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To succeed in this rapidly changing landscape, IT executives will need to agree with the rest of the
management team on the posture they wish to adopt. Will they try to be industry leaders, fast
followers, or will they just react? Whichever direction they choose, they will need to devise a clear
strategy to move forward.
www.pwc.com/fstech2020
Contents
Foreword 3
Executive Summary 5
The ten technology forces that matter: how to compete in the financial services industry 7
in 2020 and beyond
1 FinTech will drive the new business model 8
2 The sharing economy will be embedded in every part of the financial system 11
3 Blockchain will shake things up 12
4 Digital becomes mainstream 15
5 Customer intelligence will be the most important predictor of revenue growth and profitability 17
6 Advances in robotics and AI will start a wave of re-shoring and localisation 20
7 The public cloud will become the dominant infrastructure model 22
8 Cyber-security will be one of the top risks facing financial institutions 23
9 Asia will emerge as a key centre of technology-driven innovation 25
10 Regulators will turn to technology, too 27
Conclusion 45
Foreword
some tough questions about what comes who must supervise and use it. 4 h
ttps://www.pwc.com/gx/en/industries/financial-
Asset Management 2020: A Brave New services/banking-capital-markets/capital-
World5 next. These are some agenda items for the markets-2020.html
PwC 3
Project Blue Each of these forces will shape our lives
There are huge forces at work in the global in many ways. But for the financial services
economy today from a shift in global industry, as the post-Financial Crisis
economic power and climate change to regulatory wave retreats, technology stands
urbanisation, demographic shifts, and more. above the rest. In this paper, we look at
Many of our clients have been using our these changes, and offer some suggestions
Project Blue framework to help assess how on how to prepare for the opportunities and
these megatrends will affect their strategies threats ahead.
and business models for 2020 and beyond.
Project Blue offers a structured process for
adapting to these changes. Seeing the future
clearly and developing a proactive, strategic
response rather than simply reacting to
events will set apart the winners from
the losers in a fast-evolving market. There
is no single best answer; whether these
developments are threats or opportunities
depends on the nature of the organisation
and where in the world it sits. The results
will help your institution better target
investment, identify talent requirements
and develop the necessary operational
capabilities needed to make the most of its
competitive potential.
A glimpse of what is to come The financial services industry has seen In our latest Global CEO Survey, across all
Lets say you are a bank executive. Imagine drastic technology-led changes over the past sectors business leaders told us the speed of
that you are competing against a truly few years. Many executives look to their technological change is one of their biggest
global, multi-service, low-cost, digital bank: IT departments to improve efficiency and concerns. In fact, in financial services, 70%
customers accessing their accounts through facilitate game-changing innovation while of the leaders told us the speed of change in
their mobile phones, paying with a tap on somehow also lowering costs and continuing technology was a concern.6 One factor is that
their wearables, sweeping savings to an to support legacy systems. Meanwhile, the time it takes to go from breakthrough
ETF portfolio (designed by an AI (artificial FinTech start-ups are encroaching upon technology to mass-market application
intelligence) engine based on their savings established markets, leading with customer- is collapsing. For example, in the United
goals and risk appetite profile) offering friendly solutions developed from the ground States, it took the telephone 76 years to be
no-fee, cross-border payments. Imagine if up and unencumbered by legacy systems. adopted by half the population. By contrast,
you faced a competitor bank like this, with Customers have had their expectations set the smartphone did it in under ten years. We
a low and nimble footprint, prototyping by other industries; they are now demanding are now watching blockchain move from a
new services quickly, managing regulatory better services, seamless experiences notebook sketch to an established technology
compliance transparently, using an AI system regardless of channel, and more value for in a tiny fraction of the time it took for the
to limit fraud losses, and hedging currency their money. Regulators demand more from Internet to be accepted as a standard tool.
risk using cryptocurrencies. the industry too, and have started to adopt Indeed, technology-driven change is so
new technologies that will revolutionise their pervasive that no financial institution is
This competitor does not exist today. But in ability to collect and analyse information. immune. In Section 2, we address how these
the next few years, it is a very real possibility. And the pace of change shows no signs of and other global megatrends are affecting
Now what? slowing. the financial services industry, with a
particular focus on the IT department.
