financial services in an era of exponential change · financial services in an era of exponential...
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D E L O I T T E C O N S U LT I N G L L P
Oracle Open World
October, 2015
D E L O I T T E C O N S U LT I N G L L P •
Financial Services in an era of Exponential change
Executive Summary
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EXECUTIVE SUMMARY
The Financial Services industry is undergoing a rapid transformation, forcing an entire rethink of existing models
• How will empowered, digitally connected consumers choose you over a myriad of other providers?• How will automation and commoditization of high-value activities and broader accessibility of financial products change the role of traditional
financial institutions?• What relevant partnerships will need to be established to compete effectively?• How will regulatory oversight affect the launch and growth of new business models?• What role will human capital play in the transformed future?• What strategies need to be developed in order to future-proof business models?
Key Questions for the Financial Services Industry
Forces for Change The Game is Changing
Traditional approaches of how:
• You interact with customers
• You operate internally
• You interact with other financial institutions and a broader ecosystem of players…
. . . Need to change in order to:
• Create enduring competitive advantage
• Increase margins and value for investors
Changing Regulatory Strategy and Objectives
• Need for greater capital levels• Increased oversight on data security• Fee caps leading to impact on traditional revenue models• Uncertain response to cryptocurrencies and non- traditional competitors
Transforming Customer Expectations
• Empowerment through digital connectivity• Increased information access and products options• Ability to obtain / share financial advice without intermediaries• Ability to generate funding without intermediaries
Accelerating Technological Advancement
• Broader accessibility of products and services• Automation of once highly manual activities• Increased market transparency and efficiency• Leveled playing field for small and mid-sized firms to compete• Emergence of non-traditional competitors (e.g., Apple, Google)
The industry is being transformed at an exponential rate, opening the door for disruptive innovations to take hold
Time (Years)
Pac
e o
f In
no
vati
on
Where Exponential Technology is headed
Today
Where Exponential Technology is now
TechnologyInnovation
CONTEXT
As the speed of technological change accelerates, the intersection of exponential technology and linear business performance will:
• Change customer expectations
• Change industry economics
• Change the competitive landscape as a whole
What does this ultimately mean for
the business of banking?
Playing to WinMIND-SHIFT
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“Why do Firms exist?” is a question that has been around since 1937:?PLAYING TO WIN
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Digitization is reducing friction and challenging “the nature of the Firm”…PLAYING TO WIN
Dematerialization
Reduction in technology costs has enabled the growth of digital providers,
including advent of branchless banks
DIGITIZATION
Democratization
Crowdfunding and P2P lending have democratized access to capital
De-monetization
Automated investing services bring low-cost wealth management services
to mass market customers
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…forcing a rethink of the traditional organizationPLAYING TO WIN
The Traditional Enterprise
“Producer” “Agent” “Creator”
Infrastructure Management
Customer Relationship Management
Product Innovation Management
• The only reason these functions with very different economic, competitive and cultural imperatives exist in the same place is because the internal interaction cost is lower than the external one……
• In an era of Digital disruption the historic benefit of scale economies now seems to be a hindrance
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So Leadership need to work out where scope and agility are creating new avenues for growth and where scale is a disadvantage
PLAYING TO WIN
G-SIBs strategically down-sizingFinTech scaling and disrupting industry
economicsUnique avenues for
regional banks
• G-SIBs reshaping their business to counteract regulatory requirements:
−Products: Reducing exposure in non-operating deposits, trade finance etc.
−Businesses: Likely to exit certain sectors (e.g., OTC clearing)
−Clients: Likely to exit low ROE segments (e.g., small business)
• Simplifying operations by eliminating non-performing assets
• Technological change enabling scale (e.g., mobile internet, cloud computing, digital currencies)
• Digitization enabling broader geographic reach than brick and mortar counterparts
• Alternative source of capital enabling scale (e.g., Lending Club, Paypal, Betterment)
• Focus on market ‘niches’ and specific customer needs, enabling agility
• Increased ability to reach mass market (e.g., via automated advice, insights-driven lending)
• Not bounded by legacy infrastructure
What you have
What you know• Strategic agility• Business model
dexterity • Industry• Customers• Region
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⤑Expose leadership to new insights to create a shift in perspective and generate interest in Exponential innovation and transformation
⤑Create an environment for divergent thinking and understanding of Exponential trends
⤑ Identify Exponentials trends relevant to client and sector
⤑ Intense ambition for transformation
⤑Connectivity across the executive team resulting from group and individual processing of Exponentials
⤑Alignment on priority themes relevant to client industry and sector
⤑Clear platform to action
Create a shift in leadership’s mental model to allow for a change in business model
MINDSHIFT
KEY ACTIVITIES OUTCOMES AND DELIVERABLES
Playing to WinFOCUS
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Banks must be explicit about their activity and resources across different ambition levels…PLAYING TO WIN
Average balanced portfolio
70%
ADJACENT
TRANSFORMATIONAL
CORE
20%
10%
RETURN ON INVESTMENT
70%
20%
10%
WH
ERE
TO P
LAY
: N
EW M
AR
KET
S
HOW TO WIN: INNOVATION
Key
Investment Allocation
ROI
ADJACENT: Expanding from existing business into “new to the company” business
TRANSFORMATIONALDeveloping breakthroughs and inventing things for markets that don’t yet exist
COREOptimizing existing products for existing customers
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HOW TO WIN: INNOVATION
WH
ERE
TO P
LAY:
NEW
MA
RK
ETS
⤑Identify disruptive intersections between Exponentials and your sector, including analysis of opportunities and threats at intersections
⤑Develop concept options for 2-3 potential ideas at each disruptive intersection
⤑Test, refine and validate of potential concepts
⤑Define business model change strategy, including clear Where to Play and How to Win choices
⤑Perspective on future market evolution across a range of scenarios
⤑Priority set of potential opportunity spaces and portfolio of potential ideas within spaces
⤑Clear set of strategic Where to Play / How to Win choices
⤑Implications of Desirability, Viability and Feasibility for 2-3 new business concepts
⤑Concept pitches for 1-2 business ideas
Engage in disciplined and structured analysis to determine the right balance for your portfolio
FOCUS
KEY ACTIVITIES OUTCOMES AND DELIVERABLES
Playing to WinEXECUTE
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Banks need to execute on strategy with clear governance and dedicated resources
PLAYING TO WIN
Moving from….
PRODUCTS
SILOS
SEGMENTS
PLATFORMS
ECOSYSTEMS
CLIENT NETWORKS
Moving to….
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⤑Identify key capabilities required, including network and partner assessment (if needed)
⤑Ratify clear governance structure
⤑Develop and validate business case and roadmap for investment
⤑Identify and deploy dedicated resources for implementation and capability development
⤑Prototype, pilot and launch concepts based on market realities
⤑Capability, client network and partner assessment
⤑Clear governance structure and success metrics
⤑Business plan, financial model and scenarios
⤑Operational and roadmap implications
⤑Dedicated resources with appropriate skillsets
⤑Product platform development and implementation; integration with existing product platforms
Execute on strategy with clear governance and dedicated resources
EXECUTE
KEY ACTIVITIES OUTCOMES AND DELIVERABLES
Moving from….
PRODUCTS
SILOS
SEGMENTS
PLATFORMS
ECOSYSTEMS
CLIENT NETWORKS
Moving to….
Closing Thought?