More than 80% of respondents believe Amazon and other tech giants could become major competitors: NTT DATA Global Study
Plano, TX (July 16, 2019) – According to new research findings released by NTT DATA Services, new digital technologies, increased competition, and evolving customer expectations are driving 61% of financial services and insurance companies (FS&Is) to shift away from traditional, vertically-integrated business models of offering customers only their own products.
FS&Is are moving toward creating a Digital Business Platform (DBP) that allows them to operate with fintechs, insurtechs and other parties in a global ecosystem to provide consumers unique value, 24/7. As a result, nine in 10 global FS&Is believe in the need for transformational digital change.
New technologies, such as artificial intelligence and blockchain, are the top trend impacting FS&Is as identified by 53% of respondents, but the findings also indicate technology giants are a significant concern for leaders. According to the research, 84% of firms report that industries outside of financial services and insurance are providing a significant influence on the direction of the market, and 83% believe new entrants, such as Amazon, Apple and Facebook, could become major competitors in offering financial products.
“Platform-driven companies such as Amazon, Google, and Netflix that provide fast and easy digital experiences to customers are changing the expectations for financial services and insurance companies,” said Toshi Fujiwara, Representative Director and Senior Executive Vice President, NTT DATA. “These technology giants operate agile business models that allow them to leverage existing customer data and quickly customize new products at competitive prices to better serve mobile-first consumers.”
In order to address these market forces, 85% of respondents indicated a Digital Business Platform represents a significant opportunity to reposition their companies and 83% agreed that integration of legacy core systems into a DBP is important for their competitive position in the next 3-5 years. However, only 23% said their companies currently have a DBP that is working and providing benefits.
“Banks have actually been digital businesses for decades, moving money at the speed of light. Recasting their capabilities and building a true Digital Business Platform will allow companies to create and support multiple business models on a single technical framework without replacing outdated, legacy core systems,” said Wayne Busch, President, Financial Services, NTT DATA Services. “This will also enable partnerships with fintechs and insurtechs that help to more easily incorporate new digital technologies, use application programming interfaces and share customer data.”
Key study findings:
1. 61% of FS&Is are changing their business models to compete with platform-driven companies such as Amazon and Apple.
- 17% plan to develop the best products and sell them via partners inside and outside
- of the financial services and insurance industry
- 14% plan to become the best provider of customer experience and sell products of other financial services and insurance companies (not their own)
- 14% plan to become an online marketplace and sell many financial services and insurance products
- 14% plan to create a platform like Apple’s App Store
2. Each sector of the financial services and insurance industry is evolving their business models differently.
- 52% of insurers plan to maintain a traditional full service model, while 21% indicated a shift toward developing the best products
- 16% of banks are more inclined to consider creating platforms and 20% plan to evolve to an online marketplace
- 20% of brokerage, capital markets, and wealth management firms plan to focus on developing the best products and another 20% on becoming the best provider of customer experience
3. FS&Is are in the early stages of digital business platform maturity.
- Only 23% have a DBP currently working and providing benefits
- 77% of firms are in the early stages of planning or have no plans at all
4. Insurers are ahead of other financial sectors when it comes to having already built a DBP.
- 32% of insurance firms have built a DBP compared with just 23% of banks and 19% of brokerage, wealth management and capital market firms
5. Europe is ahead of the game in building Digital Business Platforms due to the PSD2 regulation. Below is the ranking of countries from the highest to the lowest percentage of mature DBPs:
- 43% Italy
- 38% Germany
- 23% Spain
- 22% Japan
- 18% U.K.
- 8% U.S.
6. FS&Is expect meaningful business benefits from investing in digital business platforms. The 23% of companies that have digital business platforms working and providing business benefits now reap these rewards:
- 46% provide a better customer experience
- 44% respond faster to market needs
- 44% grew revenue
- 41% increase customer retention
7. Partnerships with fintechs and insurtechs will be a popular strategy.
- 84% agree that fintechs and insurtechs will become more relevant, allowing for the creation of new partnerships
- 66% of distribution partners for FS&Is will include fintechs and insurtechs, as well as financial services startups and non-traditional firms
- 53% expect to integrate 3rd party product into their DBP
“Digital-forward financial institutions and insurers see digital business platforms as the path to effectively modify legacy core systems with digital features and functions,” said Jose Pablo Carbonell, CEO of Europe, everis. “Those who attempt to maintain their vertically-integrated businesses supported by aging technology will have difficulty remaining relevant in the new world of platforms and the digital ecosystem.”