6 S
ource: PwCs 19th Annual 19th Annual Global CEO
Survey, Jan 2016
Up to 28% Banking
of business and
at risk by Payments
2020
Up to 22% Insurance,
of business Asset Management
Source: PwC Global FinTech Survey 2016
at risk by and Wealth
2020 Management
8 PwC
Well, not any more. FinTech disruptors have the financial services industry. We identified
been finding a way in. Disruptors are fast- several thousand companies that are new
moving companies, often start-ups, focused market entrants to various components
on a particular innovative technology or of these chains. Here is what we have seen
process in everything from mobile payments so far:
to insurance. And, they have been attacking
some of the most profitable elements of the S
uccessful disruptors typically offer a
financial services value chain. This has been better customer experience and greater
particularly damaging to the incumbents convenience at a much lower price.
who have historically subsidised important T
he effects of disruptors vary significantly
but less profitable service offerings. In our across countries and value chains, largely
recent PwC Global FinTech Survey, industry because of differences in regulatory
respondents told us that a quarter of their barriers and the robustness of local
business, or more, could be at risk of being FinTech ecosystems.
lost to standalone FinTech companies within
five years.7
Regulatory authorities are caught
between wanting to encourage
Global investments in FinTech more than competition and innovation and wanting
tripled in 2014, reaching more than $12 to provide meaningful oversight of these
billion. In comparison, banks spent an disruptors.
estimated $215 billion on IT worldwide in
2014, including hardware, software, and Despite regulation and other potential
internal and external services.8 This is a
material number, and because it is so highly
barriers to entry, we see tremendous demand
for FinTech-related services in areas such as 81%
targeted, the FinTech spending will really consumer banking and wealth management. of banking CEOs are concerned about the speed of technological change,
make an impact. This will open up new opportunities for both more than any other industry sector.10
incumbents and disruptors. For example,
A cast of thousands (of start-ups) consider the rise of robo-investing platforms
PwC created a tool to allow ourselves (and offered by both online-only and traditional
others) to analyse the size and complexity of wealth management companies. New players 7 PwC Global FinTech Survey 2016
the challenge to incumbents and the speed are using the online-only model to reach 8 http://www.banktech.com/management-strategies/
of change facing the industry.9 Our online millennials and increasingly other segments
bank-it-spend-projected-to-reach-$215-billion-in-
2014/d/d-id/1296655?
platform, which we call DeNovo, defines too. Meanwhile, traditional players are 9 http://www.strategyand.pwc.com/denovo
approximately 40 different value chains for employing this approach to significantly 10 PwCs 19th Annual Global CEO Survey
13 http://letstalkpayments.com/13-blockchain-bitcoin-
companies-that-raised-serious-funding-in-2015/
14 http://money.cnn.com/2015/11/02/technology/
bitcoin-1-billion-invested/
12 PwC
We have written primers to explain uses is almost limitless, from financial In blockchain we trust? Still, this is a participatory sport and there
what blockchain is15 and how strategists transactions to automated contractual Of course, trust does not occur overnight. is a lot to lose from sitting on the sidelines.
see it16, and even some thoughts on our agreements and more. This is the challenge facing both individual Now is the time for testing, planning and
own approach to the technology. But we institutions and the industry as a whole. For learning. Given the extraordinary range of
are hardly alone. Many major financial Blockchain systems could be far cheaper options and potential technology partners,
blockchain to be adopted on a large scale,
institutions have some form of blockchain than existing platforms because they one of the bigger challenges is to sort
we will need to experience a migration of
research effort underway. In our recent remove an entire layer of overhead through the hype. Once you have a clear
trust from todays effective-yet-expensive
PwC Global FinTech Survey, we found that dedicated to confirming authenticity. In a vision of where to apply the technology and
central counterparty utilities to the
56% of survey respondents recognised the distributed ledger system, confirmation is why, it will be easier to create a workable
distributed model. The business benefits
importance of blockchain. At the same time, effectively performed by everyone on the implementation plan for building blockchain
for many players, or even the industry,
however, 57% say that they are unsure or network, simultaneously. This so-called into your infrastructure.
will not materialise if the trust issue is not
unlikely to respond to this trend. So, what consensus process reduces the need for
addressed effectively. Some of the hurdles
should you do? existing intermediaries who touch the
that lie ahead: understanding whether or not
transaction and extract a toll in the process.
