The New Year will herald a sea change in the banking and insurance industries as interest rates rise and the foot comes off the gas pedal of net new regulation. This will give banks and insurance companies the ability to shift gears to focus on innovation.
Here are my predictions for 2018:
- Covert Ops
Amazon and other big tech firms (like Facebook, Apple & Google) have been covertly sidestepping their way into business and retail banking.
While Amazon has thrashed retail like an 800-pound gorilla, the impact on banking has been much more subtle. It started with payments and is continuing into current accounts and commercial loans with Amazon Cash and inventory financing.
An excellent customer experience – seamless, frictionless, and paperless - is no longer a nice-to-have. It is table stakes. In 2018, banks and insurers will consider improving customer experience, as a top investment priority. The benchmark for good CX is not set by rival banks. It’s set by tech.
- Use it or Lose it (your Data)
The banks and insurance companies that will thrive will use customer data to re-engineer their value propositions.
Banks sit on mountains of data. But, to date, few have assembled and analyzed that data in order to understand and predict their customers’ needs. With some bank products becoming commoditized, and competition from fintechs, banks need to create new personalized products fueled by insight into their customers.
This may include engaging and/or buying fintechs and other third parties that can contribute to new value propositions. Product innovation is required to retain demanding customers – especially digital-first millennials. If not, they’ll walk - and take their data with them.
In 2018, banks will start to demonstrate that data truly is the new oil. Banks that don’t, will start to relegated to “plumber” status: functioning in the background, processing other entities’ transactions.
- GRC is Dead. Long live IRM.
The best banks are taking a strategic, integrated approach to risk management: managing risk and business performance together.
Banks have to focus on risk; it is in their DNA. But after a brutal decade of reacting to new regulation, there is an opportunity to reinvent risk management as a core part of the strategic planning process. McKinsey expects that by 2025 risk management closely collaborate with business heads, creating a center of excellence in analytics and unbiased decision making.
In 2018, we will see the beginning of this evolution as financial services shift gears to more strategic, integrated approach – assessing risk within the context of business performance.
- Business and IT transformation is sexy again!
In 2018, the redheaded stepchildren (business and IT transformation) will finally be given some respect, being acknowledged as prerequisites for innovation.
One silo at a time, leading banks will conquer the complexity of thousands of applications that exist in an environment with a lack of documentation, unintegrated M&A, operationalized skunkworks, and technical heroics.
Automating key processes in the back-end, so that the front office/front line can focus on higher value activities (not transactions) will be paramount. This will include monitoring and improving those processes so that they are aligned with strategic priorities.
- Insurers Want to Get Very, Very Close (to you)
Insurance companies will ditch their low customer engagement standards and begin getting much closer to their customers.
The Internet of Things will enable insurance companies to deliver new personalized products based on real-time customer behavior that they track through devices: e.g. wearables for health insurance, telematics for vehicles; sensors for property insurance.
This will generate huge amounts of data that insurers can use to gain new insights into customers; It will also help manage risks in real time – e.g. for house fires or automobile crashes. In 2018, the IoT in insurance will explode as insurers seek to drive revenue after a lackluster, low interest rate decade.
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