Not surprisingly the challenges, but also the opportunities are enormous and this both for the incumbent financial players as for the new Fintech start-ups and scale-ups. Obviously coping with challenges is intrinsic to doing business, but new is that the current challenges (like Global Warming, Covid relaunch, exploding costs of living, shifting global powers…) are global in nature and arriving faster and faster (due to the hyper-connected and hyper-informed times we live in). This means every financial organization should be extremely resilient to adapt quickly to a continuously changing environment. This requires new strategies and new ways of working on multiple domains, i.e.
Companies should continuously innovate and reinvent themselves. This requires an agile way of working, but it also means that everything should be put in place to facilitate this agility, such as
Reducing silos between departments, i.e. everyone collaborating on a common company goal
Continuous training (upskilling) and mentoring (change management) of all employees, so that everyone can continue to be of value within a changing company environment
Flexible up- and down-scaling of resources, so that sudden opportunities and threats can be dealt with as soon as possible. This can be done via a flexible workforce (e.g. via nearshoring, a worldwide remote-first workforce, via a network of freelancers…)
Real-time availability of high-quality data (and its associated insights), so that the organisation can be adjusted continuously based on hard data and not based on gut feeling or complex studies which are already outdated by the time they are presented to the management (data can help increase resilience in an uncertain world).
In other word, each company should become a data-driven organisation, meaning every decision to launch a new initiative is backed up by data and also by KPIs which are regularly evaluated to determine if the initiative (still) meets its initial promises/expectations (or potentially requires corrections). This allows an "move fast - fail fast" approach.A technological foundation and processes supporting this agility. This means usage of the cloud (allowing to rapidly scale-up and scale-down required IT infrastructure and enjoy a multitude of tooling and abstraction layers allowing to accelerate and simplify), new processes like DevSecOps (e.g. continuous delivery and automated testing) and Scrum, a modern agile application architecture (such as a micro-service based architecture) and a well decoupled and open API-based infrastructure.
Additionally financial players should experiment with new technologies such as blockchain, AI/ML, Low-code/No-code or the Metaverse, in order to be already at cruising speed once those technologies become a necessity to cope with a specific (future) challenge.
Companies should become trusted and sustainable parties in the community (ESG movement = Environmental, Social & Governance), i.e. not just in words (e.g. avoid Greenwashing), but really deliver upon promise. This means:
Putting the customer’s interests first (it’s all about happy customers)
Providing transparency on all fronts. This does not only mean transparency on pricing and commissions and on all processes and partners, but also give full transparency in case something goes wrong and explain for what data is asked and what it will be used for.
Ensuring good security & data privacy (cyber-security should already be a top priority of every executive today)
Acting sustainable and ethically in all products and processes (e.g. reduce energy consumption, reduce waste, do not exploit workers, work with sustainable and ethical suppliers…)
Companies should also invest heavily in their people (employees), as the talent in the organization will determine the adequacy and speed an organisation can react to change. This means:
Attracting the right and best people, which is only possible when the company is attractive for top-talent. This is hard as the war for talent is fierce, especially for the profiles everyone is looking for, like marketing, UX, full-stack developers or AI engineers (or more general data engineers & data analysts).
Continuous learning/training to ensure every employee remains relevant and of value for the changing organisation. This consists of developing both the hard and soft skills.
Taking action that the health and wellbeing of every employee is taken at heart and this both physical as mental health. With general health dropping year-by-year (more than 55% of Belgians is overweight or obese, more than 25% of Belgians has a chronic condition, 10-15% of Belgians suffer from mental illness and 21% of Belgians think they will suffer from a burnout in the near future) it is a moral duty of every employer to take action on this. This will not only improve the ability of the company to attract and retain top-talent, but it will also result in huge cost savings, as (long-term) ill employees cost enormous amounts to companies in loss of productivity, but also in other costs like finding and onboarding (temporary) replacements.
Companies should focus on what they do best, i.e. their core business and core competencies. These are likely the domains where the business is able to adapt/pivot the fastest to changing market conditions. For all non-core activities, it is preferred to partner with third-parties in an ecosystem. Obviously this requires a whole new way of doing business and these partnerships come also with quite some new challenges (see my blogs "Ecosystems - The key to success for all future financial services companies" - https://bankloch.blogspot.com/2020/11/ecosystems-key-to-success-for-all.html and "The partnership manager - A new key role in every bank and Fintech" - https://bankloch.blogspot.com/2021/03/the-partnership-manager-new-key-role-in.html). An ecosystem is only as strong as its weakest link with regards to security, so it’s important to impose high security requirements on partners, do a proper assessment of each partner (i.e. KYC or better KYP = Know Your Partner) and put strong controls (e.g. Zero-trust architecture) and a good data collaboration model in place.
