Digital disruption is forcing 61% of financial services and insurance companies to move away from traditional business models.
Introducing the Digital Business Platform economy
In 2016, leaders in the financial services industry felt pretty good about their future. While digital forces roiled other industries, life in financial services and insurance (FS&I) seemed well protected against the chaos. Incumbents had cemented relationships with large customers over decades, vertically integrated business models insulated them from external shocks, and banking regulations erected difficult-toovercome barriers for new competitors. In a 2016 NTT DATA survey of bankers, only 7% saw fintechs as a definite threat, and just 15% thought they would invest in a modernization effort over the next three years.
Three years later, FS&I executives are no longer feeling comfortable, as the results of our new survey reveal. The digital tide they thought they were escaping is now rolling onto the beach in the form of rising customer expectations, unexpected competition and the evolution of the platform economy — all driven by digital technology.
This new level of industry competition hasn’t been driven by established financial giants, but rather by retail and technology innovators like Amazon, Apple, Google, Netflix and Uber. Their strategic weapon of choice is the Digital Business Platform (DBP).
Inside a friction-free, easy-to-use, mobile-accessible environment, the DBP introduces consumers to a wide range of personalized goods and services, many of which are not even created by the platform owner. Platform businesses are anything but the traditional banking model of vertically integrated, full-service products sold through branch offices. Instead, platform participants operate in concert to provide consumers with unique value 24x7.
Can FS&Is respond with their own DBPs, or as participants in platforms created by others? Here’s the good news from our survey: nine in 10 global FS&Is say the time is now for transformational digital change — fundamental change, not just investing in digital bits and pieces. But the less than good news is that these companies feel locked into legacy core technology that is not platform friendly.
There is a way forward for institutions that need to simultaneously keep their core systems beating even as they put down one foot after another on their digital journey. By creating DBPs and participating in digital partner ecosystems, FS&Is can work with fintechs and insurtechs to incorporate new digital technologies, leverage application programming interfaces (APIs) and share customer data.
DBPs can give FS&Is the ability to adapt and launch new products quickly, while also keeping up with customer demand for better service and customization. The best part is DBPs allow FS&Is to shift their business models without having to undergo risky, wholesale replacement of their legacy IT systems.
To examine the future of FS&I companies related to creating a DBP and participating in a digital ecosystem, NTT DATA surveyed online 471 senior executives in banking, insurance, brokerage, wealth management, and cards and payments across the U.K., U.S., Germany, Spain, Italy and Japan.
The survey was well-timed: The global FS&I industry is at an inflection point for change.
The stakes have never been higher for traditional FS&Is to evolve their business models to engage customers and partners to maintain clients and generate new business.