Goodbye 2019, Welcome 2020… Five financial trends that are here to stay

This year, while everyone summarizes the last decade (although it ends only next year), I decided to point out some trends that I expect will take place in our financial lives in the coming years.

Of course, as the pace of change will never be slower, I don't pretend to predict more than three years ahead.

But before we speak about the future, let’s try to summarize the past amazing years in a few sentences.

The past ten years have brought with it far-reaching changes in the finance industry, from digital service consumption, which today is considered commodity to complexed financial services that we did not dream of being approved by the regulators and are now consumed as SaaS (see the transition to the cloud, KYC companies, compliance, Open accounts, digital insurance, etc.).

These changes started as an evolution of existing financial technologies and continued as a revolution, once the technology moved forward exponentially. From my point of view, consumers don't even understand the mind-shifting financial organizations had to go through in order to stay relevant in the new financial environment.

I suppose I can fill a whole book about these topics…. But, we are looking to the future and not to the past, and while analyzing the past events and trends that we saw in 2019, I believe we can mark 5 key topics which the industry will need to handle (banking and insurance - together and separately):

1      The customer

2      Re-think the traditional business model

3      Regulation and risk management

4      The technology

5      The human factor

Each subject is a whole world; therefore, I will try to elaborate briefly on each one, without boring too much and leave a room for imagination:

1.  The Customer -

In Banking - Banks' recognition of the customer as a key engine for the organization's strategy began at the beginning of the decade (and perhaps a bit earlier).

Still, the actual doing, which has caused the "needle displacement," has only happened in the last couple of years (and by doing I mean the shift of the Product Management role in financial organizations, the leverage of the digital channels and the real understanding of the customer experience).

This is why, in the coming years, we will continue to see the industry take steps to improve the customer experience and retain existing customers.

Especially at the age of platforms, open banking, and open data, the cost of customer acquisition will be higher. Therefore both small and large organizations will have to create an attractive and interesting value proposition if they would want to be the first choice of the customers.

In insurance - I expect the coming years will bring with it new technologies and innovations initiatives, as well as companies that will "unbundle" the insurance business as we have known it today.

The insurance industry will face the change that banking has undergone but will have to deal with difficult questions of the business model and the agents’ dilemma (which is partly similar to the challenge of the branches the banks have faced but much more inherent).

The main difference between banking and insurance from the customer aspect is that the basic insurance model is based on a conflict of interest between the customer and the insurance company. This means that putting the customer at the center of the company's strategy is much more complex than it was for the banks. We can see new insurance models coming from the Digital Insurance companies. These new models based on the "Customer Centricity" strategy, and it assumes that once you make your customer happy, it would be beneficial for the company in the long term.

I expect we'll see a change in the coming years, but the big bang is still ahead of us.

 2. Changing the traditional business model -

Much has been said, and much more will be said about the erosion and change of existing models.

As new companies emerge, offering better service, advanced customer experience, and personalized value proposition to the customer, they will derive a share of existing customers today. Looking East, we can see that the unbundling trend is reversing, and the SuperApps are taking its place in the day-to-day life of their customers.

Financial services that we used to pay for offered for free and erode industry profits.

This is why both banks and insurance companies will have to recalculate their path and find new or different income alternatives.

The trend changes across countries and cultures, and it is still not possible to determine for sure what model will work, but we can draw a number of scenarios and directions, and each organization will need to rethink the trajectory according to the business strategy and challenges it faces.

3. Regulation and risk management

As someone who comes from the bricks and bones of the industry, from R&D and "hands-on" to strategy, I know the love/hate relationship between the regulator and the financial organizations quite well.

The regulation is tough, requires resources and investment and does not always relate equally to all players in the market and over the years, deep pockets of budgets and resources have been created to comply with the various provisions.

The most significant regulation that will create a market change in the coming years, worldwide, is open banking as the first step for the open data era.

It is a game-changer regulation and affects all the other factors I mentioned in the list above.

It is a revolution for all existing and new players and changing the perception of privacy, data owners, use and value of data and many other variables that some have been taken into account and some are learned while running.

Along with dealing with compliance, the risk management factor receives special care when talking about customers’ "data trading."

It is more easy and natural to avoid taking risks, especially as a financial organization that is responsible for its clients' assets, but in the new reality, organizations that dare to step a bit outside their boundaries and still manage their risks wisely, those will gain new customers, new partnerships and expansion potential that might not exist otherwise.

4. Technology

I will try not to fill long pages about the place of technology in our lives and what it has brought to the various industries and focus on a few key topics.

1. Technology is an enabler! It is what allows the change, but it is not a substitute for a clear vision, strategy, and business model. Once you ave these three, you can turn to search the technologies that support your organization's business goals.
2. However, without the advancement of technology, we probably would not have seen the market revolutions in recent years and therefore, it is assumed that we will continue to see organizations move to automation and try to have better use of their data potential and monetization of data, using smarter models and better computing power. We see increasing adoption of artificial intelligence, both in customer management and operating worlds. If to date, we have seen a lot of solutions focused on the end-customer experience, I can assume that over the next couple of years we will see more and more solutions that will also address the pain in the back office and core systems. Having said that, I have to mention that the complexity of these types of solutions is significantly higher than Front Solutions and therefore, the number of players will be smaller, but probably the impact of each of the companies will be higher.
3. Of course, it is impossible to talk about technology without mention the upcoming 5G revolution and quantum computing that will make our information consumption even faster, but, since I can’t cover all issues at once, only a note will do at this point.

5. Handle the human factor

The human factor in my mind is one of the most significant issues that organizations deal with.

The change can be seen across a variety of industries and much in-depth research has been done on the differences of generations, employee expectations, new generation communication ability and organizations' coping with the existing and new workforce.

Still, my 2 cents on this topic - Organizations need to treat their employees with the same importance and attention that they treat their customers. Employees must be part of the organization's strategy and form the backbone of the company.

Organizations that will be able to produce an attractive work environment, transparency, effective organizational communication, tolerance for mistakes, appropriate and realistic measurement and a personalized reward model will be the ones who will be pleased with loyal employees that will be their ambassadors with their clients and competitors.

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 So, to sum up, the "fat lady hasn't sung yet" for the finance industry and we can expect to see more dramatic changes yet to come. I believe that both organizations and employees would have to embrace those changes and become more flexible.

And on a personal note, I wish you all a great and successful year!

Always remember to seize the moment cause each moment is one of a kind.