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Financial Services: Still asking the wrong questions

Still asking the wrong questions

Financial services firms have been too timid in their approach to transformation, argues Anton Ruddenklau. It’s time to reframe the problem statement.

Anton Ruddenklau

Partner & Head of Digital & Innovation, Financial Services

KPMG in the UK


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Still asking the wrong questions - Glass Helix

Financial services companies are good at talking the talk: every CEO in the industry speaks articulately about the threat posed by disruptors in their sector or the imperative for digital transformation. Yet when it comes to walking the walk, their performance is rarely so convincing - too many businesses remain focused on incremental change despite the tectonic shifts in their marketplace.

There’s a simple explanation for this conservatism. Most businesses are asking the wrong questions about the change that confronts them. They’re responding tactically with, say, better front-end digital services for customers or process improvements that increase back-office efficiency. But they’re not addressing the more fundamental issue: that their very business model may now need to evolve.

Time may be running out to reframe the question in this way. While financial services companies have long been warned that agile and nimble FinTech start-ups represent an existential threat, the bigger danger almost certainly comes from the large technology giants that are now very clearly targeting the sector. For example, the move of Amazon into financial services has largely gone unnoticed, but its growing operations in services ranging from supply chain finance to insurance have already made it a force to be reckoned with. Facebook and Google, meanwhile, are increasingly important players in payments.

These businesses operate in a way that is alien to the financial services sector, where firms typically feel more comfortable with a defensive fast-follower approach than with taking the lead. They start with the customer, building their business model around consumers of their products and services, rather than with a top-down view.

The emergence of the likes of Amazon in financial services may come to be seen as the industry’s very own “Kodak moment” – the point of pivot that renders the traditional business model of many firms irrelevant. Financial services companies must therefore learn from other industries that have found themselves occupying a burning platform.

Take the automotive industry, where businesses that have been manufacturing motor cars for more than 100 years are now confronted with technologies and trends such as autonomous vehicles, car sharing and electrification. These companies are not focusing their energies on minor adjustments to preserve their traditional car sales businesses. Rather, they’re reinventing themselves around concepts such as mobility and data: leading car makers now argue that the digital ecosystem will generate higher revenues than automotive manufacturing.

It’s a similar story in the telecommunications sector, where the market leaders have repeatedly attempted to rethink the value chain to take their business models beyond the provision of a utility service into areas such as media and entertainment. Now these businesses are exploiting the value of the data travelling across their networks with a range of new services that can generate significant new revenues.

Financial services companies must be prepared to be equally imaginative. Only by reframing the questions they ask themselves to be more strategic will they generate answers that deliver the returns on investment now required.

There is no one-size-fits-all solution. Two firms pursuing more customer-centric and progressive approaches to business model change may come up with very different answers. For some firms, the best way forward may be to better own the customer, say, while for others transformation may mean a switch of focus to leading on infrastructure.

The bottom line, however, is that those firms which stick with the current incremental and conservative approach to change risk battling each other to a standstill with their failure to differentiate. As new entrants converge on financial services from all sides, don’t ask whether you need a faster horse; the smarter question is whether you still need a horse at all.

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