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Global professional services firm Deloitte and the World Economic Forum have spent the last 18 months with global financial services industry leaders, innovators and regulators researching the transformative potential of innovation and how best to respond.
The result – the Future of Financial Services Report – highlights which emerging innovations are the most impactful and relevant to the financial services industry.
It calls out 11 critical clusters of innovation that are changing financial services across the six key functions of the sector: payments, investment/wealth management, insurance, deposits and lending, capital raising, and market provisioning.
“It is a critical moment for Australia and the financial services sector as the country reaches a point of inflection, transitioning from a product to a services economy,” Deloitte Financial Services leader Australia Rick Porter said.
“Financial services is the economy’s largest sector, worth nine per cent of gross value, and contributing more than $130 billion to the Gross Domestic Product each year,” Mr Porter said.
“It is the facilitator and protector of capital and provides the liquidity required for driving growth in all other sectors of the economy.
“Stated simply, it is critical that we create the right environment for the financial services sector operating within Australia to thrive for benefit of Australia and its citizens.”
As rapid technological change reshapes traditional definitions of value, tears down barriers to entry and undermines the business models of incumbent institutions, forces such as accelerating technology, shifting customer preferences, and a changing regulatory landscape have the potential to dramatically reduce profitability and market share for incumbents, Mr Porter said.
“But they also represent an opportunity for institutions that are able to harness new innovations. And the Australian financial services sector – one sector that feels the heat of disruption the most – has the capability to take advantage of it.”
Mr Porter quoted incoming Prime Minister Malcolm Turnbull, who said that ‘the Australia of the future has to be a nation that is agile, that is innovative, that is creative. We have to recognise that the disruption that we see driven by technology, the volatility and change is our friend, if we are agile and smart enough to take advantage of it.’
Mr Porter said we will only achieve the Prime Minister’s vision if there is a concerted effort for all financial services’ constituencies – incumbents, fintechs, the government and regulators – to be at the top their game.
“Deloitte, along with the joint research from the World Economic Forum, will be shaping the conversation in terms of how the collective industry needs to work together and respond to create the greatest prosperity for Australia,” he said.
Deloitte Australia Financial Services Innovation lead Joel Lipman said the business models of incumbents are under the greatest scrutiny for decades.
Historically, economies of scale have shaped the designs for large institutions. However, as today’s businesses transform to their future state, the winning organisations will be those that manage the transition from their current business model to the models that deliver the maximum value to customers. Models that can commoditise value, deliver agility, create simplicity, and most importantly build customer trust, Mr Lipman said.
“Managing the pace of this transformation will be the key to success,” he said.
“Each business will need to work out how long it can sustain its current business model and how quickly it can transition effectively to its new state. It’s a balancing act. It’s critical that Australian financial institutions are ready for the changes.”