks have long been insulated from mass disruption. That’s clearly not the case anymore. They’ve embraced digital banking and apps, but that won’t be enough to future-proof the sector against continued convergence. New players will continue to use their considerable creativity and agility to introduce their products in ways that mature, traditional banks just cannot.
Compete? Or collaborate to compete?
In a digital age, previously lucrative products, such as credit cards, will no longer provide the revenue streams they once did. For example, one global bank is no longer issuing credit cards in China as the market has shifted to digital payment options.
Partnerships between established players and new entrants in the banking sector will be an important survival tactic as the payment landscape evolves. My colleague Ron Stokes, EY Canada’s FinTech leader, puts it this way:
“Because of the strength of the banking sector in Canada, we’re seeing a lot of partnerships between banks and FinTechs. Banks are looking for faster and easier ways to boost their digital capabilities, both on the consumer side and in the back office. At the same time, Canada’s FinTechs need access to more customers and resources to improve their offerings.”
In my experience, startups tend to be more product innovation-focused rather than process-driven. Because of all their regulatory requirements, traditional players don’t have this freedom. These new players also tend to have modern platforms that offer sophisticated, friction-free customer experiences and predictive analytics that are very difficult for established players with legacy technology backbones to replicate.
In the face of increased expectations for excellent, tailored customer experiences — and a growing willingness to punish companies that fall short — banks and FinTech players are going to have to leverage these new tools and analytics to deliver a consistently positive experience. They can also look outside the traditional financial services sector for good lessons in this sphere, particularly from telecoms and retail.
However, as regulators and governments catch up, the equation can tip again. The banking regulator in India recently ruled that Telcom KYC (know your customer) processes don’t meet the robust requirements of banking anti-money-laundering regulations, so a business plan centred on a high volume of low-amount deposit accounts starts to tilt the wrong way.
Collaboration and the leveraging of cross-sector knowledge to create new and differentiated capabilities are two trends likely to become more prevalent as the FinTech sector matures, and as both technology and analytics drive yet more convergence.
The opportunity to create better customer experiences, new value propositions and revolutionary revenue is within reach. But does embracing convergence mean every industry is now your industry? The answer is, to a certain extent, YES.
Those who learn to embrace the upsides of disruption — experimenting, failing fast and trying again amid fast-changing conditions — will be better equipped to ride the waves of change. After all, the strategy that got you here will likely not be the one you’ll need for the road ahead.
A version of this blog was first posted here.
About the Author
Kimberly Connors, P.Eng., CMC, MBA, is a Partner and EY’s Canadian Technology Advisory Leader. Kim has consulted with major corporate and mid-market clients across Canada and the US, leveraging technology to drive business value and insight, and optimize IT operations. Her area of expertise is large scale business transformation enabled with packaged software. She has overseen full-cycle implementations and ITIL run processes post go-live.
Kim has twenty-five years of business and technology consulting, and has worked across many industries. Her experience includes five years with a global software vendor, leading first the cross-industry Canadian and then the North American Financial Services consulting teams. Kim was also on the management team of the Canadian operations of a global outsourcer.
As leader of EY’s Canadian IT Advisory practice, she works with clients across Canada to advise on the alignment of business strategy to technology execution for improved outcomes, processes and insights.
Kim is passionate about STEM (science, technology, engineering and maths) education, particularly for young women, and a future with endless possibilities and opportunities resulting from new technologies.
Learn more about Kimberly here.
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