the public ledger can be hacked, addressing
Several industry groups have come together In financial services, that includes those
Bitcoins negative reputation, and navigating
to commercialise technology and apply who move money, adjudicate contracts, tax
potential regulatory challenges related to
it to real financial services scenarios. We transactions, store information and so on.
blockchains adoption. For example, while
expect this surge in funding and innovation
The sheer range of applications has attracted confirmation is effectively performed by
to continue as blockchain and FinTech
FinTech providers and legacy firms who everyone on the network simultaneously,
move from a largely retail focus to include
hope to develop solutions both narrow and if a majority of the participants forming
more institutional uses. And while many
broad. In the next three to five years, we the network consensus model were to
of these companies may not survive the
see transaction volumes and the associated collude to transact a fraud, a ledger might
next three to five years, we believe the use
profit pools shifting from intermediaries be manipulated. This might be an issue
of the blockchain public ledger will go
toward the owners of new highly efficient in a relatively small network without
on to become an integral part of financial
blockchain platforms. These transactions proper vetting procedures. We also see a
institutions technology and operational
could include transferring digital or physical need to address security limitations with
infrastructure.
assets, protecting intellectual property, linked technologies, like the external
Why blockchain matters and verifying the chain of custody. In an systems that monitor events to trigger
There are two aspects of blockchain era of cyber-crime and stringent regulatory blockchain transactions once conditions
technology that have captivated so many requirements, a highly fraud-resistant have been met.
C-level executives, start-up founders and system for protecting and authenticating 15 https://www.pwc.com/us/en/financial-services/
private equity firms around the world. almost any kind of transaction could have publications/qa-what-is-blockchain.html
First, blockchain could make the financial a revolutionary impact on the financial 16 http://www.strategy-business.com/article/A-
Strategists-Guide-to-Blockchain
services industrys infrastructure much less services industry.
expensive. And second, the list of potential PwC Financial Services Technology 2020 and Beyond 13
A look at blockchain technology
What is it? The blockchain is a decentralised ledger, or list, of all transactions across a peer-to-peer network. Using this technology, participants can transfer value across the Internet without
the need for a central third party.
Unknowns Benefits
Cryptocurrency is a medium of
exchange, such as the US dollar,
created and stored electronically in Complex Increased
the blockchain, using encryption technology transparency
techniques to control the creation
of monetary units and to verify Regulatory Accurate
The requested the transfer of funds. implications tracking
transaction is A verified transaction
Someone requests a broadcast to a P2P Authentication can involve Implementation Permanent
transaction. network consisting cryptocurrency, challenges ledger
of computers, The network of nodes contracts, records,
known as nodes validate the transaction Competing Cost
or other information. platforms reduction
using cryptography.
Has no Has no Its supply
intrinsic physical form is not
value in that and is not determined Potential applications
it is not currently by a central
Once verified, this redeemable backed by any bank and the
transaction is for another government or network is
represented as a commodity, legal entity. completely
new block. such as decentralised.
gold.
The transaction is The new block is then added to the
complete. existing blockchain.
Financial
Automotive services Voting Healthcare
Consumers can use the blockchain to manage Faster, cheaper settlements could shave billions Using a blockchain code, constituents could cast votes Patients' encrypted health information can be shared
fractional ownership in autonomous cars. of dollars from transaction costs while improving via smartphone, tablet or computer, resulting in with multiple providers without the risk of privacy
transparency. immediately verifiable results. breaches.
