FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC

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FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
Financial Services
Technology 2020 and Beyond:
Embracing disruption

       To succeed in this rapidly changing landscape, IT executives will need to agree with the rest of the
       management team on the posture they wish to adopt. Will they try to be industry leaders, fast
       followers, or will they just react? Whichever direction they choose, they will need to devise a clear
       strategy to move forward.
                                                                                    www.pwc.com/fstech2020
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
Contents
Foreword                                                                                              3
Executive Summary                                                                                      5
The ten technology forces that matter: how to compete in the financial services industry               7
in 2020 and beyond
1 FinTech will drive the new business model                                                            8
2 The sharing economy will be embedded in every part of the financial system                          11
3 Blockchain will shake things up                                                                     12
4 Digital becomes mainstream                                                                          15
5 ‘Customer intelligence’ will be the most important predictor of revenue growth and profitability    17
6 Advances in robotics and AI will start a wave of ‘re-shoring’ and localisation                      20
7 The public cloud will become the dominant infrastructure model                                      22
8 Cyber-security will be one of the top risks facing financial institutions                           23
9 Asia will emerge as a key centre of technology-driven innovation                                    25
10 Regulators will turn to technology, too                                                            27

Six priorities for 2020                                                                               28
1 Update your IT operating model to get ready for the ‘new normal’                                    29
2 Slash costs by simplifying legacy systems, taking SaaS beyond the cloud, and adopting robotics/AI   32
3 Build the technology capabilities to get more intelligent about your customers’ needs               35
4 Prepare your architecture to connect to anything, anywhere                                          37
5 You can’t pay enough attention to cyber-security                                                    40
6 Make sure you have access to the necessary talent and skills to execute and win                     42

Conclusion                                                                                            45
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
Foreword

Is your business equipped to compete?                                                           global financial system: Will blockchain be
                                                                                                as significant to the future of banking as the
We are pleased to introduce Financial Services Technology 2020 and Beyond:                      Internet was to physical stores? Or will fraud
Embracing disruption.                                                                           and technical complications marginalise its
                                                                                                application? Will the public cloud be safe and
                                                                                                reliable enough to outcompete on-premises
                                                                                                                                                 Julien Courbe
This paper complements PwC’s Project Blue1     Can you envision branches and operation          solutions? Could cyber-attacks really cause
                                                                                                                                                 Global FS Technology Leader
and the PwC Megatrends framework2, which       centres staffed by sophisticated robots          worldwide panic and loss of confidence in
                                                                                                                                                 PwC US
examines the forces that are disrupting the    instead of human tellers? Or picture             the financial system?
                                                                                                                                                 +1 646 471 4771
role, structure, and competitive environment   everyone from high net worth investors to        The post-crisis regulatory frameworks have       julien.courbe@us.pwc.com
for financial institutions and the markets     high school teachers taking financial advice     been gradually settling into place, and
and societies in which they operate. It        from artificially intelligent apps – and then    financial institutions have been adjusting
also continues our series of publications      investing across asset classes, currencies and   their business models accordingly. It is now
examining the future of financial services,    geographies on a real-time basis? Or imagine     becoming obvious that the accelerating pace
including:                                     if launching a bank, an asset manager or         of technological change is the most creative
                                               an insurance company was as simple as            force – and also the most destructive – in the
• R
   etail Banking 2020: Evolution or           plugging in an appliance?
                                                                                                                                                 1 h
                                                                                                                                                    ttp://www.pwc.com/gx/en/financial-services/

  Revolution?3                                                                                  financial services ecosystem today. In this        projectblue
                                                                                                                                                 2 http://www.pwc.com/gx/en/issues/megatrends
                                               We can. This is not fantasy; it is where         paper, we set out to capture the real world
                                                                                                                                                 3 h
                                                                                                                                                    ttps://www.pwc.com/gx/en/industries/financial-
• C
   apital Markets 2020: Will it Change for    things are headed. We have been looking at       implications of these technological advances       services/banking-capital-markets/banking-2020.
  Good?4                                       the financial services landscape and asking      on the financial services industry and those       html

                                               some tough questions about what comes            who must supervise and use it.                   4 h
                                                                                                                                                    ttps://www.pwc.com/gx/en/industries/financial-
•	
  Asset Management 2020: A Brave New                                                                                                               services/banking-capital-markets/capital-

  World5                                       next. These are some agenda items for the                                                           markets-2020.html

                                               leaders who operate and supervise the                                                             5 h
                                                                                                                                                    ttps://www.pwc.com/gx/en/industries/financial-
                                                                                                                                                   services/asset-management/publications/asset-
                                                                                                                                                   management-2020-a-brave-new-world.html

                                                                                                                                                                                               PwC 3
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
Project Blue                                    Each of these forces will shape our lives
                                                      There are huge forces at work in the global     in many ways. But for the financial services
                                                      economy today – from a shift in global          industry, as the post-Financial Crisis
                                                      economic power and climate change to            regulatory wave retreats, technology stands
                                                      urbanisation, demographic shifts, and more.     above the rest. In this paper, we look at
                                                      Many of our clients have been using our         these changes, and offer some suggestions
                                                      Project Blue framework to help assess how       on how to prepare for the opportunities and
                                                      these megatrends will affect their strategies   threats ahead.
                                                      and business models for 2020 and beyond.
                                                      Project Blue offers a structured process for
                                                      adapting to these changes. Seeing the future
                                                      clearly and developing a proactive, strategic
                                                      response – rather than simply reacting to
                                                      events – will set apart the winners from
                                                      the losers in a fast-evolving market. There
                                                      is no single ‘best answer’; whether these
                                                      developments are threats or opportunities
                                                      depends on the nature of the organisation
                                                      and where in the world it sits. The results
                                                      will help your institution better target
                                                      investment, identify talent requirements
                                                      and develop the necessary operational
                                                      capabilities needed to make the most of its
                                                      competitive potential.

4 PwC Financial Services Technology 2020 and Beyond
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
You are a bank executive. Imagine
                                                                                                                                    that you are competing against a
                                                                                                                                    truly global, multi-service, low-cost,
                                                                                                                                    digital bank: customers accessing
                                                                                                                                    their accounts through their mobile

Executive Summary                                                                                                                   phones, paying with a tap on their
                                                                                                                                    wearables, sweeping savings to an
                                                                                                                                    ETF portfolio

