If you worked on Wall Street like I did in the fall of 2008, you most likely can recall exactly where you were and what you were doing when the market crashed, leading to the financial crisis that shook the world.
Looking back over the last decade, its impact on the financial services industry has been profound. 2010 launched new legislation, international standards, regulatory requirements and provisions that financial organizations are addressing today. In the last 10 years, financial services have also been one of the industries most impacted by digital disruption.
Financial institutions gradually shifted their views of technology from a way to improve operational efficiencies – automating manual and paper processes – to enhancing customer service through mobile solutions, and now as a transformative tool to enable everything from new business models, to compliance, to combating financial crime.
As we prepare to enter the 2020s, what will the financial services industry need to succeed in the next decade? Below, I share a few predictions, learnings and tips to help financial organizations thrive.
The next decade of financial services
Looking ahead, financial services organizations will need to be at the forefront of both technological disruption and geopolitical shifts. Together, these influences will continue to bring new competitive pressures, change the nature of work, impact people’s major life purchases, evolve customer expectations, and create the need to adapt business models and products to reflect societal and economic norms. Banks will also need to foster trust with a new generation of customers and employees who have different preferences and expectations.
As technology enables business models to shift and products and services to evolve, competition will be fierce, and relationships will change. Who in the industry is now a friend or foe? The single biggest tension will be between the traditional financial services organizations – particularly banks – and new, non-financial services entrants into the market who are carving away large portions of business and customers. Among these disruptors, “digital natives” pose the largest threat. Their business models are enabling them to quickly build and adapt new, intelligent products and acquire dedicated customers at an incredible pace.
That said, innovations that are helping digital natives thrive will also provide industry incumbents with the ability and agility to enable cultural and digital transformation and keep pace with the changing world. As I meet with our global customers, a common focus is on moving faster with higher impact. So, is there a formula for future success?
Leading with tech intensity
At Microsoft, we believe what will determine an organization’s future success is an approach called “tech intensity.” We see tech intensity as an equation: Tech Intensity = (Tech Adoption X Tech Capability) ^ Trust, and as a company, we are focused on providing the inputs to help our customers solve it.
- Speed technology adoption: First, every leader will need to tune their organization to become a fast adopter of best-in-class technology. The use of cloud, artificial intelligence (AI), advanced analytics, open APIs and blockchain are all key technology tools that can help financial services address ongoing challenges and modernize and transform the way they do business now and in the future. At the core of their success is the ability to tap into the volumes of available data —from both inside and outside their organizations — and use it in meaningful ways to unlock new value, insights, opportunities and revenue streams.
As an example, LV= General Insurance (LV= GI) is one of the U.K.’s largest personal lines insurers with more than $2.23 billion annual premium income and serving more than 4 million customers. Data scientists within LV= GI looked for opportunities to supplement their existing claims processing expertise with machine learning to increase certainty in claim resolution. The result was a pioneering AI solution that LV= GI believes is – not only U.K.-leading – but industry leading worldwide. The results of integrating the new AI-driven system exceeded LV=GI’s expectations by reducing the 20% of complex, unclear claims to an astonishing 3.9%. It’s a massive swing that delivers customers real value and a net benefit to LV= GI in excess of seven figures.
- Build unique capabilities: Second and equally important, organizations will need to build their own unique digital capabilities, essentially becoming technology companies themselves. There’s a very important human factor here that starts with workers who are deeply knowledgeable about the latest technology, backed by a culture that encourages capability-building and collaboration to generate new, breakthrough concepts.
New York-based Mastercard, processing about $20 billion in transactions a day across more than 210 countries or territories, and Microsoft, one of the top e-commerce merchants in the world, both felt an urgency in shifting toward online payments – especially with the increasing popularity of mobile apps and devices, which has made security more difficult even as consumers expect greater ease of use. Bringing together teams of engineers, the two companies spent three days hacking together and came up with a new service to make shopping online easier and more secure around the world, not only for shoppers, but also retailers and banks. This tech-intensity collaboration kicked off a new way of thinking about innovation that promises to lead to even more developments to help e-commerce thrive.
- Ensure trust is your priority: Third, leadership in the digital economy will be exponentially amplified by the level of trust created with customers, partners and stakeholders — for their organization and the underlying technology.
With the goal of creating legendary experiences for more than 26 million customers, TD Bank Group, one of North America’s largest banks, knows that keeping up with changes in customer expectations and anticipating their needs is critical. They also know just how important each step of the customer’s journey is to their feeling about the experience. They are using the benefits of the cloud and complex information processing capabilities to receive detailed results from their data about the factors influencing customer satisfaction — including the feeling of trust the customer has — to improve the overall experience and deepen relationships with its customers.
Today, we announced results of a new Microsoft study, which found broad agreement across industries that tech intensity is essential for their survival: 75 percent of those surveyed said it’s the most effective way to build a competitive advantage today, and 83 percent agreed it’s critical for future success.
Building the future together
Tech intensity is the motivation behind our mission at Microsoft to empower every person and every organization on the planet to achieve more. As the new decade brings new challenges and opportunities, we are committed to helping our financial services customers unlock the power of data and empower their tech intensity journeys, by providing them with the choice of a more secure and compliant platform embedded with pervasive intelligence.
Here are a few tips to help harness the benefits of tech intensity.
- Adopt an entrepreneurial outlook that encourages risk-taking.
- Be willing to look outside your organization – and even industry – to gain a broader perspective of what technology can make possible.
- Stay up to date on the latest trends in software and applications so your IT team has access to the latest commercial platforms, tools and training. This way, they can avoid recreating technology that has already been commoditized.
- Seek resources on building trust in your technology. A good place to start is our AI Business School and new white papers — providing Microsoft’s perspective on ethical AI principles in financial services and exploring how to implement governance and risk management to foster the responsible use of AI.
While the new decade will bring many challenges for the financial services industry, I believe it will bring even more opportunities. We’re already seeing many of our customers leading in the industry with a tech-intensity approach, and I’m excited to see how it will help our customers grow their businesses even more.
Visit the Microsoft Financial Services Blog for more information on our work in the industry.
Tags: AI, financial services