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Decade of disruption

Could Google be the next bank?

We explore four future scenarios financial firms need to prepare for

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decade of disruption 300 x 500

Looking back to the first quarter of the Twentieth Century - with the financial sector unprepared for the economic, political and social upheaval that was to come - it is tempting for CEOs to assume that what takes place during our next decade will be less dramatic. If that's the case, the leaders of financial institutions can expect the economy to grow smoothly and gradually, and their businesses to face no threat from new entrants.

In our view, it would be safer to plan for something worse.

What's different now?

We see two main reasons why financial services organisations should prepare to enter a period of unprecedented disruption.

1. The financial services sector is no longer seen to be working.
Across society, people are increasingly critical of the financial services sector and of banking in particular. Dissatisfaction with financial services is not restricted to the general public. It is also evident among shareholders, regulators and politicians.

2. Inertia is no longer your friend.
In the past, banks and insurers have been able to rely on deep-seated customer inertia. Customers have only had a limited number of providers and services to choose from, and they have had no material reason to switch provider or veer away from what they know. Importantly, switching has always been seen as time consuming and complicated, with the costs of switching seen to outweigh the benefits. Today however, a combination of socio-demographic and technological changes mean this traditional customer 'stickiness' can no longer be relied upon.

What you can expect

There are two urgent questions leaders of financial services firms should be asking:

  1. Will there be a period of sustained economic, political or social instability that is so severe government support is required for survival?
  2. Will there be a dramatic new entrant that is powerful and innovative enough to steal our most valuable customers?
Dacade of disruption four scenarios Decade of disruption Scenario One Background

Scenario 1

2.x: Stay the course and iterate the model

This scenario assumes no material new entrant to the sector and no sustained period of economic, political or social instability. This appears to be the central planning scenario of most banks and insurers, especially those that are currently favouring a ‘wait and see’ approach to the changes we are experiencing in the market.

Without a material new entrant or period of large scale instability in the market, it is likely incumbent players will continue to focus on incrementally improving their models. They will probably focus on a combination of efficiency gains and new customer propositions to gain or protect their market share. There will be an incremental investment in digital and data analytics, but this scenariodoes not ultimately represent a wholesale change of the model – hence the nomenclature of ‘2.x’.

Decade of disruption Scenario Two Background

Scenario 2

Instability: Prepare for sustained instability

This scenario considers a world in which there is a period of sustained economic, political or social instability that is so severe government support is required for survival.

Even a quick glance at the news reveals significant economic, political and social tensions remain across the developed and developing world – political tensions between Russia and the West, and falling oil prices are prime examples. Should these escalate, the impact on financial institutions operating within, or connected to, affected jurisdictions would be significant. Organisations that are able to anticipate and align their model quickly to a period of instability will likely minimise the disruption they face and/or the support they require. But those that fail to do so risk significant losses or even collapse.

Decade of disruption Scenario Three Background

Scenario 3

New entrant: Prepare for a dramatic new entrant

In this scenario, a dramatic new entrant with a proposition that is powerful enough to dominate against today’s incumbent firms enters the market with force. The threat is very real, with recent history demonstrating that longstanding and profitable businesses (such as HMV and Kodak) can be devastated by developments in technology or customer preferences they failed to recognise, responded inadequately to, or decided to ignore.

A company from a different sector, with ambitions to diversify its business model to fuel continued growth, might see the profit to be made in the most valuable parts of the insurance or banking value chain and try to seize them.

The options for incumbent firms come down to either waiting to see what happens – risking the erosion of shareholder value and loss of customers - or leading the charge by building on their knowledge of the sector, back book and sheer volume of data to partner with an innovative business to create a new offering.

Decade of disruption Scenario Four Background

Scenario 4

New paradigm: Prepare for a radically different market

In this scenario, the financial sector will face sustained economic, political or social instability and dramatic new entrants, possibly including state-sponsored players, at the same time. Should this manifest, we would be looking at a whole new financial services paradigm where governments take a more direct role participating in the financial system, ie creating their own state players alone, or through partnership, and proactively encouraging new entrants that help to address the social or economic challenges they face.

In this world all bets are off, but the models that succeed will likely heavily feature the ability to build meaningful partnerships in the public and private sector to meet the economic and social challenges at that time.

Disrupt or be disrupted

CEOs will experience a phenomenal amount of change over the next decade, driven in part by five disruptive realities (explored more in our report).

  1. A world of ongoing uncertainty
  2. Shifting trade and capital
  3. Fundamental socio-demographic change
  4. A new technology landscape
  5. A data and analytics revolution

In the context of these realities, too many companies still believe their size and former glories will protect them from disruption. In fact, it is relevance and agility – not size – that will be the critical determinant of success.

Sooner or later, someone is going to disrupt the market – why shouldn’t it be you?


It is difficult to see why the financial services sector should be immune from the transformative forces which are disrupting so many other industries.

- Marcus Agius, Chairman, PA Consulting Group

Banks and other financial services firms can no longer rely on the enormous customer inertia that assured their survival in the past.

- Andrew Dawson, Head of FS Strategy Consulting, PA Consulting Group quoted in the Financial Times  - read the full article

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Contact us

To explore how the changes in the financial services industry might affect you, please contact us to arrange a discussion.

What are your thoughts?


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