The financial services industry is mostly boring old bankers, accountants and insurance salesmen. OK, so that’s not entirely true, but it is still not too far off a lot of people’s perceptions. Slowly but surely, the times are a-changing. Financial services are experiencing a period of significant change as the industry adapts to meet the challenges presented by a range of demographic, economic and social trends.
In a subsequent post we will highlight the impact that these changes are having on individual roles and look at some of the new jobs emerging as a result. But for today, we’ll kick off with an overview of the sector.
Financial services comprise the biggest single contributor to Australia’s service sector and Australia’s largest industry overall, accounting for 9.3% of GDP.
Yet, the sector employs less than 4% of Australia’s total workforce, at approximately 500,000 jobs. These are mostly concentrated within capital cities. It is also one of the most highly educated industries in Australia with 59.5 percent of workers holding an Advanced Diploma or higher qualification, compared with 39 percent for all industries.
Since 1992 the industry has recorded the second highest annual growth of all industries (gross value added). Its largest subsectors are Superannuation, Banking and Insurance.
So what’s happening in financial services, both in Australia and around the world?
The first trend worth noting is the range of technological developments currently spreading through out the industry. With these changes comes the ability to do more with the ever-increasing volume of customer data collected by financial institutions and a dramatic growth in the use of mobile services and payment systems.
This is arguably having a bigger impact than all other trends combined, so we’ll quickly run down some of the main ways it is shaping the industry.
Advances in wearable tech mean that businesses can collect an unprecedented level of data about their customers. Banks and insurers are starting to use this data to gain greater insight into consumer behaviour. They can then leverage to this information to develop new products and services, which are more tailored to the customer.
At the same time, a growing range of physical items with embedded sensors are being connected to the ‘internet of things’ (IOT). Juniper Research estimates that the total will increase to 38.5 billion by the year 2020 – an astounding increase of 285% in just five years! Insurers are eager to use this digital information to help assess risk, as well as communicate with homes, contents and cars.
The next area of tech development that impacts financial services concerns nextgen biometrics. This means things like DNA matching, facial matching and retina recognition to replace PINs and signatures. Australian bank St George is one of the first businesses to take advantage of fingerprint security on mobile devices. Its customers are granted access to mobile banking, simply by scanning their finger on their phone.
Finally, the advent of new payment systems and crypto currencies (Bitcoin anyone?) means that consumers can now transfer money anywhere around the globe, free of bank fees! This has great potential to impact the financial services industry.
Customer Needs + Expectations
When coupled with demographic changes, these advances in technology also make it more important for financial institutions to develop products and business models that are more customer-centric. Consumers, particularly the younger more tech-savvy cohort, have an expectation that they will be able to access and interact with businesses 24/7.
It is also increasingly important that the services provided are built on a foundation of rewarding relationships and preference recognition. Financial companies need to make sure that all of their IT systems are designed to work for the customer. It is no longer good enough to simply push product. Instead, the offering needs to be built with the customer’s lifestyle and situation in mind. For a great example, check out US-based bank Simple – there’s a great 90 sec ad!
More people are now transacting more business on more devices. Juniper Research has found that by the end of 2019 more than1.75 billion mobile phone users will have made use of their mobile devices for banking purposes. This is an increase of almost 200% compared to just over 590 million in 2013. The incidence of cybercrime is climbing also. According to a recent report by PricewaterhouseCoopers, cybercrime has jumped from 4th to 2nd place amongst the most-reported types of economic crime. Over 25% of organisations surveyed said that they had been affected by cybercrime. Another 18% didn’t know whether they had or not.
Staggeringly, around 1/3 of all businesses sampled reported that they had experienced cybercrime-related losses of more than US$100 million! Financial services firms are more likely to be victims of cybercrime than other industries, with an incident rate that is typically double. Globally, total spending on information security is expected to approach US$80 billion in 2016.
Increasingly, competitive advantage for financial services companies revolves around their ability to:
§ Demonstrate superior performance when it comes to security and privacy
§ Put the customer at the centre of the transaction
§ Be transparent about their use of data
Lots of food for thought there. Later in the week we'll take a look at what all this means for those working in financial services by highlighting some of the fresh and changing roles that people are tackling.