Modernising a century-old relationship: the role of tech in financial services
Fintech is often seen as new, disruptive and transformative. Yet, the relationship between tech and financial services is much older than you might expect.
Even before Barclays’ first ATM was introduced in 1967, technology and financial services had been working hand-in-hand for decades. As the years have gone by, the two have become fundamentally intertwined, particularly since the turn of the century. Aligned to Delio’s recent report on ‘Digitising Private Markets’ this is the first in a series of blogs that will focus on the drivers behind this century-old relationship.
The drivers that led to digital change
The factors that initiated and strengthened the relationship between technology and financial services have largely remained consistent over the last century; accessibility and efficiency. On the whole, the increasing reliance of financial institutions on technology has been fueled by the demand to make services more accessible to customers, easier to deliver, and increasingly profitable.
Although these drivers have remained mostly unchanged for decades, the demand for digitising services has increased beyond recognition since the turn of the century. From the launch of the online banking revolution in the early 2000s, through to today’s world of Blockchain, AI and digital apps, consumers’ seemingly unrelenting need for greater transparency and more control over their finances has reached unprecedented levels in recent years.
This has left financial institutions of all types in a clear position when it comes to technology adoption – embrace the opportunities that digitisation offers, or get left behind by competitors who understand how their customers choose to consume financial services.
Staying ahead of the game: digital adopters and digital-first firms
After the 2008 banking crisis, technology’s role within financial services grew, and two types of firms emerged.
Firstly, a new type of financial institution was born by ‘challengers’ who placed technology at the core of their business. In the wake of the financial crisis, they introduced a new way of offering their services that was modern, easily accessible and a refreshing change from the traditional ‘in branch’ or ‘in-person’ approaches offered by the well-established providers. From Starling Bank to Funding Circle, these were true ‘digital-first’ businesses. Built on remote services and apps, these new companies appealed to younger generations who were used to running their lives in the ‘mobile world’.
Secondly, there were traditional financial institutions who knew they had to adapt their operating models to compete. These organisations recognised technology as a means of enhancing their proven business models. Throughout their digitisation process, these ‘digital adopters’ stuck to the traditional foundations that they had been built on, in some cases for hundreds of years; a human-centric approach. So, while they continued to offer their services through traditional methods that had served them well for so long, they began to evolve their client engagement strategies also to incorporate a greater level of digitisation.
While digital-first firms and digital adopters operate in different ways, they both cater to consumers’ demand for digital solutions in some form. However, the future of financial services is not a completely digital landscape. Clients of differing demographics, including age and wealth, have significantly varying expectations of how they prefer to consume advice and services from their trusted financial institutions. For example, wealthy customers continue to place more value on ‘in-person advice’, while retail banking clients, especially younger clients, are drawn to the digital-first business model of apps.
Technology: a competitor or an enabler?
While digital adopters and digital-first firms are now firmly established as the norm, the wealth management and private investment branches of banking have often been criticised for not adapting their client engagement models quickly enough. In these areas, technology has too often been viewed as a competitor rather than an enabler, a threat that could diminish the conventional role of the financial advisor or wealth manager.
It’s only in recent years that human-centric services have begun to see technology as a way to strengthen the personal advice element of their service. By collaborating with tech providers, financial institutions have come to better understand their clients through data insights and predictive analytics tools. In short, these financial firms have taken a digital approach, in which technology is used as a tool to personalise and target their services more effectively. Even the most traditional of firms are taking a ‘technology plus advice’ route in an attempt to offer the best of both worlds.
By using digital tools alongside their advisory services, financial firms that were slower to adapt have strengthened their client relationships and developed new and innovative ways of engaging with them. For example, predictive analytics provide far greater insight into clients’ needs and interests than ever before, while digital communication tools enable more frequent, targeted conversations based on their digital behaviour.
So, while the approach to digitisation can still differ from firm to firm, there is no doubt that even the most traditional financial institution now acknowledges that technology has at least some role to play in their client engagement strategy. Whether that is delivered through a ‘digital-first’ or ‘technology plus advice model’, one thing is sure – digitisation is fundamental to future-proof their proposition.