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Perspectives

The Work Ahead for Banking and Financial Services

2017-02-23


Financial services organizations are gaining more from digital than their cross-industry peers, our research reveals. To unlock the full potential of the digital economy, however, there’s more work to do.

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The digital agenda is now a top priority for banking and financial services executives globally, and no wonder: These businesses are benefiting more from digital technologies than their peers in other industries. This is one of the key findings from our recent research into the changing nature of work in the digital economy.

In conjunction with Roubini ThoughtLab, we surveyed 333 senior executives in banking and financial services as part of our global study into how digital will change work across industries. According to our research, these organizations — under pressure from digitally enabled startups — will increasingly dominate not by virtue of their strong industry experience but by their ability to provide a “hyper-personalized” customer experience through the power of digital platforms.

Respondents seem well aware that digital will lead this charge, as they expect digital to account for more than 12% of revenues through 2018, up from 5.3% today. That’s a total economic impact of about $542.4 billion projected by the end of 2018 across all financial institutions studied.

Figure 1

Other study highlights include:

  • Back office is a wildly overlooked opportunity. Respondents said digital will reduce costs 1.8% by 2018, indicating a tendency for decision-makers to first think of the front office when executing digital programs. To remain profitable, however, companies need to be digital at the core by eliminating process inefficiencies across the back office. 

  • Smart investments = smart ROI. While respondents are spending about the same amount on digital as the industry average (16% of revenues predicted by 2018), they expect higher ROI: 104% vs. the 86% average. 

  • Digital “leaders” hold a 140% advantage over digital “laggards.” Companies slow to invest in digital report an average economic impact (cost savings plus revenue growth) of about 3.1% per year, compared with 7.4% among digital leaders. (For a definition of “leaders” vs. “laggards,” see page 22 of our full report.)

  • Big data and artificial intelligence (AI) will shape the future of work. It’s no surprise that 63% of financial services executives see big data/analytics as the biggest game-changer. More surprisingly, respondents forecast that AI will be the second most impactful digital trend. We believe AI-led automation will accelerate the pace of modernization in middle- and back-office operations, while enabling a singular, seamless and synchronous interaction with customers.

  • New tools of commerce are on the horizon. Between now and 2020, cybersecurity and big data are the digital technologies expected to generate the greatest business value. But financial services businesses need to prepare now for less familiar – and even higher value — technologies that will be in full force by 2025, such as blockchain, digital currency, sensors/ Internet of Things and AI.

  • Businesses fear cyber-based vulnerability. Respondents strongly feel that customers will be more exposed to fraud and theft as digital business progresses. The loss of privacy and security are the undesired consequences of becoming digital. If unaddressed, a single error could irreparably destroy consumer trust. (For more on this topic, read our white paper “The Business Value of Trust.”)

The Future Is Now

We recommend that banks and financial services organizations take the following steps now to prepare for the digital age:

  • Challenge the status-quo to imagine a future business model. Why wait for digital entrants and the competition to bypass you? Instead, ask why business needs to be conducted as it has for the past several decades. 

  • Establish data ethics as a key competitive differentiator. The future of analytics will lie in the intelligent ability to differentiate between appropriate and inappropriate use of data, which will require companies to develop an ethics framework. The use of an embedded ethics monitoring mechanism, either via pre-built frameworks or use of a tool, would assist, guide or notify users if their machine/mining algorithms crossed the ethical line, and automatically take necessary steps to avoid unwanted situations. 

  • Simplify, simplify, simplify. Digital transformation has only one agenda: Simplify the business. To realize the full potential of digital transformation, companies need to reduce complexity in their legacy IT systems, business processes, organizational structure and overall customer engagement. Hardware and software work for humans, not the other way around.

  • Don’t just assemble; reassemble frequently. No digital initiative is created perfectly. Look back at what went wrong with your initial digital initiatives (change management issues, too many people involved, the initiatives made things complex, etc.). Reassembly doesn’t mean scrapping your past initiatives and starting with new ones but rather reshaping and tightening your digital initiatives and refining the execution. With every small refinement, you’ll come closer to achieving the company’s vision. And when you finally arrive, you’ll know it was the reassembling, not the initial assembling, that won the digital game.

  • Recognize that digital disruptors are your best friends. Rather than competing with digital startups, leaders should collaborate with them. A number of U.S. banks are already partnering with fintech companies to develop future solutions. An approach like this makes a lot of sense, especially in fast-rising technological areas such as AI, blockchain and IoT, among others.

This report — as one of several installments in The Work Ahead series — focuses exclusively on the responses from banking and financial services respondents. For the full report, see "Seizing the Digital Advantage in Banking and Financial Services." Also see our overview report, "Mastering the Digital Economy,” and our close-up view of Europe, "Europe’s Digital Imperative,” and Asia Pacific "The Future of Businesses and Jobs in Asia Pacific’s Digital Economy.” We also detail our in-depth findings about the impact of digital on business processes, as well as on individual industries, including healthcare, technology, insurance and manufacturing.

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The Work Ahead for Banking and Financial Services