                                                      A glimpse of what is to come                         The financial services industry has seen         In our latest Global CEO Survey, across all
                                                      Let’s say you are a bank executive. Imagine          drastic technology-led changes over the past     sectors business leaders told us the speed of
                                                      that you are competing against a truly               few years. Many executives look to their         technological change is one of their biggest
                                                      global, multi-service, low-cost, digital bank:       IT departments to improve efficiency and         concerns. In fact, in financial services, 70%
                                                      customers accessing their accounts through           facilitate game-changing innovation – while      of the leaders told us the speed of change in
                                                      their mobile phones, paying with a tap on            somehow also lowering costs and continuing       technology was a concern.6 One factor is that
                                                      their wearables, sweeping savings to an              to support legacy systems. Meanwhile,            the time it takes to go from breakthrough
                                                      ETF portfolio (designed by an AI (artificial         FinTech start-ups are encroaching upon           technology to mass-market application
                                                      intelligence) engine based on their savings          established markets, leading with customer-      is collapsing. For example, in the United
                                                      goals and risk appetite profile) offering            friendly solutions developed from the ground     States, it took the telephone 76 years to be
                                                      no-fee, cross-border payments. Imagine if            up and unencumbered by legacy systems.           adopted by half the population. By contrast,
                                                      you faced a competitor bank like this, with          Customers have had their expectations set        the smartphone did it in under ten years. We
                                                      a low and nimble footprint, prototyping              by other industries; they are now demanding      are now watching blockchain move from a
                                                      new services quickly, managing regulatory            better services, seamless experiences            notebook sketch to an established technology
                                                      compliance transparently, using an AI system         regardless of channel, and more value for        in a tiny fraction of the time it took for the
                                                      to limit fraud losses, and hedging currency          their money. Regulators demand more from         Internet to be accepted as a standard tool.
                                                      risk using cryptocurrencies.                         the industry too, and have started to adopt      Indeed, technology-driven change is so
                                                                                                           new technologies that will revolutionise their   pervasive that no financial institution is
                                                      This competitor does not exist today. But in         ability to collect and analyse information.      immune. In Section 2, we address how these
                                                      the next few years, it is a very real possibility.   And the pace of change shows no signs of         and other global megatrends are affecting
                                                      Now what?                                            slowing.                                         the financial services industry, with a
                                                                                                                                                            particular focus on the IT department.

6 S
   ource: PwC’s 19th Annual 19th Annual Global CEO
  Survey, Jan 2016

                                                                                                                                                       PwC Financial Services Technology 2020 and Beyond 5
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
Ten competitive technology-                      Each of these themes is likely to affect         We see six priorities for success for 2020       from other industries. They will certainly
driven influencers for 2020                      financial services companies and their           and beyond, based on our research and our        need to maintain laser-sharp focus on their
It is clear that technology is affecting         leadership teams in far-reaching ways. And       experience in the field:                         customers’ preferences, both stated and
financial services in a multitude of ways.       while each may have a disproportionately                                                          unstated.
                                                 strong effect on a given geography, customer     1.	Update your IT operating model to get
In the following section, we discuss ten key
                                                 set or industry segment, they all present            ready for the new normal                     Frankly, each priority is important. The good
themes that we believe IT executives will
                                                 opportunities for the thinking executive                                                          news is that each one is also achievable.
need to address as they begin their strategic                                                     2.	Slash costs by simplifying legacy systems,
                                                 to get ahead. When you know a robotics                                                            The answer: combining tactical short-term
planning for 2020 and beyond. These ten                                                               taking SaaS beyond the cloud, and
                                                 movement is coming, for example, you have                                                         actions with long-term initiatives that tie to a
themes include:                                                                                       adopting robotics/AI
                                                 a choice: to lead the charge, to make sure                                                        larger, strategic vision. This is how financial
• FinTech will drive the new business model      your organisation has the right listening        3.	Build the technology capabilities to get     services firms will succeed in 2020 and
                                                 capabilities and agile architecture to be            more intelligent about your customers’       beyond.
• T
   he sharing economy will be embedded in
                                                 a ‘fast follower’, or to watch others take           needs
  every part of the financial system
                                                 advantage of a generational shift. This
                                                 section sets up a challenge around the ten       4.	Prepare your architecture to connect to
• Blockchain will shake things up
                                                 themes: to understand them, prepare for              anything, anywhere
• Digital becomes mainstream                     them and see how to use them to get a
                                                                                                  5.	You can’t pay enough attention to
                                                 competitive advantage.
•	
  ‘Customer intelligence’ will be the most                                                            cyber-security
  important predictor of revenue growth          Priorities for 2020                              6.	Make sure you have access to the talent
  and profitability                              The pace of change is increasing and shows
                                                                                                      and skills necessary to execute and win
                                                 no sign of slowing. Financial institutions
•	
  Advances in robotics and AI will start a
                                                 are looking to the IT organisation to do         To succeed in this rapidly changing
  wave of ‘re-shoring’ and localisation
                                                 more to help make sure they are well-            landscape, IT executives will need to agree
• T
   he public cloud will become the              positioned to succeed in the future. There are   with the rest of the management team on
  dominant infrastructure model                  macroeconomic trends sweeping the world,         the posture they wish to adopt. Will they
                                                 and technology-driven influences buffeting       try to be industry leaders, fast followers, or
• C
   yber-security will be one of the top risks   the industry. What is the best approach to       will they just react? Whichever direction
  facing financial institutions                  moving forward?                                  they choose, they will need to devise a
                                                                                                  clear strategy to move forward. Most
• A
   sia will emerge as a key centre of
                                                                                                  likely, there will be a need to partner with
  technology-driven innovation
                                                                                                  innovative FinTech start-ups and change
• Regulators will turn to technology as well                                                      their business practices based on lessons

6 PwC Financial Services Technology 2020 and Beyond
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
The ten technology forces that matter:
how to compete in the financial services
industry in 2020 and beyond
There are many large forces sweeping society, from demographic and social
changes to shifts in global economic power. But one force in particular –
namely, technological breakthroughs – is having a disproportionate affect on
financial services. Here we look at the ten most important technology-driven
influencers that will shape competition in this industry by the decade’s end.

                                                                                PwC Financial Services Technology 2020 and Beyond 7
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
FinTech will drive the
new business model
                                                                                                          1
For a long time, new market              Where is the epicentre of
entrants found it difficult to break     disruption?
into the financial services industry.    Most disrupted FS sectors
The large, well-established
financial institution that we call
‘incumbents’ had advantages in
size, and their networks added
a multiplier effect. They had
strong compliance systems in
place to manage ever-increasing
regulations, and they had the
client base and resources to
prosper even in tough economic
conditions.

