IT Innovation in Financial Services: 2 Roads Diverged?
The banking industry has traditionally been at the forefront of technology innovation. In recent years however, financial services has been broadsided by a number of intersecting dynamics that have slowed down the pace of innovation. Complex and costly compliance requirements, ebbing revenue, and shrinking margins have diverted resources and complicated movement towards technology innovation.
In this fertile ground, disruptive new competitors from the high tech, consumer goods, and online retail firms, among others, have proliferated. Fueled by unprecedented market capitalization and scale, these companies have leveraged the leading edge in cloud, advanced analytics and mobile/social capabilities to deliver innovative FS solutions quickly and efficiently. In fact, findings from 2014 PwC's Retail Banking 2020: Evolution or Revolution report reveals that 71% of senior US retail banking executives view non-traditional new market entrants as a top threat.
And the implications extend beyond market share. As the technology edge migrates away from financial services, top talent seems to follow in its footsteps. We regularly hear that the best candidates are seeking roles in San Jose and Palo Alto rather than on Wall Street.
Despite the challenging environment, there have been some notable breakthroughs. For example, capital markets firms have developed ultra-low latency solutions and data processing engines and banks have harnessed big data to maximize regulatory reporting and risk management efficacy. While these are certainly steps, combatting these fierce new competitors will take brisk strides. Additional data from Retail Banking 2020 shows that nearly all respondents (97%) view innovation as a critical driver of growth -- with companies who consider themselves innovative predicting 62% growth over the next five years, nearly double the market average of 35% and triple the 21% for the least innovative companies.
Driving growth and maintaining competitive edge will require banks to get more into the mindset of their fiercest competitors, i.e., consider how aggressive, nimble firms outside of FS approach areas like talent cultivation and oversight, agile development, and external partnerships that fuel innovation, etc. While as an industry, financial services has certain unique challenges, culture can be as much a springboard -- or -- roadblock to innovation as budget constraints or compliance. A good starting point is to ensure that innovation is reinforced as a top-down priority starting with the C-suite and that employees are motivated to incubate and evolve new concepts and ideas.
Julien Courbe is a Partner and PwC's Financial Services Technology Leader, as well as US Asset Management Advisory Leader. In his role as Financial Services Technology Leader, he frequently covers technology-enabled business transformations, cost reduction programs, and risk ... View Full Bio
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