As our world has become ever more connected and our activities increasingly interdependent, change is occurring not just within the business mainstream but also at the intersection between different sectors where commercial and technological interests overlap. This is true just as much for financial services as it is for energy, food, consumer products and healthcare. As companies seek to better prepare for future challenges and opportunities, many have been considering the drivers of change taking place both within and outside their usual areas of focus. This article highlights a selection of significant changes, or mega-trends, that will help to shape the future of the financial services industry.
If we look back at the past decade, it would be easy to assume that regulatory shifts and the digitization of existing processes will also continue to be the primary instigators of change in the financial services arena over the next ten years. No doubt they will indeed play a significant role, but some would argue that other drivers of future change could also have impact. In other, similarly highly regulated fields such as aviation, pharmaceuticals and food pivotal shifts are occurring due to developments in areas such as consumer expectations, data-enabled technology or new forms of competition. These same drivers may well also impact banking and insurance. It is these wider influences, beyond the normal horizon, that were explored in the Future Agenda project, the outcomes of which provide a good starting point for organizations seeking to develop their own perspectives on the future.
Looking Ahead: Future Agenda – The World in 2020
The first Future Agenda programme, sponsored by Vodafone in 2010, was informed by people from over 1500 organisations around the world who shared their views of the big social, technological, economic and environmental changes for the next decade by participating in 50 workshops in 25 countries, and then via continued debate online. The core issues that were discussed and debated in Mumbai and Shanghai just as much as in London and New York were highlighted as 52 insights for the World in 2020. Over the past couple of years, as these have been widely shared, thousands more have been using them to challenge assumptions, develop scenarios and and gain a richer, more informed view of the future.
The Future Agenda discussions confirmed that some of the big shifts are already being acted on: Growing and ageing populations; changing dependency ratios; the accelerating shift of the centre of wealth to Asia; and ubiquitous data access are some of the issues affecting all of us. In addition, many also recognize that there are accelerating changes taking place around mobile payments – especially in Africa and Asia; that we are limited by key resource constraints; and that there is rising power of cities over national governments. These will all variously impact business strategies, practices and customer relationships over the years to come.
As other possible future changes have been discussed across the financial services sector, four other trends relating to customers, technology and competition have been highlighted as being potentially significant.
Economic and sustainability concerns are shifting the balance from ownership to access and we increasingly prefer to rent than buy: Streetcar and Boris’ Bikes in London and their equivalents around the world are changing how many urban dwellers access travel; for the first time in decades more people rent than own homes in London; BMW is asking its supply chain how it can lease materials and components for ten years rather than buying them; and Samsung is looking at leasing rather than selling us laptops and tablets. As the shift away from ownership gathers pace globally, why will customers want loans, insurance and mortgages when pretty much everything can be leased and who will finance the underlying shifts in capital and asset flows?
Ticketless transport systems such as the Oyster Card and location based apps are already tracking people wherever they go. Emerging fast, the monitoring of where we are driving is allowing for safer, less congested travel and / or more pervasive road pricing. Moreover, through new mobile analytics, retailers can know at an aggregate level not just which potential customers are approaching stores, but also which networks they are with, on what tariffs, which shops they have just visited and, based on their data usage patterns, how old they are. Currently concerns over privacy are being outweighed by the benefits for consumers so the opportunity exists for significant change of the retail banking experience. Equipped with such insight on the needs of customers as they enter a bank, how can interaction, activity flow and rapid delivery of desired services all be transformed?
With more free agents in the workplace and greater outsourcing, non-core functions within organisations are increasingly interchangeable and easily rebuilt around value-creating units: More than half of Microsoft’s HQ staff in Seattle are consultants or freelancers and not employees. The next generation of talented, educated people is more interested in working with interesting people on great projects more than in having career relationships with employers. As such, within the knowledge economy, the challenge of linking the ‘projects worth working on’ to the ‘people worth employing’ will fast become the differentiating capability. So, as company boundaries become increasingly permeable, how do you attract the talent? How do you retain it? How can you protect know-how or can’t you? What will be left that can be considered core and what will be your company’s distinctive competence?
Many in Uganda, Egypt and Ghana already use mobile airtime as a currency. Towns and cities including Bristol and Brixton have their own local currencies. The revitalisation of bartering, decreased trust in established institutions and increasing tax avoidance is broadening the adoption of virtual stores of value that may take around 5% of global GDP over the next decade. If the moves already being made by Google Wallet, Paypal, BitCoin and Facebook credits were to become integrated and in the control of, or enabled by, a global, trusted provider of many items that people want – such as say Amazon – why would we not all be happy to be partly paid in Amazon Credits? If these are a global standard credit, will people care as much about currency fluctuations? How will national governments levy tax on an international credit of notional value? Who will gain from the changes in transaction payments and who will lose out? How will the growth of alternative currencies impact on the competitive landscape? Will incumbents be able to adapt and successfully participate?
While some may consider issues such as these as low probability ‘wild cards’, others recognise that, if they scale, their impact will be substantial: They all provide clear customer benefit, there are strong signals from today that changes are taking place and the organisations driving these forward are largely outside the regulated world of the financial services sector.
As the rate of known and unknown change accelerates across the sector, it is important that Financial Services companies develop the capabilities for managing in the face of uncertainty that exist elsewhere: Shell’s scenarios competence is globally recognized; IBM’s Global Innovation Outlook programme is well regarded and the Government of Singapore’s foresight teams outclass most other countries’ capabilities. Many in the financial services sector could be better prepared for the future by adopting and adapting proven approaches and gaining regular access to insights on the emerging changes that could impact the sector from outside.
This is jointly authored by Tim Jones and Dave McCormick who lead the core team behind the Future Agenda programme. (www.futureagenda.org). It is published in the latest edition of the RBS Perspectives Magazine
The Future Agenda is the world’s leading open foresight project. Sponsored in 2010 by Vodafone Group, it brought together informed people from around the world to analyse the crucial themes of the next ten years. The Future Agenda team works with many leading companies around the world making sense of the future, identifying emerging challenges and opportunities and supporting the building of major new growth platforms.