Welcome to the research platform Redesigning Financial Services. Founded in 2016, we are an interdisciplinary think tank dedicated to understanding the next evolution in financial services. Our platform is based on the premise that a focus on consumer behavior is key to thriving in fast-moving, complex environments.
Incumbent banks typically earn income from payment processing services and help merchants set up payment systems. Fintechs are offering simpler, faster and more innovative payment solutions – with nearly half of all Fintechs focusing on payments. New consumer functionalities are transforming the way customers interact with their banks.
Next generation security
Less control over customer experience: banks may lose control over their customers’ transaction experience as digital wallets consolidate digital payment platforms
Customer targeting: leveraging data on specific customer segments will become an essential component of strategies to gain a dominant share of wallet.
Merchant relationships: banks’ ability to partner with merchants will become critical.
How will customer behavior change in an increasingly cashless world?
How will issuers create differentiated customer experience when their control over customer experience is taken over by digital payment platforms?
Credit & lending is a fundamental business for incumbent banks. All traditional segments in lending are under pressure from Fintechs simplifying and expanding the lending process. Alternative funding platforms are transforming credit evaluation and loan origination – and offering consumers & businesses access to non-traditional sources of capital.
P2P, P2B lending
Digital credit risk analytics, credit rating
Lean, automated process
Erosion of deposits and investment products: as savers use alternative lending platforms as investment vehicles, market share erosion will occur for banks
Distributed credit: customers’ credit portfolios could become distributed over a number of platforms, making it difficult to measure customers’ creditworthiness
Integrated partnerships: traditional institutions could also transform their processes and technologies, potentially absorbing alternative platforms to adopt the new models.
What will be the future role of financial institutions in response to continually shifting customer preferences?
How will retail banks continue to maintain their ability to serve lending needs of customers as the erosion of deposits leads to shrinking balance sheets?
The greatest potential for cryptocurrencies is to radically streamline money’s function as a transfer of value – via decentralized currencies & mobile solutions. As such, the current value transfer system built on automated clearing houses and intermediary banks could be threatened in time. The future is set to be faster, cheaper and more transparent.
Online fixed income markets
New market protocol/standard
Market share loss: the role of traditional intermediaries as a trusted party may diminish.
Lower margins: alternative payment networks may drive down margins of incumbents.
Vast applications: Applications of these technologies can expand beyond money transfer to modernize other financial infrastructures.
New risks: new players may face new sets of risks (e.g. reputation, security).
How will decentralized payment schemes change the role of financial institutions?
Can the applications of these technologies by expanded beyond money transfer to modernize other financial infrastructures? If so, which ones?
The wealth management industry is also challenged by a number of disrupting trends – from automated services at lower costs and higher customization potential to customer empowerment tools like social trading platforms and the banking-as-a-platform movement. These developments risk commoditizing traditionally high value services at a time when customer expectations of personalization, efficiency and lower costs continue to grow
Increased competition, lower advantages of scale: competition will increase further as manual processes are automated, virtual channels are utilized, and core infrastructure is less costly. These trends will erode margins and advantages of scale for established players.
Lower margins: alternative payment networks may drive down margins of incumbents.
Decoupling of advisory and products: more advisory functions become automated, distributing wealth products via proprietary advisory channels
Importance of brand and trust: as competition intensifies, the role of in-person managers and traditional institutions’ brand and customer trust will become more critical.
How will retail financial institutions prevent the erosion of deposits to new wealth products that now offer lower threshold for entry?
What are the differentiated services provided by traditional wealth managers that will remain difficult to automate and replicate by new entrants?
Many financial assets remain dependent on intermediating institutions to connect buyers and sellers. However, many new platforms have emerged that redefine how buyers and sellers are connected, allowing demand (borrowers) and supply (lenders) to be more readily and objectively “discovered” by counterparties. These platforms are levelling the playing field, making markets more liquid, accessible and efficient.
New market platforms
Pressure to differentiate offering: as the ability to fulfill customer transaction needs is commoditized, financial intermediaries face more pressure to differentiate their offering.
Negotiating power diffused: with both counterparties gaining improved transparency into market demand and supply, pricing can become more efficient.
Growing importance of advisory: As the counterparty discovery and negotiation process becomes standardized, intermediaries’ ability to effectively advise the client will be key.
What value will intermediaries offer HNWIs to prevent the erosion of their businesses by direct access to counterparties via market connection platforms?
How will intermediaries differentiate from one another as improved information flow and trading connections standardize the process of finding counterparties for their clients?
RegTech refers to the convergence of software technology and regulation. As regulatory expectations rise and the focus on data grows, RegTech software solutions allow incumbents to automate many outdated compliance and due diligence tasks, using data that can be tailored to a firm’s risk-based approach. RegTech also focuses on addressing the gap in the market created by the speedy, disruptive forces of the FinTech sector.
Big data analytics
Rapid response to new regulations: RegTech addresses the gap in the market created by the speedy, disruptive forces of the FinTech sector
Massive efficiency gains: The wave of regulatory automation is likely to bring more agility, speed, integration and advanced analytics into existing processes. This will limit the need to manually execute of tasks
Mass customization: Ability to customize the regulatory and due diligence approach for a firm’s risk-based approach.
Which areas promise the most potential for efficiency wins with respect to RegTech?
Can RegTech softwares use social media and biometrics to transform how customer due diligence is done?
A number of emerging forces are standardizing and commoditizing individual risks, which will drive insurers to undertake structural changes in their strategies. Meanwhile, the ubiquity of connected devices offers the potential for insurers to highly personalize insurance and proactively manage individual client risk.
Reduced customer stickiness: As insurers’ relationship with customers is further disaggregated and personal lines products further commoditized, customer loyalty will become increasingly difficult to achieve.
Self-insurance models: Revenue for the insurance industry will be reduced as the selfinsurance models (e.g. autonomous driving, sharing economy) gain scale.
Real-time data and analytics: Insurers’ ability to gather and analyze real-time data will become key to unleashing the potential of connected insurance models.
How can insurers cooperate with the self-insuring agents of commoditizing forces in response to the erosion of the premium base?
How will insurers create customer loyalty as the insurance products become increasingly commoditized and digital entrants disaggregate the customer relationship?
Private capital has always been a powerful tool for helping to solve humanity’s greatest challenges. In efforts to unlock larger amounts of the USD 100 trillion worth of private capital for social impact, a group of investors coined the term “impact investing”. Traditionally, access to such investments offering a large social return with a moderate financial return has been limited to HNWIs and foundations, but new financial innovations are widening access to investors, thus enriching the impact investing ecosystem
New funding platforms
Banking as a platform (API)
Funding for social projects: funding to purposeful projects with high social return that would not be properly served by the traditional ecosystem
Access: Retail and institutional investors could get access to investment opportunities that meet triple bottom line returns.
Identification with investment: The ability for investors to closely identify with their investments and their intermediary.
As crowdfunding platforms widen access to capital raising activities for impact investment projects, what role can intermediaries play?
As more individual investors get involved in funding decisions, the business’ prospects will be tested from multiple perspectives. Can this “wisdom-of-the-crowd-effect” improve the accuracy of overall investment decisions?