Financial Services Organizations Rethinking their Business Models

By Mitch Siegel, National Strategy leader, KPMG

Mitch Siegel, National Strategy leader, KPMG

The increasing speed of disruption from specialized, digitally advanced and often non-regulated entities, combined with ongoing economic, regulatory and technical change is forcing financial services organizations to rethink their business and operating models.

Traditional financial services companies have spent a great deal of resources, time and costs addressing regulatory requirements over the past 5–6 years, while, at the same time, delaying upgrades to technology infrastructure. Now, straddled with legacy, rigid IT stacks, they are seeking methods to innovate around those stacks and in some cases looking for partnerships to fill capability gaps.

There are a host of market signals driving the disruption across industries. “Mining” these signals requires an ability to constantly sense the competitive ecosystem to reconcile “outside in” data points to “inside out” tactics.

Here are just a few that warrant consideration:

• Due to an entrepreneurial mindset coupled with low barriers to entry, the “Collaborative Economy” is reshaping the economic environment – with power shifting from corporations to the marketplaces where online experiences and the social aspects are key for success.

• Millennials are opting to live in cities rather than suburbs, and as a result are delaying purchases of cars, homes and timeframes for life events such as getting married and starting families.

• The delay in life event planning means millennials are more likely to use unbundled services that create efficiencies in slivers of their lives as opposed to bundled services offered by traditional providers.

• The standard definition of currency is rapidly changing, with mobile app payments (loyalty), discounts, elevated experiences with likes and hashtag uses (social) and crypto-currency such as Bitcoin. In fact, the definition of what is a “wallet” is often up for debate.

Mining these market signals on a continuing basis is essential for these traditional organizations to determine what course corrections are required as part of their operating model. In some cases, those course corrections may be minor tweaks to operating model tactics, but in other cases organizations need to re-visit strategic imperatives that form the foundation of their business model and major transformation efforts. This is a paradigm shift and one that requires nimble and agile management, all the way up to the Board and Management Committee levels.

We believe disruption is the new reality for the foreseeable future and this requires a more proactive approach. The answers of the past, large scale and multi-year technology replacements, take too long, fail too often and are constantly re-prioritized due to their size, scale and complexity. Rather, we see a shift toward open architecture stacks and “wrapping” legacy technology with middleware and web services that can leverage core data to shorten time to market and enhance the data pushed to both internal and external customers and channels. These “digital overlays” can then apply analytics to present data in the form of information reporting and dashboards to enhance sales and decision making while simplifying experiences for customers, with greater acquisition, personalization and servicing capabilities.

This can be accomplished in a more agile manner, with a focus on combining multi-functional teams (product, ops, IT, UX/CX developers) in “delivery cells” that can drive product functionality through a customer experience value chain. This strategy can reduce cycle times to weeks and months rather than years and it’s also an effective way to better align revenue and market share enhancement goals to budget spends.

The traditional financial services firms will need to embrace change and proactively find ways to improve the customer experience, and in some cases, working together with the new market entrants who tend to be more nimble and quicker to address changing customer needs.

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