There are plenty of digital trends impacting the ways your financial services company interacts with customers. But the rise of new channels and changes in consumer behavior aren’t the only things that are shaping digital transformation in financial services.
The bigger-picture challenge will be capitalizing on digital trends to transform your business as a whole, not just a certain aspect of how you interact with customers.
By focusing on the following 3 digital financial services trends in 2020, you’ll set yourself up for strategic success from both customer-facing and operational perspectives.
1. Moving at the Speed of FinTech
For decades, the financial services industry has been something like a walled garden. Incumbent firms had the size, the capital, and the deep networks of partners and customers necessary to sustain success for years. Threatening newcomers were few and far between.
That’s all changing as emerging digital technologies give startup fintech disruptors the means of breaking into your industry. On the back of improved customer experiences, greater convenience, and lower prices, disruptive fintech firms are putting as much as 20% of existing financial services business at risk.
But slow digital transformation in financial services isn’t due to lack of awareness. According to a survey from PwC, 81% of banking CEOs are concerned about the speed of technological change. The same advantages that have kept incumbent financial services firms afloat for so long will also help stave off fintech disruption. In 2020, more and more incumbents will take action to embrace the fintech model and start moving faster to adapt. If you’re stuck trying to maintain the status quo, you risk falling behind both disruptors and those incumbents that have embraced digital trends and transformed their business models.
2. Bringing the Sharing Economy to Financial Services
Uber, Lyft, Airbnb, Postmates, Kickstarter, TaskRabbit. These are just a few of the companies that have led the rise of the sharing economy. These companies have leveraged peer-to-peer business models to give consumers a level of choice, flexibility, and cost efficiency that incumbents in their industries couldn’t match. In recent years, the financial services industry has experimented with sharing economy models. But in 2020, adoption will really start to take off.
As consumers grow to distrust large, centralized businesses, digital platforms are taking advantage of the situation and becoming main intermediaries in the capital market. Already, PwC found that 44% of people earning less than $75,000 per year would trust tech companies for peer-to-peer payments with 68% of people earning over $100,000 feeling the same way.
The real challenge will be finding the right verticals and niches to focus on with peer-to-peer payments. Some are already finding success with use cases like student debt and debtor/investor relations while a bigger-picture commoditization of retail banking is entirely possible.
Capitalizing on this digital trend ultimately comes down to providing customers with lower fees, greater convenience, and easier/better user experiences. If sharing economy principles are accomplishing those objectives, it’s time to embrace the movement.
3. Racing to Bring Blockchain to Consumers
There’s general confusion among mainstream consumers regarding what blockchain really is. But that hasn’t stopped the financial services industry and VCs at large from increasing their investments in this distributed ledger technology. Even three years ago, 80% of banks had initiated blockchain-related projects. And while those investments haven’t necessarily led to mainstream blockchain adoption, the technology is becoming increasingly practical.
The most commonly-discussed benefit of blockchain is security. By decentralizing all consumer information, you don’t have to worry about a single data breach resulting in millions of dollars in fines and diminished brand reputation. Rather, each dataset becomes a new block on a distributed chain, encrypted at each step so that there is no single decryption key.
But security isn’t the only benefit of blockchain technology. By introducing blockchain to traditional financial services processes, you can streamline customer experiences. A few use cases include:
- Clearing and Settlement: Because blockchain is decentralized, the technology could potentially make clearing and settlement redundant. Whether it replaces these practices altogether or only improves them, blockchain stands to create more trusted connections between consumers and lenders so experiences can move more smoothly.
- Trade Finance: Blockchain can bring efficiency, transparency, new revenue streams, and lower cost bases to an outdated trade finance model by decentralizing and digitizing records.
- Insurance: A lack of transparency and concerns for compliance can quickly make for poor insurance experiences for consumers. But with blockchain, smart contracts can help reduce fraud and streamline the process of both applying for coverage and submitting claims.
Understanding What’s NECXT in Financial Services
Incumbents in the financial services industry can no longer lean on the massive advantages they have built up over the decades. Digital trends are transforming the industry whether incumbents follow suit or not. And to stay competitive, it’s essential to stay on top of what will drive the next months and years of financial services operations and experiences.
That’s why you can’t stop with just the three trends listed here. You have to go deeper on the digital trends that will impact your business. If you need more information on the technologies and trends to pay attention to in 2020 and beyond, check out our NECXT report.