Sources: Money is no object: Understanding the evolving cryptocurrency market, PwC, 2015/A Strategists Guide to Blockchain, strategy+business, January, 2016/How Blockchain Technology Is Disrupting Everything, TechDay, 2016
customers what they really want. but everything from cars to coffee machines. the communicating
This is referred to as the Internet of Things. networks that
Customers are learning more about the make up the Internet
value of their personal data. We expect to of Things will allow
see them tendering out their information to insurers to anticipate
19 The Digital Universe in 2020: Big Data, Bigger Digital
Shadows, and Biggest Growth in the Far East, banks, insurers and asset managers in return risks and customer demands
International Data Corporation, December 2012
63% that relationships can be brief and largely delivers speed and personalisation, and this
transactional. We are already seeing one- shapes their expectation of financial services,
of insurance CEOs believe that the Internet of Things will be click transfer, which moves all funds, direct too. Instead of a mortgage, insurance policy,
strategically important to their organisation. debit instructions and other services to the or investment plan that broadly meets their
new provider with very little effort on behalf needs, buyers want customised, adaptive
of the customer. And the demographic trends solutions that evolve and deliver specified
have scary implications for conventional outcomes. For example, target-date funds
financial services companies because the automatically adjust the asset mix to a
youngest users are the least loyal. Recent users expected retirement age. Personalised
research has found that one in three service and tailored solutions were once
millennials in the United States are open to the preserve of high net worth clients. Now,
Source: PwCs 18th Annual Global CEO Survey
switching banks in the next 90 days and a technology is opening it up to mass affluent
similar proportion believe they will not even consumers, and beyond.
need a bank in the future.20 What explains
In the insurance industry, advances in
this decline in customer stickiness? Service
processing capacity, customer profiling,
offerings that feel generic and tools that have
and risk analytics are now opening the way
made switching less painful.
for a new generation of smart policies.
While being as affordable and easy to
understand and compare as todays off-the-
One in three millennials in the United shelf products, these policies could be both
fully customised to individuals and able to
States are open to switching banks adapt to their changing needs. Crucially,
in the next 90 days and a similar the technological developments that are
proportion believe they will not even making this new generation of policies
need a bank in the future. possible would also making it easier for new
entrants to break into the market at relatively
Source: Viacom Media Networks The Millennial Disruption Index
little cost.
20 Viacom Media Networks The Millennial Disruption
Index
52% get comfortable with the arrangements, Curiously, the sharing economy also plays today are leaning towards adoption of a
the technology is rapidly becoming the way a role here. After all, some companies that private-cloud solution.
of asset management CEOs... that core activity is processed. By 2020, have a demonstrated competence in an area
core service infrastructures in areas such are choosing to sell it to others who need it. Despite the cautionary note, we expect
as consumer payments, credit scoring, and For example, the payments infrastructure that the next several years will result in
statements and billings for asset managers of many industrial, healthcare and smaller an increasing adoption of the public cloud
basic current account functions will be well FinTech institutions are being provided by within the financial services industry. Like
on the way to becoming utilities. conventional banks. These banks are selling FinTech, robotics and digital, this will require
their infrastructure as a service to others, new ways of thinking for organisations
Using the cloud to scale and leveraging the cloud to do it. In our view, and IT departments. But the benefits will
What is behind this shift? Data storage this provides an important source of revenue certainly be significant too.
costs have plummeted, facilitated by to these institutions.
...believe that cloud computing will be cloud-based infrastructure. This has made
strategically important to their organisation.21 it easier to manage big data and apply Bring an umbrella, just in case
sophisticated analytics, and it has also With customers demanding a flexible,
reduced the barriers to entry for new FinTech personalised system experience, and with
21 155 asset management CEOs interviewed
disruptors. According to the International costs continuing to drop, the cloud is here
for PwCs 18th Annual Global CEO Survey: A
marketplace without boundaries? Responding to Data Corporation (IDC), public cloud to stay. It is the sensible way to deliver
disruption (www.pwc.com/ceosurvey)
investments are growing quickly, spending innovation within a target return on equity.
22 http://www.fiercecio.com/story/cloud-adoption-
on private cloud is increasing, and traditional But there are many challenges in shifting
costs-are-down-real-savings-can-be-had-smart-
negotiators/2015-07-23 infrastructure spending has plateaued. IDC from an on-premises model to a cloud-based
22 PwC
Cyber-security will
be one of the top
8
risks facing financial Unfortunately, it is not likely to change for that maintains the dishwasher may not
institutions the better in the coming years, due to the be as passionate about patching software
following forces: vulnerabilities as you are.
Financial services executives are
Use of third-party vendors Some industry sources see the number
already depressingly familiar of IoT devices deployed across the world
with the impact that cyber-threats R
apidly evolving, sophisticated and reaching about 25 billion by 2020.23 Until
have had on their industry. complex technologies now, IoT growth in financial services has
In PwCs 19th Annual Global CEO Cross-border data exchanges primarily occurred in payments, insurance
Survey, 69% of financial services and banking. Banks are forming partnerships
Increased use of mobile technologies by with wearable technology manufacturers
CEOs reported that they are either
customers, including the rapid growth of to allow customers to make mobile payments
somewhat or extremely concerned using watches or fitness trackers. Insurers
the Internet of Things
about cyber-threats, compared to are using telematics technology to monitor
61% of CEOs across all sectors.
