From open banking, usage-based financing and the acceleration of the Internet of Things in commercial insurance, financial services institutions are poised on the cusp of a new digital age.
Here is what we predict you will see for banking and insurance in 2019:
- Do the Digitalization Tango
The industry will embrace open banking as the next stage in maturity of client-facing digital transformation, embracing API life cycle management capability to scale, control, govern, and reuse APIs. Some banks have crystallized their open banking strategies and identified the model they will assume, but some will be disappointed when they find they’re a bit late to the dance and most of the most charming ecosystem partners have already been snatched up.
- Get Back… to Basics
The back office will get some much-needed investment in both banking and insurance. After years of spending on mobile, client-facing technology, FSIs will realize that they have reached the limits of what they can deliver to clients in contextual experience unless they thoroughly and intelligently automate processes. Especially when considering a possible economic slow-down looming on the horizon, business teams will be pressed to demonstrate rapid ROI for technology projects. A pragmatic and focused use of machine learning and robotic process automation will help to strip out the costs of swivel-chair integration, manual errors, and expensive humans deployed on low-value activities.
- Celebrate (?) Graduation Day
Two things will happen to challenger banks in 2019: First, they will graduate from being start-ups and move into the grown-up marketplace, gaining meaningful market share. Second, this will lead to growing pains that the incumbents are all too familiar with. As the oldest ones in the pack start to hit their big ten-year birthdays, they will discover that even challenger banks can be challenged by their IT architecture! Although some incumbent banks are strategically focused on automating their IT planning and portfolio management practice, in 2019 the others, including the challenger banks, will find that without transparency and a reduction in complexity, their pace of innovation will be dulled.
- Are you Insured?
The commercial property and casualty insurance industry will deepen its footprint in the Internet of Things. Buoyed by its first pricing rebound since 2013, companies will expand the use of telematics with fleets, and sensors for smart buildings. They will introduce continuous monitoring with sensors for sensitive food and drug shipments, and wearables for machinery users. And, like the consumer business, IoT will unlock value in risk and fraud prevention, and improved claims management and customer engagement. The most innovative commercial insurers will build on that value by building ecosystems around IoT data (e.g., for road-side or medical assistance), and focus internally to shorten business cycles (e.g. trigger a claim upon notification of accident).
- How Much is it Worth?
With the rise of outcome- or usage-based cost models, financing for fixed assets like machinery will change dramatically. Instead of loan payments being based on time, payments will increasingly be made based on the income stream generated by a piece of industrial equipment - as measured by a sensor - and shared with the bank. Because banks are taking a more interested position in outcomes, this has a very interesting connotation for risk. How many pieces of equipment are needed to generate the same stream of cash as a single, high quality, well-working piece of equipment? Manufacturers’ product quality becomes a key finance risk component, more so than ever before.
For more information on how digital transformation in banking and insurance companies, please click on the link below.