Research by NTT DATA Services found that tech giants are a significant concern for financial services and insurance companies (FS&Is) as 83% of firms reported that they believed new entrants, such as Amazon, Apple and Facebook, could become major competitors in offering financial products.

A total of 84% of FS&I firms also reported that industries outside of financial services and insurance are providing a significant influence on the direction of the market.

“Platform-driven companies such as Amazon, Google and Netflix, that provide fast and easy digital experiences to customers, are changing the expectations for financial services and insurance companies,” said Toshi Fujiwara, Representative Director and Senior Executive Vice President, NTT DATA.

“These technology giants operate agile business models that allow them to leverage existing customer data and quickly customize new products at competitive prices to better serve mobile-first consumers,” he added.

Wayne Busch, President, Financial Services, NTT DATA Services believed the technology giants brought “a different mindset” to the market.

“They don’t care about history,” he said. “In their view, it doesn’t matter how the industry used to work last year or five years ago or 10 years ago. They are willing to break all the norms that exist.

“People are having to move from a risk and control mindset to a customer focus mindset. Most of the banks are still on that journey, some are more progressed than others.

“But the tech entrants are already at the other end of that spectrum and they are only being held back by the regulatory constraints. Their mindset allows them to move at a pace that’s unheard of in financial systems.”

The other crucial advantage the technology giants have, according to Busch, was their “limitless” access to capital.

“Having an endless supply of capital means they can make lots of mistakes. But big banks can’t make any mistakes because they have to worry about the fact that they’re providing existing services,” said Busch.

“But these other companies [the tech giants] can fail fast, they can spend money, they can shut things down quickly and be willing to fail in the process, knowing that they’re both fast and have an endless supply of capital to get past those issues.”

Automation driving digital transformation

Research by NTT DATA Services also found that FS&Is saw artificial intelligence and blockchain as the top trends impacting the industry. In particular, Busch believed that automation was driving the digital transformation of the industry as it fuels the decrease in the time it takes to change provider.

“Whereas before it took manual intervention all the way from vetting the customer, know your customer activities and through to onboarding and integrating their systems. Now there’s an entire action around accelerating all the risk related activities, and then there’s an equivalent item that is starting to emerge around automating the setup.”

“There’s a growing focus by some of the platform providers as well as some of the banking providers, to use RPA or intelligent automation to accelerate that from four months to weeks.”

Blockchain not ready yet

However, Busch warned that blockchain solutions in the global treasury and payments space was yet to truly materialise, despite the belief of firms that it would soon have a large effect on the industry.

“My personal view is blockchain is certainly underutilised in terms of its possible impact when you look at exchanges or payments or more broadly across the financial services landscape,” said Busch.

“There’s an enormous number of use cases, but I haven’t seen it deployed at scale anywhere yet.”

But Busch did foresee a future where a blockchain solution would explode into the market, much like previous tech booms.

“The reality is those solutions are still being vetted before one will start to take off. Either a bank or a banking collaboration with software provided, and it will start to dominate,” Busch said.

“It’s like any tech boom that you see where one platform suddenly becomes 50% of the market. Which one, I don’t know yet. There’s a lot of both blockchain platforms as well as banks that are investing a lot around blockchain, but does anyone have a killer solution yet? I don’t think so,” he added.

Digital Business Platform opportunity

In response to these challenges, 85% of FS&I firms believed that a Digital Business Platform (DBP) represented the best opportunity to reposition their company. However, only 23% said their company currently has a DBP that is working and providing benefits.

“Banks have actually been digital businesses for decades, moving money at the speed of light. Recasting their capabilities and building a true Digital Business Platform will allow companies to create and support multiple business models on a single technical framework without replacing outdated, legacy core systems,” said Busch. “This will also enable partnerships with fintechs and insurtechs that help to more easily incorporate new digital technologies, use application programming interfaces and share customer data.”

Busch’s statements were echoed by Jose Pablo Carbonell, CEO of Europe at everis, who warned of the consequences of not modernising in the digital world.

“Digital-forward financial institutions and insurers see digital business platforms as the path to effectively modify legacy core systems with digital features and functions.

“Those who attempt to maintain their vertically-integrated businesses supported by aging technology will have difficulty remaining relevant in the new world of platforms and the digital ecosystem,” he added.

Indeed, Busch had a similar warning to the banks.

“What’s going to happen is you’re going to see a couple of people who are laggards who will see their business stagnate and start to decline. People who aren’t investing in those capabilities to change their operating models are going to decline too.