Download a copy of the research: Digital to the Core: Transforming Financial Services and Insurance in the New World of Digital Business Platforms and Ecosystems.
Digital to the Core: Transforming Financial Services and Insurance in the New World of Digital Business Platforms and Ecosystems
NTT DATA global study finds the financial services and insurance industry is at an inflection point for profound change, with digital disruption forcing 61% of financial services and insurance companies to move away from traditional business models
In 2016, leaders in the financial services industry felt pretty good about their future.
While digital forces roiled other industries, life in financial services and insurance (FS&I) seemed well protected against the chaos. Incumbents had cemented relationships with large customers over decades, vertically integrated business models insulated them from external shocks, and banking regulations erected difficult-toovercome barriers for new competitors. In a 2016 NTT DATA survey of bankers, only 7% saw fintechs as a definite threat, and just 15% thought they would invest in a modernization effort over the next three years.
Three years later, FS&I executives are no longer feeling comfortable, as the results of our new survey reveal. The digital tide they thought they were escaping is now rolling onto the beach in the form of rising customer expectations, unexpected competition and the evolution of the platform economy — all driven by digital technology.
This new level of industry competition hasn’t been driven by established financial giants, but rather by retail and technology innovators like Amazon, Apple, Google, Netflix and Uber. Their strategic weapon of choice is the Digital Business Platform (DBP).
Inside a friction-free, easy-to-use, mobile-accessible environment, the DBP introduces consumers to a wide range of personalized goods and services, many of which are not even created by the platform owner. Platform businesses are anything but the traditional banking model of vertically integrated, full-service products sold through branch offices. Instead, platform participants operate in concert to provide consumers with unique value 24×7.
Can FS&Is respond with their own DBPs, or as participants in platforms created by others? Here’s the good news from our survey: nine in 10 global FS&Is say the time is now for transformational digital change — fundamental change, not just investing in digital bits and pieces. But the less than good news is that these companies feel locked into legacy core technology that is not platform friendly.
There is a way forward for institutions that need to simultaneously keep their core systems beating even as they put down one foot after another on their digital journey. By creating DBPs and participating in digital partner ecosystems, FS&Is can work with fintechs and insurtechs to incorporate new digital technologies, leverage application programming interfaces (APIs) and share customer data.
DBPs can give FS&Is the ability to adapt and launch new products quickly, while also keeping up with customer demand for better service and customization. The best part is DBPs allow FS&Is to shift their business models without having to undergo risky, wholesale replacement of their legacy IT systems.
To examine the future of FS&I companies related to creating a DBP and participating in a digital ecosystem, NTT DATA surveyed online 471 senior executives in banking, insurance, brokerage, wealth management, and cards and payments across the U.K., U.S., Germany, Spain, Italy and Japan.
The survey was well-timed: The global FS&I industry is at an inflection point for change.
The stakes have never been higher for traditional FS&Is to evolve their business models to engage customers and partners to maintain clients and generate new business.
Key study findings:
- 9 in 10 global FS&Is believe in the need for transformational digital change
- 61% of global FS&Is are shifting away from traditional business models in response to new digital technologies, new competition and new customer expectations
- New technologies, such as AI and blockchain, are the top trends impacting FS&Is, as identified by 53% of respondents
- 84% of firms report that industries outside of FS&I are providing a significant influence on the direction of the market, and 83% believe new entrants could become major competitors in offering financial products
- Partnerships with FinTechs and InsurTechs will be a dominant strategy to quickly integrate digital features into legacy core and distribution systems
- Only 23% of FS&Is have a DBP working and providing business benefits; many FS&Is are in the early phases of planning to integrate digital capabilities into their legacy systems
Access the Report
Read the full report: Transforming Financial Services & Insurance.
For the research, NTT DATA surveyed 471 senior executives in banking, insurance, brokerage, wealth management and cards & payments across the U.S., UK, Germany, Spain, Italy and Japan in early 2019. Nearly 50% of respondents were from institutions with more than $10 billion in annual revenue and 55% of those who completed the survey were C-level executives.
About NTT DATA
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Source: NTT DATA CorporationTags: Amazon, emerging technologies, NTT DATA, outlook / predictions, strategy, Transformation