                                                                     Up to 28%     Banking
                                                                     of business   and
                                                                      at risk by   Payments
                                                                        2020

                                                                                          Up to 22%     Insurance,
                                                                                          of business   Asset Management
Source: PwC Global FinTech Survey 2016
                                                                                           at risk by   and Wealth
                                                                                             2020       Management

8 PwC
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
Well, not any more. FinTech disruptors have     the financial services industry. We identified
been finding a way in. Disruptors are fast-     several thousand companies that are new
moving companies, often start-ups, focused      market entrants to various components
on a particular innovative technology or        of these chains. Here is what we have seen
process in everything from mobile payments      so far:
to insurance. And, they have been attacking
some of the most profitable elements of the     • S
                                                   uccessful disruptors typically offer a
financial services value chain. This has been     better customer experience and greater
particularly damaging to the incumbents           convenience at a much lower price.
who have historically subsidised important      • T
                                                   he effects of disruptors vary significantly
but less profitable service offerings. In our     across countries and value chains, largely
recent PwC Global FinTech Survey, industry        because of differences in regulatory
respondents told us that a quarter of their       barriers and the robustness of local
business, or more, could be at risk of being      FinTech ecosystems.
lost to standalone FinTech companies within
five years.7                                    •	
                                                  Regulatory authorities are caught
                                                  between wanting to encourage
Global investments in FinTech more than           competition and innovation and wanting
tripled in 2014, reaching more than $12           to provide meaningful oversight of these
billion. In comparison, banks spent an            disruptors.
estimated $215 billion on IT worldwide in
2014, including hardware, software, and         Despite regulation and other potential
internal and external services.8 This is a
material number, and because it is so highly
                                                barriers to entry, we see tremendous demand
                                                for FinTech-related services in areas such as     81%
targeted, the FinTech spending will really      consumer banking and wealth management.           of banking CEOs are concerned about the speed of technological change,
make an impact.                                 This will open up new opportunities for both      more than any other industry sector.10
                                                incumbents and disruptors. For example,
A cast of thousands (of start-ups)              consider the rise of ‘robo-investing platforms’
PwC created a tool to allow ourselves (and      offered by both online-only and traditional
others) to analyse the size and complexity of   wealth management companies. New players                                    7  PwC Global FinTech Survey 2016
the challenge to incumbents and the speed       are using the online-only model to reach                                    8  http://www.banktech.com/management-strategies/
of change facing the industry.9 Our online      millennials and increasingly other segments
                                                                                                                                 bank-it-spend-projected-to-reach-$215-billion-in-
                                                                                                                                 2014/d/d-id/1296655?
platform, which we call DeNovo, defines         too. Meanwhile, traditional players are                                     9   http://www.strategyand.pwc.com/denovo
approximately 40 different value chains for     employing this approach to significantly                                    10  PwC’s 19th Annual Global CEO Survey

                                                                                                                        PwC Financial Services Technology 2020 and Beyond 9
FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
reduce their operational costs. They are also   proprietary blockchain-based cryptocurrency
  The DeNovo™ platform                                                                        using it to find more cost-effective ways to    and the cross-border payments model to
                                                                                              comply with regulatory mandates such as         route foreign-exchange payments between
  DeNovo is a new platform to help leading financial institutions get better strategic        the UK Retail Distribution Review rules.        virtually any currency pair for free. And
  advice about the disruptive technologies, new business models, and other FinTech            In Asia, a new wealth-management app            the disruption is just beginning in capital
  forces that are shaking up the industry. It is a resource for financial services CEOs,      was launched with almost one thousand           markets.
  CTOs, business unit heads, heads of strategy, and other key decision makers who             products, all without commissions or fees.
  need a trusted, objective resource to help them make better strategic and operational                                                       The bottom line: there are many smart
  decisions.                                                                                  This experience is being repeated across        people with good ideas and abundant
                                                                                              virtually every sector within financial         funding trying to disrupt and improve the
  The platform includes a dashboard with regular updates to explain developments in key       services. Disruptors in retail banking are      industry. If you work for an incumbent,
  industry segments; dossiers that provide information on companies’ differentiations,        using this online-only model to grow market     scanning the market for new competitors,
  strategic focus, leadership, and investment information; technical information; a           share by offering a highly customised user      studying how they think about infrastructure
  comprehensive view of where innovation is most aggressive (or not); competitive             experience combined with lower fixed            and regulation, and considering what
  considerations; and other resources.                                                        costs. We have also seen emerging FinTech       defense or collaboration approaches make
                                                                                              companies targeting customers using             sense are all business imperatives.
  The content is developed and curated by PwC’s Strategy& FinTech subject matter
                                                                                              so-called “closed-loop interactions” (bi-
  specialists, leading a dedicated team of over 50 strategists, equity analysts, engineers,
                                                                                              directional messaging between institutions
  and technologists. Using both public and proprietary data from over 40,000 sources,
                                                                                              and their clients) that avoid the costs of
  as well as research from across PwC’s global
                                                                                              larger public-facing platforms. There are
  network of over 200,000 professionals,
                                                                                              new high-tech, low-footprint companies
  DeNovo helps clients determine which
                                                                                              with huge potential to drive down costs
  startups, technologies, trends, and new
                                                                                              and offer better customer experience in
  market entrants are most relevant to
                                                                                              the marketplace lending arena. And we
  them – and why.
                                                                                              are seeing upstarts jumping into the global
                                                                                              payments and foreign exchange sectors,
                                                                                              sidestepping existing costly networks by
                                                                                              leveraging innovations such as digital
                                                                                              currencies. In one such example, an
                                                                                              increasingly well-known start-up is using a

10 PwC Financial Services Technology 2020 and Beyond
The sharing economy
will be embedded
                                                                                                                                                                                         2
in every part of the                                 Today, we tend to think of financial              A number of enabler companies target              Financial institutions should seriously
financial system                                     institutions as the entities that initiate        specific verticals like student debt, or          consider sharing economy opportunities such
                                                     and manage transactions from end to end,          connecting debtors and investors. They are        as partnerships with digital intermediaries
By 2020, consumers will need                         typically putting their own capital at risk.      building platforms that enable ordinary           or even end users with an eye towards how
banking services, but they may                       Increasingly, financial institutions may          individuals to raise funds and draw credit        they might deliver services at much lower
                                                     play either an intermediary role, with less       lines from retail investors. Apple has            costs. With their relatively informal profiles,
not turn to a bank to get them.
                                                     at stake, or just be one node in a network.       filed a patent application for “person-to-        start-ups may not, at first, seem like a threat.
Or, at least, maybe not what we                      This evolution will be driven by peer-to-         person payments using electronic devices”         But in the new digital age, when businesses
think of as a bank today. The                        peer transactions, enabled by partnerships        that could allow iPhone users to transfer         as well as individuals are increasingly tech-
so-called sharing economy may                        between today’s financial services firms and      money more easily. This could potentially         savvy, new customers will gravitate toward
have started with cars, taxis, and                   a new breed of FinTech companies. We have         commoditise retail banking even further.          lower fees, convenience, and ease-of-use.
hotel rooms, but financial services                  already witnessed this with peer-to-peer          Instead of using relatively high cost bankers     And once there is enough critical mass and
will follow soon enough. In this                     lending platforms, often in partnership with      to broker the connection between those who        liquidity, the network effect takes over, and
                                                     traditional banks, which exist today in places    have and those who want, the disruptors are       the disruptors’ market share could grow
case, the sharing economy refers                     such as the UK, US and China. Many of these       using technology to make the match: faster,       exponentially, as it has in Kenya.
to decentralised asset ownership                     new companies are designing and building          cheaper, and maybe even better.
and using information technology                     services that focus on a specific sliver of the
to find efficient matches between                    value chain, or a specific subset of customers.   In developing markets, where branch
                                                                                                       networks are typically less dense, particularly
providers and users of capital,                      Consumers are getting smarter about their
                                                     options, too. Recent PwC research shows that      in rural areas, physical distribution will
rather than automatically turning                                                                      continue to evolve, and banks are more
                                                     44% of those who earn less than $75,000
to a bank as an intermediary.                                                                          likely to partner with new entrants to
                                                     per year would trust a technology company
                                                     for peer-to-peer payments, and this rises         create alternative distribution channels. For
                                                     to 68% among earners making more than             example, M-PESA in Kenya, handles deposits
                                                     $100,000.11                                       and payments using customers’ cellphones
                                                                                                       and a network of agents. According to a
                                                                                                       recent report, the service is now being
11 PwC’s 2015 Consumer Banking Survey                                                                 used by 90% of the adult population in the
12 “ The Future of Money” which aired on Nov. 22,                                                     country.12
    2015, 60 Minutes, CBS.