Companies should adopt a hyper-personalized, customer-first approach. Customers are becoming more and more demanding (an "it’s all about me" mentality) and want hyper-personalization. Additionally by keeping a hyper-focus on the needs and desires of each individual customer, an organization will be able to pick up on changing market conditions very early, allowing to pivot well in-advance of the market.
Apart from having to cope with these challenges to stay commercially relevant, governments are also introducing a lot of new directives and laws (e.g. PSD3, GDPR, Data Service Act = DSA, Data Governance Act, DORA…), with which they try on their turn to regulate and control these global challenges and obviously every company needs to comply with those regulations. This also requires a lot of effort and agility, but when those regulations are properly addressed, they can also result in competitive advantages. Especially in the domain of data protection and data governance, a lot of changes are upcoming, with Europe leading the way for the rest of the world. These regulations will give access to new data sets, allowing to support new user journeys, but they also come with a lot of new challenges, as consumers and governments are more and more sensitive of a secure and privacy-aware processing of all data.
Luckily, financial companies (both incumbents and Fintechs) have many tools at hand to cope with those challenges and support those new strategies and new ways of working. Technology, digitalization and partnerships (ecosystems) will enable to provide this agility and resilience, e.g.
New emerging technologies (like blockchain, AR/VR, 5G, 3D printing, quantum computing, IoT…) give the tooling to companies to address the issues and challenges
Digitalization of all processes allows to reduce manual, resource-intensive processes and gives new opportunities. Additionally this digitalization can be accelerated by technologies like cloud, open-source software, partnerships with software vendors and Fintechs…
Real-time access to good quality data from a whole spectrum of data sources, i.e. from internal sources (more easily accessible via new technologies like data lakes, data pipelines, event-driven architectures, AI/ML…), data from partners, data from parties forced by regulation to open their data (like banks in context of PSD2), data providers who commercialize the collection, centralization and cleaning of different data sets and "Open Data" sources (more and more companies are opening certain internal data sets to the world for free, in follow-up of the open source movement). Additionally new privacy-aware and/or DeFi technologies allow to share insights derived from data from 2 or more different parties, without each party having to share the data itself to the other party. E.g. several banks could collaborate on fraud detection without actually having to share their data, i.e. all data remains encrypted, except for the algorithm doing the fraud detection.
Setup of partnerships and ecosystems, allowing to deliver an end-to-end user experience, without having to build up all expertise and invest in all domains.
In all of the above you can clearly identify 3 trends in the Fintech and financial services industry in general, i.e.
Data is precious, but also very risky ("Data is gold or even better uranium" as Marc Lainez from Isabel Group rightly pointed out on the DFS summit). Companies need to collect (from a continuous growing number of sources) a maximum of data (both internally and externally via partnerships) and understand this data, by cleaning and structuring (a lot of data is still unstructured and inaccessible) the raw data and converting this data into actionable insights. At the same time, companies need to do this in a secure and privacy-aware way ("Your data, your rules"), as the negative impacts of data breaches can be enormous.
Companies need to be more and more aware of their role in the overall society and manage properly all their stakeholders (ESG), i.e. shareholders, customers, governments, suppliers, citizens (society in general) and employees and act responsible and ethical towards all of them. Companies failing to do so, will lose customers, will not be able to attract top-talent and will be excluded from certain precious ecosystems, which means that the medium- to long-term impact can be devastating.
Partnerships are the unmistaken path forward for both incumbents as for Fintechs. While 10 years ago most Fintechs were very disruptive and competing heads-on against incumbent players, today most Fintechs are working for incumbents, partnering with them or have chosen a niche, which is not a primary focus of incumbents. Contrary to what was assumed in the early days of the Fintech movement, incumbents have not lost so much market-share to the Fintechs in this world, but rather (some of them) have been able to gradually transform themselves to modern, digital players, with the support of specific Fintechs (and because of the pressure of those disruptive Fintechs).
So in short, lots of ideas to think about and put into action in 2023. Looking forward joining DFS 2023 next year.
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