In 2018, we witnessed an array of developments when it comes to how banks, insurance companies, and other financial institutions are leveraging technology. Whether it be the explosion of mobile banking options, the proliferation of cloud-based investment tools, broader acceptance of payments platforms, or data privacy and security enhancements, the lines between IT and the financial sector are fully intertwined.
All these changes have impacted the lives of consumers’ relationships with banks and insurers in many positive ways, and change will continue – with much of it focused internally in the second half. Here are some of the key developments that should be top of mind for banks and insurance when it comes to deploying, maintaining and managing their technological capabilities over the next twelve months.
Open Banking Gives Way to Digital Experiences
Open banking tiptoed in earlier last year in the European Union, opening up customers’ payments and banking data to third-party financial services providers. Since then, we have not seen any dramatically different applications hit the market, or changes in customer or bank behavior.
As we continue to march forward in 2019, financial institutions on both sides of the pond will increasingly embrace open banking as the next stage in maturity of client-facing digital transformation — and allow third parties to enhance customer experience. By making API life cycle management capabilities a focus, banks that had the foresight to crystalize their open banking strategies will see benefits of being able to scale, control, govern and reuse APIs. By controlling the flow of data and services through open APIs, banks can mitigate competition risks and at the same time offer customers a wider and more easily customized set of services.
This will allow banks to put a greater focus on the customer, mobile engagement and the bank’s ability to deliver valuable new payments experiences and other financial services.
Those who have zeroed in on an open banking model will have an advantage as first-movers, while those who follow might be disappointed when they find they’re a bit late to the dance and most that the most charming ecosystem partners have already been snatched up.
IoT Use Broadens in the Insurance Industry
The commercial property and casualty insurance industry will reap the benefits from the growth of the Internet of Things. Buoyed by its first pricing rebound since 2013, companies will broaden their use of IoT technologies, such as telematics with fleets and sensors for smart buildings. They will introduce continuous monitoring with sensors for sensitive food and drug shipments, wearables for machinery users and many other devices that monitor operations.
Like the consumer business, insurers will unlock the value of new technologies to develop and deliver brand-new value propositions in risk and fraud prevention, improved claims management and customer engagement that are completely disrupting traditional insurance. This can include “pay-as-you-go” or “pay-as-you-live” insurance products that are enabled by IoT.
The most innovative commercial insurers will build on that value by building ecosystems around IoT data – for example, road-side or medical assistance. They will also look to shorten business cycles internally. For instance, letting manufacturing sensor data trigger a claim upon notification of an accident.
Challenger Banks Experience Growing Pains
Challenger banks – the digital-first financial institutions that arose to challenge the larger banking groups – will experience two growth-related developments starting in the second half of 2019.
First, they will graduate from being start-ups and move into a more “traditional institution” marketplace, all the while gaining meaningful market share. This will lead to the second development: challenger banks will experience growing pains that the incumbents are all too familiar with. As the oldest challengers near their ten-year anniversaries, they will discover that even they — the early digital movers — can be challenged by their IT architecture.
The potential problem on the horizon is that their pace of digital innovation will be dulled. Some incumbent banks are well are that if they are not strategically focused on automating their IT planning and portfolio management practice, they are at risk of continuing to be unable to move with agility. Challenger banks will find themselves in a similar position this year if they don’t act to gain more transparency and a reduction in complexity. The same holds true on the operations side if business processes are not documented, automated, monitored and optimized.
These are just a few of the ways that insurers and banks will benefit from technology. As we move deeper into 2019, it would be prudent for financial institutions to explore which technologies and innovations will accelerate their digitalization to better grow, compete and win over customers.