                                                                                                                                                   PwC Financial Services Technology 2020 and Beyond 11
Blockchain will
shake things up
                                                                                                                             3
In the late 1990s, when companies
began to realise the Internet’s
                                                         Last year alone, 13 blockchain companies
                                                         obtained over $365 million in funding.13      56%
                                                         According to multiple sources, by the start   of survey respondents
potential power, e-commerce                              of 2016, blockchain companies had raised      recognise its importance,
investment and experimentation                           well over a billion dollars to fund their     but...
soared. And despite the ‘dot com                         development and operations.14
crash,’ it is unlikely that anyone
would deny just how revolutionary
                                                                                                       57%
                                                                                                       say they are unsure about
the technology has proved to                             Is the impact of blockchain                   or unlikely to respond to
                                                         technology taken into account?
be. Today, there are curious                                                                           this trend
similarities with blockchain—                                                                          Source: PwC Global FinTech Survey 2016
both in how companies are being
funded and how they are exploring
use cases.

13 h
    ttp://letstalkpayments.com/13-blockchain-bitcoin-
   companies-that-raised-serious-funding-in-2015/
14 h
    ttp://money.cnn.com/2015/11/02/technology/
   bitcoin-1-billion-invested/

12 PwC
We have written primers to explain             uses is almost limitless, from financial         In blockchain we trust?                            Still, this is a participatory sport and there
what blockchain is15 and how strategists       transactions to automated contractual            Of course, trust does not occur overnight.         is a lot to lose from sitting on the sidelines.
see it16, and even some thoughts on our        agreements and more.                             This is the challenge facing both individual       Now is the time for testing, planning and
own approach to the technology. But we                                                          institutions and the industry as a whole. For      learning. Given the extraordinary range of
are hardly alone. Many major financial         Blockchain systems could be far cheaper                                                             options and potential technology partners,
                                                                                                blockchain to be adopted on a large scale,
institutions have some form of blockchain      than existing platforms because they                                                                one of the bigger challenges is to sort
                                                                                                we will need to experience a migration of
research effort underway. In our recent        remove an entire layer of overhead                                                                  through the hype. Once you have a clear
                                                                                                trust from today’s effective-yet-expensive
PwC Global FinTech Survey, we found that       dedicated to confirming authenticity. In a                                                          vision of where to apply the technology and
                                                                                                central counterparty utilities to the
56% of survey respondents recognised the       distributed ledger system, confirmation is                                                          why, it will be easier to create a workable
                                                                                                distributed model. The business benefits
importance of blockchain. At the same time,    effectively performed by everyone on the                                                            implementation plan for building blockchain
                                                                                                for many players, or even the industry,
however, 57% say that they are unsure or       network, simultaneously. This so-called                                                             into your infrastructure.
                                                                                                will not materialise if the ‘trust issue’ is not
unlikely to respond to this trend. So, what    ‘consensus’ process reduces the need for
                                                                                                addressed effectively. Some of the hurdles
should you do?                                 existing intermediaries who touch the
                                                                                                that lie ahead: understanding whether or not
                                               transaction and extract a toll in the process.
                                                                                                the public ledger can be hacked, addressing
Several industry groups have come together     In financial services, that includes those
                                                                                                Bitcoin’s negative reputation, and navigating
to commercialise technology and apply          who move money, adjudicate contracts, tax
                                                                                                potential regulatory challenges related to
it to real financial services scenarios. We    transactions, store information and so on.
                                                                                                blockchain’s adoption. For example, while
expect this surge in funding and innovation
                                               The sheer range of applications has attracted    confirmation is effectively performed by
to continue as blockchain and FinTech
                                               FinTech providers and legacy firms who           everyone on the network simultaneously,
move from a largely retail focus to include
                                               hope to develop solutions both narrow and        if a majority of the participants forming
more institutional uses. And while many
                                               broad. In the next three to five years, we       the network consensus model were to
of these companies may not survive the
                                               see transaction volumes and the associated       collude to transact a fraud, a ledger might
next three to five years, we believe the use
                                               profit pools shifting from intermediaries        be manipulated. This might be an issue
of the blockchain ‘public ledger’ will go
                                               toward the owners of new highly efficient        in a relatively small network without
on to become an integral part of financial
                                               blockchain platforms. These transactions         proper vetting procedures. We also see a
institutions’ technology and operational
                                               could include transferring digital or physical   need to address security limitations with
infrastructure.
                                               assets, protecting intellectual property,        linked technologies, like the external
Why blockchain matters                         and verifying the chain of custody. In an        systems that monitor events to trigger
There are two aspects of blockchain            era of cyber-crime and stringent regulatory      blockchain transactions once conditions
technology that have captivated so many        requirements, a highly fraud-resistant           have been met.
C-level executives, start-up founders and      system for protecting and authenticating                                                            15 h
                                                                                                                                                       ttps://www.pwc.com/us/en/financial-services/
private equity firms around the world.         almost any kind of transaction could have                                                              publications/qa-what-is-blockchain.html

First, blockchain could make the financial     a revolutionary impact on the financial                                                             16 h
                                                                                                                                                       ttp://www.strategy-business.com/article/A-
                                                                                                                                                      Strategists-Guide-to-Blockchain
services industry’s infrastructure much less   services industry.
expensive. And second, the list of potential                                                                                                 PwC Financial Services Technology 2020 and Beyond 13
A look at blockchain technology
What is it? The blockchain is a decentralised ledger, or list, of all transactions across a peer-to-peer network. Using this technology, participants can transfer value across the Internet without
the need for a central third party.

