Recently I had the privilege to discuss changes and macro trends globally in different industries with a group of change management executives. While we discussed various topics, including incumbents abilities to innovate in new markets, cannibalization among other topics, we got talking about the changes of financial services institutions becoming the new effective ‘bit pipes’ (comparison from telco’s) and more so, if this is actually a bad thing?
To take a step back, the telecom sector went through a change where telecom operators largely provided the infrastructure which was both low margin yet difficult, cost-intensive and expensive to maintain and new innovators (think Skype) came into provide services on top of this infrastructure. And more often than not, these innovators would provide the high margin services sought after by clients effectively dis-intermediating the telco and cementing the telco’s position in the background.
With the requirement and trend toward open APIs of financial services and core financial products, a similar type of dis-intermediation is in effect in financial services. Further than that, it seems together with macro trends such as declining consumer sentiment toward banks and new innovations in the customer experience, financials services firms are being pushed farther and farther into the background.
To form an opinion of whether or not this is a positive trend is complicated and requires addressing it from the point of view of different stakeholders, including the consumer, the business and the regulator.
Change is inevitable and all markets move toward greater efficiency, or so the sayings go. The ultimate beneficiary of progress in markets is the end user and in financial services this is visible in various ways, including a more modern way of attaining services such as wealth management and core banking, to more pressure on prices and competition in specialist services such as foreign exchange, transfers and payment services.
For businesses change means adapting to new positioning, anticipating them and making hard decisions. We are privileged to work alongside organizations going through these changes and see the innovation and practical approach to tackling changes in business. Some of our clients even go as far as to expect that 60%, or the significant majority, of their new revenue will come from business lines they have yet to innovate, a clear call for change and innovation in these large organizations and a representation of how serious the attitude for change really is.
Business also face various complexities beyond new positioning, least of which comes with timing in a new market. Particularly when faced with difficult choices of cannibalization of existing business lines and competing on costs with new innovators, the question of when to act can be paramount in optimizing opportunity and potential lost revenue from existing business lines. Too early can be devastating, but too late can come at a high alternative cost (and down the line real cost) of failing to establish organizations as relevant let alone thought leaders in new markets.
There is also an argument to be made for the incumbent or the one becoming the bit pipe to play the role of the innovator, however it's not a very strong one. The few successes one can think of, are matched by countless of heavy investments with little actual success.
Regulators and policy makers also have to adapt to new changes, which comes with the need for understanding what the market is and what it is not, where it is going and which growth opportunities it presents. Confusion and uncertainty cause friction in markets and consistency is what the ecosystem looks for in the policy makers approach. We recognize this is often a difficult and multifaceted task, yet the actions regulators are taking (for example with the financial services sandbox initiatives around the world) make it clear this is in fact a new paradigm and not business as usual.
Beyond a discussion of whether or not this development is good or bad may almost be redundant, as it's a matter of opinion. Yet it's now apparent, that the trend is in fact in full swing and proceeding what ever we may think about it. It comes with its growth challenges, and presents various areas of opportunity for organizations looking at creating more modern end user services to underserved segments in the market.
With the requirement and trend toward open APIs of financial services and core financial products, a similar type of dis-intermediation is in effect in financial services. Further than that, it seems together with macro trends such as declining consumer sentiment toward banks and new innovations in the customer experience, financials services firms are being pushed farther and farther into the background.
To form an opinion of whether or not this is a positive trend is complicated and requires addressing it from the point of view of different stakeholders, including the consumer, the business and the regulator.
Change is inevitable and all markets move toward greater efficiency, or so the sayings go. The ultimate beneficiary of progress in markets is the end user and in financial services this is visible in various ways, including a more modern way of attaining services such as wealth management and core banking, to more pressure on prices and competition in specialist services such as foreign exchange, transfers and payment services.
For businesses change means adapting to new positioning, anticipating them and making hard decisions. We are privileged to work alongside organizations going through these changes and see the innovation and practical approach to tackling changes in business. Some of our clients even go as far as to expect that 60%, or the significant majority, of their new revenue will come from business lines they have yet to innovate, a clear call for change and innovation in these large organizations and a representation of how serious the attitude for change really is.
Business also face various complexities beyond new positioning, least of which comes with timing in a new market. Particularly when faced with difficult choices of cannibalization of existing business lines and competing on costs with new innovators, the question of when to act can be paramount in optimizing opportunity and potential lost revenue from existing business lines. Too early can be devastating, but too late can come at a high alternative cost (and down the line real cost) of failing to establish organizations as relevant let alone thought leaders in new markets.
There is also an argument to be made for the incumbent or the one becoming the bit pipe to play the role of the innovator, however it's not a very strong one. The few successes one can think of, are matched by countless of heavy investments with little actual success.
Regulators and policy makers also have to adapt to new changes, which comes with the need for understanding what the market is and what it is not, where it is going and which growth opportunities it presents. Confusion and uncertainty cause friction in markets and consistency is what the ecosystem looks for in the policy makers approach. We recognize this is often a difficult and multifaceted task, yet the actions regulators are taking (for example with the financial services sandbox initiatives around the world) make it clear this is in fact a new paradigm and not business as usual.
Beyond a discussion of whether or not this development is good or bad may almost be redundant, as it's a matter of opinion. Yet it's now apparent, that the trend is in fact in full swing and proceeding what ever we may think about it. It comes with its growth challenges, and presents various areas of opportunity for organizations looking at creating more modern end user services to underserved segments in the market.
About the author - Markus Lampinen
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).
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