FINANCIAL SERVICES TECHNOLOGY 2020 AND BEYOND: EMBRACING DISRUPTION - PWC
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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
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
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
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
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
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
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
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
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
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 BeyondThe 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 11Blockchain 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 PwCWe 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 13A 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 BeyondDigital 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 15banks. 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 BeyondCustomer 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 17The 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 BeyondSmarter 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 19Advances 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 productdesign, 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 21The 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 PwCCyber-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 23You can also read