How it works:                                                                                                                                 Cryptocurrency

                                                                                                                                                                                                    Unknowns               Benefits
                                                                                                                                             Cryptocurrency is a medium of
                                                                                                                                             exchange, such as the US dollar,
                                                                                                                                             created and stored electronically in                  Complex                Increased
                                                                                                                                             the blockchain, using encryption                      technology             transparency
                                                                                                                                             techniques to control the creation
                                                                                                                                             of monetary units and to verify                       Regulatory             Accurate
                               The requested                                                                                                 the transfer of funds.                                implications           tracking
                               transaction is                                                                 A verified transaction
 Someone requests a            broadcast to a P2P                      Authentication                         can involve                                                                          Implementation         Permanent
 transaction.                  network consisting                                                             cryptocurrency,                                                                      challenges             ledger
                               of computers,                           The network of nodes                   contracts, records,
                               known as nodes                          validate the transaction                                                                                                    Competing              Cost
                                                                                                              or other information.                                                                platforms              reduction
                                                                       using cryptography.
                                                                                                                                         Has no           Has no            Its supply
                                                                                                                                         intrinsic        physical form     is not
                                                                                                                                         value in that    and is not        determined             Potential applications
                                                                                                                                         it is not        currently         by a central
                                                                                                              Once verified, this        redeemable       backed by any     bank and the
                                                                                                              transaction is             for another      government or     network is
                                                                                                              represented as a           commodity,       legal entity.     completely
                                                                                                              new block.                 such as                            decentralised.
                                                                                                                                         gold.
 The transaction is              The new block is then added to the
 complete.                       existing blockchain.

                                                          Financial
Automotive                                                services                                                          Voting                                                           Healthcare
Consumers can use the blockchain to manage                Faster, cheaper settlements could shave billions                 Using a blockchain code, constituents could cast votes            Patients' encrypted health information can be shared
fractional ownership in autonomous cars.                  of dollars from transaction costs while improving                via smartphone, tablet or computer, resulting in                  with multiple providers without the risk of privacy
                                                          transparency.                                                    immediately verifiable results.                                   breaches.

Sources: “Money is no object: Understanding the evolving cryptocurrency market,” PwC, 2015/“A Strategist’s Guide to Blockchain,” strategy+business, January, 2016/“How Blockchain Technology Is Disrupting Everything,” TechDay, 2016

14 PwC Financial Services Technology 2020 and Beyond
Digital becomes
mainstream
                                                                                                                                                                                        4
Two decades ago, many large                            Today’s digital wave has the same markers:       to replace magnetic stripe technology,           into mobile operating systems. Now that
                                                       separate teams, budgets and resources            many consumers are now turning to the            adoption has grown, banks want greater
financial institutions built
                                                       to advance a digital agenda. This agenda         smartphone as the preferred tool for making      control over alternative channels. They want
‘e-business’ units to ride a wave of                   extends from customer experience and             online and proximity payments. Mobile            to manage the security, user experience,
e-commerce interest. Eventually,                       operational efficiency to big data and           devices offer more convenience and greater       and customer connectivity at the point of
the initial ‘e’ went away, and this                    analytics. In financial services, we have seen   security than plastic cards, many of which       purchase. Of course, controlling the digital
became the new normal. Internet                        this approach applied to payments, retail        still include magnetic stripes. The tap-and-     wallet also gives a bank a better chance of
development and large technology                       banking, insurance and wealth management,        pay mobile payment user experience can also      protecting top-of-wallet status for its card
investments drove unprecedented                        and migrating toward institutional areas         be faster and easier than typical plastic card   products, and the interchange fees that
                                                       such as capital markets and commercial           transactions.                                    follow. And this matters: for most banks,
advances in efficiency.
                                                       banking.                                                                                          even a modest 3%–5% reduction
                                                                                                        Who is using digital wallet technology? Most     (or increase) of interchange fees from
                                                       The digital wallet: a case study                 studies show that millennials are the key        debit and credit cards would represent a
                                                       Consider the evolution of the digital wallet,    early adopters of mobile payments.17 In a        material change.
                                                       which is rapidly just becoming ‘the wallet’.     recent study, roughly half of millennials said
                                                       Digital wallets – typically housed within        they would rather pay for small items with       And then there is the data. A wallet creates
                                                       a mobile phone – are now at the core of          their mobile phone than with cash; a similar     real-time connectivity that the bank can use
                                                       a battle between traditional financial           share want to use mobile tools to split bills    to send valuable information like balances
                                                       services providers and disruptors. They give     with their peers and track spending.18 This      and alerts. If handled properly, it can also
                                                       consumers a fast, secure, low-cost method to     is a new generation of consumers, and they       successfully present revenue-generating,
                                                       use, store and send money over the Internet.     are growing up associating core transactional    point-of-sale offers and promotions to
                                                       It is a service they value as well as a front-   services with technology and start-up            customers. For example, real-time financing
                                                       door to many lucrative bank offerings.           brands, neither of which have historically       offers could be directed to debit card only
                                                                                                        been associated with financial services.         customers who have expressed interest in
                                                       Should banks care? Well, the trend toward                                                         building their credit profiles but who do not
                                                       greater acceptance of the mobile device as       Who wins?                                        want to carry credit card debt. Fee income
17 Incidentally, high net worth consumers are
    early adopters too: another group that financial   a banking channel also converges with the        In recent years, the banking sector has seen     from these offers could be worth twice as
    institutions cannot afford to lose.                billions of payment cards issued globally and    a rapid rise of non-traditional competitors,     much as average deposit revenue, making
18 h
    ttp://www.adweek.com/news/advertising-
                                                       the transactions they generate. Ironically,      through alternative payment methods such         this a very lucrative source of income for
   branding/why-mobile-payments-are-millennial-
   must-161163                                         given the expense of deploying EMV chips         as gift cards and contactless payments built

                                                                                                                                                   PwC Financial Services Technology 2020 and Beyond 15
banks. Non-standard providers also hope to        ‘how we do things’. Institutions will need
                                                       use point-of-sale data to get valuable insights   to balance the need for separate ‘change
                                                       into consumer behaviour.                          the bank’ transformation teams with the
                                                                                                         inevitability that digital will become the
                                                       Finally, there are other security benefits        platform. Practically, this means you have to
                                                       from owning and controlling the digital           keep the change-the-bank and the run-the-
                                                       wallet. By setting the terms of engagement,       bank teams on the same page, operationally
                                                       banks can demand stronger authentication,         and strategically. At the same time, we know
                                                       identification and verification processes.        all organisations have a natural resistance to
                                                       Without this, they are at the mercy of            change, especially after years of a relatively
                                                       partners who may not have the same                protected status. To ward off a determined
                                                       priorities. User data also helps banks to         FinTech opponent, consider ‘challenger’
                                                       improve real-time fraud detection.                models in banking, insurance and wealth
                                                       ‘Change the bank’ becomes                         management that try to anticipate what a
                                                       the bank                                          fierce competitor would look like.
                                                       Over the next three to five years, digital
                                                       efforts will advance in areas as diverse as
                                                       robo-investing, automation of consumer
                                                       lending and clearing and settlement of cash
                                                       and securities transactions. As they do,
                                                       they will stop being exotic, and will just be

                                                         Institutions will need to balance the
                                                         need for separate ‘change the bank’
                                                         transformation teams with the
                                                         inevitability that digital will become
                                                         the platform.

16 PwC Financial Services Technology 2020 and Beyond
Customer intelligence
will be the most
                                                                                                                                                                                                 5
important predictor                                           For example, consider millennials: a key           for the best deal, much as affinity groups       with far greater precision than ever before.
of revenue growth                                             demographic, and one that banks generally          already do. Within asset management,             The benefits would include not only keener
                                                              have targeted through digital channels.            hyper-connectivity will also pave the way        pricing and sharper customer targeting, but
and profitability                                             Financial institutions should look below the       for greater product customisation. For life      a decisive shift in insurers’ value model from
                                                              surface to examine the behavioural attributes      and health insurers, wearable computing          reactive claims payer to preventative risk
Do you know what your customers                               that drive consumer decisions. The following       (building on the technology already widely       advisor. But it also implies that we will see a
value? Are you sure? Customer                                 are key to millennial behaviour: they tend         used in fitness sensors), could make the         divergence between companies who use data
intelligence used to be based on                              to build wealth as a result of owning a            underwriting process more collaborative.         to their advantage and those who do not.
some relatively simple heuristics,                            small business, investments, or real estate;       For example, insurers may use the real-          The winners will be able to price products
built from focus groups and                                   they turn to social networks for content,          time insights into policyholder health and       based on a deeper understanding of risk; the
surveys. These were proxies for                               product reviews, opinions and referrals;           behaviour to offer discounts, eliminate the              losers will merely compete on price,
                                                              and they look for opportunities to improve         need for lengthy medical checks                                   compressing their margins
real, individualised data about
                                                              their financial ‘health’. Financial institutions   and simplify the contract                                              with lower revenues
consumer behaviour, and the                                   that sift through available data can engage        process.                                                                  and proportionately
results were pretty hazy. Now,                                millennials by being ready with the right                                                                                       higher payouts.
technology advances have given                                offer when relevant life events present            With other
                                                                                                                 developments, this
businesses access to exponentially                            buying opportunities.
                                                                                                                 will also intensify
more data about what users                                    The data is everywhere, and over the next          price competition
do and want. It is an amazing
opportunity for whomever
                                                              five years, hyper-connectivity will give
                                                              financial institutions the opportunity to use
                                                                                                                 and pressure on
                                                                                                                 cost. Big data                By 2020
can use analytics to unlock
the information inside, to give
                                                              it. It will not only be computers and smart
                                                              devices that record and communicate data,
                                                                                                                 analytics, sensor
                                                                                                                 technology and
                                                                                                                                                     20
                                                                                                                                                      there will be        times more useable data than today.19

customers what they really want.                              but everything from cars to coffee machines.       the communicating
                                                              This is referred to as the ‘Internet of Things’.   networks that
                                                              Customers are learning more about the              make up the Internet
                                                              value of their personal data. We expect to         of Things will allow
                                                              see them tendering out their information to        insurers to anticipate
19 ‘The Digital Universe in 2020: Big Data, Bigger Digital
    Shadows, and Biggest Growth in the Far East’,             banks, insurers and asset managers in return       risks and customer demands
    International Data Corporation, December 2012

                                                                                                                                                            PwC Financial Services Technology 2020 and Beyond 17
The era of mass customisation                     Consumers now compare financial
                                                                                                                As customers become more connected                institutions to digital leaders across all
                                                                                                                through social media, they are becoming           industries, as well as to their industry peers,
                                                                                                                more demanding and less loyal. Easier             and they are falling short. Customers have
                                                                                                                comparison and faster switching mean              experienced first-hand that digital commerce

                  63%                                                                                           that relationships can be brief and largely       delivers speed and personalisation, and this
                                                                                                                transactional. We are already seeing one-         shapes their expectation of financial services,
                  of insurance CEOs believe that the Internet of Things will be                                 click transfer, which moves all funds, direct     too. Instead of a mortgage, insurance policy,
                  strategically important to their organisation.                                                debit instructions and other services to the      or investment plan that broadly meets their
                                                                                                                new provider with very little effort on behalf    needs, buyers want customised, adaptive
                                                                                                                of the customer. And the demographic trends       solutions that evolve and deliver specified
                                                                                                                have scary implications for conventional          outcomes. For example, target-date funds
                                                                                                                financial services companies because the          automatically adjust the asset mix to a
                                                                                                                youngest users are the least loyal. Recent        user’s expected retirement age. Personalised
                                                                                                                research has found that one in three              service and tailored solutions were once
                                                                                                                millennials in the United States are open to      the preserve of high net worth clients. Now,
Source: PwC’s 18th Annual Global CEO Survey
                                                                                                                switching banks in the next 90 days and a         technology is opening it up to mass affluent
                                                                                                                similar proportion believe they will not even     consumers, and beyond.
                                                                                                                need a bank in the future.20 What explains
                                                                                                                                                                  In the insurance industry, advances in
                                                                                                                this decline in customer ‘stickiness’? Service
                                                                                                                                                                  processing capacity, customer profiling,
                                                                                                                offerings that feel generic and tools that have
                                                                                                                                                                  and risk analytics are now opening the way
                                                                                                                made switching less painful.
                                                                                                                                                                  for a new generation of ‘smart’ policies.
                                                                                                                                                                  While being as affordable and easy to
                                                                                                                                                                  understand and compare as today’s off-the-
                                                                   One in three millennials in the United                                                         shelf products, these policies could be both
                                                                                                                                                                  fully customised to individuals and able to
                                                                   States are open to switching banks                                                             adapt to their changing needs. Crucially,
                                                                   in the next 90 days and a similar                                                              the technological developments that are
                                                                   proportion believe they will not even                                                          making this new generation of policies
                                                                   need a bank in the future.                                                                     possible would also making it easier for new
                                                                                                                                                                  entrants to break into the market at relatively
                                                                   Source: Viacom Media Networks – The Millennial Disruption Index
                                                                                                                                                                  little cost.
20 V
    iacom Media Networks – The Millennial Disruption
   Index

18 PwC Financial Services Technology 2020 and Beyond
Smarter service, smarter sales                   of how they have traditionally managed          A repository for large quantities and varieties of data, both structured
Financial institutions are already using         IT. There are four building blocks for this     and unstructured
artificial intelligence (AI) to experiment       emerging solution architecture. At the
                                                                                                                                                                                                   The lake can serve
with service that is far more personalised.      visualisation layer, the customer interacts     Data generalists/programmers can tap                                                              as a staging area for
                                                 with a self-service dashboard and search        the stream data for real-time analytics.
Many banks in the United States are piloting                                                                                                                                                       the data warehouse,
                                                                                                                                                                                                   the location of more
AI-based client advisors, where the AI engine    capabilities, displayed through advanced                                                                                                          carefully ‘treated’
is primed with the entire product manual,        visualisation tools that generate and present                                                                                                     data for reporting
                                                                                                                                                                                                   and analysis in batch
past call history, policy and procedures         rapid insights. In the application layer,                                                                                                         mode.
guidelines, and more, to provide context-        the visualisation layer is integrated into
based service to their customers.                the business processes management with
                                                 capabilities such as case management,
We expect AI, machine learning, and              alerting and reporting. The analytics layer
customer analytics to become the driver of       does the thinking, using advanced AI                                                                       The data lake accepts input
client engagement over the next decade.          techniques to profile and predict behaviour,                                                               from various sources and can
Certainly, financial institutions will need to   detect anomalies and discover hidden
                                                                                                                                                            preserve both the original data
                                                                                                                                                            fidelity and lineage of data
deliver instantaneous, seamless transactions,    relationships. And, data lakes will form the                                                               transformations. Data models
but speed is just the baseline requirement.      key layer of the solution, acquiring data                                                                  emerge with usage over time
                                                                                                                                                            rather than being imposed
Smart businesses will develop new forms of       rapidly from disparate sources and ingesting                                                               up front.
virtual engagement capable of integrating        it so it can be used productively. Data lakes
themselves into customers’ lives. They           are a new take on data warehousing, taking
will stick because they will be personal:        advantage of cheaper tools to distribute
                                                                                                                   Data scientists use the lake             Data lakes take advantage of commodity cluster computing
informed by intelligence gathered from data      storage and processing. They offer a scalable                     for discovery and ideation.              techniques for massively scalable, low-cost storage of data
about consumer behaviours, choices, and          platform that can store a wide range of data                                                               files in any format.
volunteered preferences.                         models, enabling analysis of both structured
                                                 and unstructured data. Unlike the existing
Rethinking the service                                                                           Source: PwC Technology Forecast (Issue 1, 2014); “The enterprise data lake: Better integration and deeper analytics”
                                                 systems that many firms use today, they
architecture
                                                 won’t buckle under the much larger volumes
Before firms can engage customers like this,
                                                 that will soon arrive.
they will have to make sense of a torrent of
data that defies human comprehension and
that will require gathering, interpreting
and presenting massive quantities of data
in real-time. Few firms are ready. In fact,
most will need to change many aspects

                                                                                                                                                        PwC Financial Services Technology 2020 and Beyond 19
Advances in robotics
and AI will start a
                                                                                                                                                                     6
wave of ‘re-shoring’                 ATMs are robots. They are very simplistic,       Here are some of the capabilities shaping        hurdles. In the next three to five years, we
and localisation                     purpose-built robots – but they provide          these sophisticated machines:                    expect modest, evolutionary gains. After
                                     consistent, convenient, low-cost service and                                                      that, though, we anticipate rapid gains, as
                                                                                      • C
                                                                                         ognition: The robot’s ability to perceive,
When ATMs were first introduced,     customers have grown to trust them. The                                                           new models combine increasingly powerful
                                     same principles will apply to other, more          understand, plan and navigate in the           and standard modular platforms with the
many customers refused to use                                                           real world. Better cognitive ability means
                                     sophisticated financial services applications.                                                    ability to learn. To take an even broader
them. Gradually though, after                                                           robots can work autonomously in diverse,
                                     There have been astonishing advances                                                              view, robotic process automation is already
time and training, they came to      in robotics and AI, machine learning and           dynamic and complex environments.              making inroads in financial services digital
see that ATMs could offer a better   pattern recognition in recent years. Over                                                         operations, too. There are whole categories
                                                                                      • M
                                                                                         anipulation: Precise control and
service experience. And trust        the next five years, we will see a shift from      dexterity for manipulating objects in          of work that had not been seen as cost-
followed.                            standalone uses to full integration into a         the environment. With improvements             effective to automate. However, with
                                     company’s business-as-usual activities.            in manipulation, robots will take on a         lightweight software ‘bots’, workers are freed
                                                                                        greater diversity of tasks and use cases.      up to focus on higher value activities.
                                     What robots can do
                                     We are already seeing alliances between          •	
                                                                                        Interaction: The robot’s ability to learn      Talented people, talented
                                     leading incumbent financial services and           from and collaborate with humans.              machines
                                     technology companies, using robotics and           Progress here – such as support for            In the last 20 years, US companies have
                                     AI to address key pressure points, reduce          verbal and nonverbal communications,           ‘offshored’ repetitive tasks to lower-cost
                                     costs and mitigate risks. They are targeting       observing and copying human behaviour,         locations such as India, China and Poland.
                                     a specific combination of capabilities such        and learning from experiences – means          However, relative costs for labour in those
                                     as social and emotional intelligence, natural      robots will increasingly be able to work       regions have started to rise. Combine this
                                     language processing, logical reasoning,            alongside humans.                              with improvements in robotics and AI
                                     identification of patterns and self-supervised                                                    capabilities and machines will soon become
                                     learning, physical sensors, mobility,            Already, some robots can sense the details       credible substitutes for many human
                                     navigation and more. And they are looking        of their environments, recognise objects,        workers. As the capabilities continue to
                                     far beyond replacing the bank teller.            and respond to information and objects with      improve and technology continues to drive
                                                                                      safe, useful behaviours. Over time, they will    down the cost of machines, these forces will
                                                                                      be able to perform not only more tasks, but      combine to spur re-shoring, as more tasks
                                                                                      more complex tasks. Service robots are in        can now be performed at a competitive
                                                                                      the early stages of a long development cycle,    cost on-shore. Even functions that seem
20 PwC
                                                                                      and they still face some big technological       dependent on human input, such as product
design, fraud prevention and underwriting,       readily available. Even in situations where AI
will be affected. At the same time, the need     does not completely replace an underwriter,
for software engineering talent will continue    greater automation would allow humans to
to expand.                                       concentrate on assessing and pricing risks in
                                                 the less data-rich emerging markets. It would
The B2B robot that is already                    also free up underwriters to provide more
down the hall                                    risk management, product development
AI already plays a prominent role in the         advice and other higher value support for
capital markets sector, starting with            clients.
algorithmic triggers in high-speed trading.
Next generation algorithmic trading systems      Of course, banks already use AI to detect
are already moving from descriptive and          payments fraud. Now, they are using AI’s
predictive to prescriptive analysis, improving   ability to spot abnormal behaviour to detect
their ability to anticipate and respond to       market abuse and rogue trading. As hyper-
emerging trends. And while ‘algo’ trading        connectivity accelerates and more business
programs were once limited to hedge funds        moves over to digital channels, the risk of
and institutional investors, private investors   fraud, hacking, data compromise and other
can now get access to them too.                  cyber-vulnerabilities will continue to grow.
                                                 In response, firms will use AI to fight back     A core component of the fund design
AI is also prominent in investment activity.     with methods like predictive analytics           process, particularly around trading
The technology will become a core
component of the fund design process,
                                                 (past and forecast spending behaviour)           authorisations and hand-offs with
                                                 and location data from customers’ smart
particularly around trading authorisations       phones and wearables.
                                                                                                  human investors.
and hand-offs with human investors. AI
systems already drive investment strategies      Thinking machines                                      Banks already use AI to detect
that complement active management,               We urge financial institutions to rapidly ramp
governing the decisions of passive funds         up their efforts to understand and develop
                                                                                                        payments fraud. Now, they are
and driving greater returns in active ones.      a vision for their use of robotics and AI.             using AI’s ability to spot abnormal
This, along with the increasing body of          They will need to find and integrate more              behaviour to detect market abuse and
research citing the relative advantages of       industrial engineers into their talent plan.           rogue trading.
passive funds, could force asset managers to     And they will need to learn from industries
radically rethink active fund management.        such as manufacturing and technology that
                                                 have used robots extensively for decades.
By 2020, AI will also automate a
considerable amount of underwriting,
especially in mature markets where data is                                                                              PwC Financial Services Technology 2020 and Beyond 21
The public cloud will
become the dominant
                                                                                                                                                                                         7
infrastructure model                                 Today, many financial institutions use            estimates that public cloud investments           model. What are the best ways to manage
                                                     cloud-based software-as-a-service (SaaS)          increased by 32% in 2015 to US$21.7 billion       an architecture that is more diffused and
As significant as the shift toward                   applications for business processes that          and private cloud investments grew in 2015        fragmented than ever? How can you juggle
cloud-based computing has been,                      might be considered non-core, such as CRM,        by 17%, reaching US$11.7 billion. Overall,        security, data protection and commercial
it is just getting started.                          HR and financial accounting. They also turn       total cloud IT infrastructure spending grew       confidentiality? There are even regulatory
                                                     to SaaS for ‘point solutions’ on the fringes of   26% in 2015, reaching US$33.4 billion. To         ramifications, as some countries have
                                                     their operations, including security analytics    put that in perspective, this is approximately    imposed considerable restrictions on the
                                                     and KYC verification. But as application          one-third of all IT spending.22                   transfer of client data to the public cloud.
                                                     offerings improve and as COOs and CIOs                                                              As a result of this, many financial institutions

                52%                                  get comfortable with the arrangements,            Curiously, the sharing economy also plays         today are leaning towards adoption of a
                                                     the technology is rapidly becoming the way        a role here. After all, some companies that       private-cloud solution.
       of asset management CEOs...                   that core activity is processed. By 2020,         have a demonstrated competence in an area
                                                     core service infrastructures in areas such        are choosing to sell it to others who need it.    Despite the cautionary note, we expect
                                                     as consumer payments, credit scoring, and         For example, the payments infrastructure          that the next several years will result in
                                                     statements and billings for asset managers’       of many industrial, healthcare and smaller        an increasing adoption of the public cloud
                                                     basic current account functions will be well      FinTech institutions are being provided by        within the financial services industry. Like
                                                     on the way to becoming utilities.                 conventional banks. These banks are selling       FinTech, robotics and digital, this will require
                                                                                                       their infrastructure as a service to others,      new ways of thinking for organisations
                                                     Using the cloud to scale                          and leveraging the cloud to do it. In our view,   and IT departments. But the benefits will
                                                     What is behind this shift? Data storage           this provides an important source of revenue      certainly be significant too.
                                                     costs have plummeted, facilitated by              to these institutions.
...believe that cloud computing will be              cloud-based infrastructure. This has made
strategically important to their organisation.21     it easier to manage ‘big data’ and apply          Bring an umbrella, just in case
                                                     sophisticated analytics, and it has also          With customers demanding a flexible,
                                                     reduced the barriers to entry for new FinTech     personalised system experience, and with
21 1
    55 asset management CEOs interviewed
                                                     disruptors. According to the International        costs continuing to drop, the cloud is here
   for PwC’s 18th Annual Global CEO Survey: A
   marketplace without boundaries? Responding to     Data Corporation (IDC), public cloud              to stay. It is the sensible way to deliver
   disruption (www.pwc.com/ceosurvey)
                                                     investments are growing quickly, spending         innovation within a target return on equity.
22 h
    ttp://www.fiercecio.com/story/cloud-adoption-
                                                     on private cloud is increasing, and traditional   But there are many challenges in shifting
   costs-are-down-real-savings-can-be-had-smart-
   negotiators/2015-07-23                            infrastructure spending has plateaued. IDC        from an on-premises model to a cloud-based

22 PwC
Cyber-security will
be one of the top
                                                                                                                                                                                           8
risks facing financial                                  Unfortunately, it is not likely to change for   that maintains the dishwasher may not
institutions                                            the better in the coming years, due to the      be as passionate about patching software
                                                        following forces:                               vulnerabilities as you are.
Financial services executives are
                                                        • Use of third-party vendors                    Some industry sources see the number
already depressingly familiar                                                                           of IoT devices deployed across the world
with the impact that cyber-threats                      • R
                                                           apidly evolving, sophisticated and          reaching about 25 billion by 2020.23 Until
have had on their industry.                               complex technologies                          now, IoT growth in financial services has
In PwC’s 19th Annual Global CEO                         • Cross-border data exchanges                   primarily occurred in payments, insurance
Survey, 69% of financial services’                                                                      and banking. Banks are forming partnerships
                                                        •	
                                                          Increased use of mobile technologies by       with wearable technology manufacturers
CEOs reported that they are either
                                                          customers, including the rapid growth of      to allow customers to make mobile payments
somewhat or extremely concerned                                                                         using watches or fitness trackers. Insurers
                                                          the Internet of Things
about cyber-threats, compared to                                                                        are using telematics technology to monitor
61% of CEOs across all sectors.                         •	
                                                          Heightened cross-border information           driving habits and provide discounts to safe
                                                          security threats                              drivers.
                                                        The Internet of Things (IoT):                   Cyber-security is the leading challenge to the      65%
                                                        a case study                                    adoption of IoT technology because insecure         of FS companies said they have adopted
                                                        Expected IoT growth introduces a new            interfaces increase the risk of unauthorised        cloud-based security.24
                                                        set of security risks and challenges that       access. Here are some of the concerns:
                                                        will require serious attention. IoT refers
                                                        to the proliferation of physical objects        •	
                                                                                                          Attack surface: Hackers can gain entry
                                                        (devices, cars, houses, wearables) that           to a corporate network through an IoT
                                                        contain sensors, software and the ability         device.
                                                        to communicate. The opportunities are
                                                        fascinating, like dishwashers that can          •	
                                                                                                          Perimeter security: IoT technology
                                                        schedule a repair visit at the sense of an        relies on cloud-based services, so it will
23 http://www.gartner.com/newsroom/id/2905717           impending part failure. But every chain           be challenging to implement effective
24 P
    wC’s Global State of Information Security Survey
                                                        has its weakest link, and the company             perimeter defenses.
   2016: https://www.pwc.com/gsiss

                                                                                                                                                       PwC Financial Services Technology 2020 and Beyond 23
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