Heightened cross-border information driving habits and provide discounts to safe
security threats drivers.
The Internet of Things (IoT): Cyber-security is the leading challenge to the 65%
a case study adoption of IoT technology because insecure of FS companies said they have adopted
Expected IoT growth introduces a new interfaces increase the risk of unauthorised cloud-based security.24
set of security risks and challenges that access. Here are some of the concerns:
will require serious attention. IoT refers
to the proliferation of physical objects
Attack surface: Hackers can gain entry
(devices, cars, houses, wearables) that to a corporate network through an IoT
contain sensors, software and the ability device.
to communicate. The opportunities are
fascinating, like dishwashers that can
Perimeter security: IoT technology
schedule a repair visit at the sense of an relies on cloud-based services, so it will
23 http://www.gartner.com/newsroom/id/2905717 impending part failure. But every chain be challenging to implement effective
24 PwCs Global State of Information Security Survey
has its weakest link, and the company perimeter defenses.
2016: https://www.pwc.com/gsiss
1. Update your IT operating model to get ready for the new normal
2. Slash costs by simplifying legacy systems, taking SaaS beyond the cloud and adopting
robotics/AI
3. Build the technology capabilities to get more intelligent about your customers needs
6. Make sure you have access to the talent and skills necessary to execute and win
You may feel that you have already seen this movie. After all, in broad terms, these have
always been good things to do. But it is not a rerun; how you will do it, and why, is quite
different from what you may have thought about until now. What worked for the client-
server world will not work for cloud. What worked to secure card-not-present transactions
will not work with the Internet of Things. And while any given institution will find some
priorities more urgent than others, they all matter if you want to stay ahead of the changes
sweeping through the industry. The alternative playing catch-up in the very different
financial services marketplace of 2020 is a bad plan for anyone.
Organisation focuses recruiting Firm delivers typical, Culture based primarily on Rethink the talent sourcing Facilitate focused on-the-job Promote a culture of
efforts primarily within bank-focused learning past objectives and instead of process by: training, mentoring, and collaboration and innovation
the industry, from other and development training forward-thinking drivers Seeking creative candidates peer coaching by: by:
competitor banks and financial modules on existing and outside the industry at Implementing communities Encouraging employees
institutions archaic systems, platforms think-tanks, technology of interest and voice of to contribute ideas to
and processes firms, and other non- customer initiatives to drive enhance and advance the
traditional sources digital banking information organisations as part of
Re-branding hiring strategies sharing innovation campaigns
to emphasise opportunities Partnering with skilled and social media driven
to work with innovative professionals, technological initiatives
technology as well as leaders, educational Using guided sessions to find
competitive compensation institutions, and pertinent and share best practices,
Considering flexible professional association to and benchmarking against
workforce alternatives, develop/deliver relevant a hyper-competitor to
like talent exchanges and training materials invigorate thinking
project-based hiring Developing an Innovation
Partner with third parties Centre of Excellence to focus
to get needed talent on a on driving imagination,
short- or long-term basis creative thinking, and
inventiveness more deeply
into the organisations
culture
Financial institutions have a lot on their plate: emerging competitors, coordination. In other cases, we see CIOs This is achievable. In fact, it is what the
shifting demographics, rising customer expectations and changing who are hesitant to bite the bullet on big leaders of 2020 are preparing for right now,
projects, figuring that they can limp along on their own and with outside help.
regulations. Technology offers solutions, allowing financial institutions to cut
with older systems for another year or two
costs and become more efficient at what they do. But this is tricky, because it until technology stabilises and funding may Each financial institution will respond to
is a classic limited time offer. Most technology is not proprietary, so it is a bit be available. Unfortunately, we think that these trends and priorities in their own way,
of a race: if you blink, you might find that your competition has already built strategy will become more dangerous as largely dependent on their unique position
in the market, desired path forward, brand
up advantages that are now harder for you to match. time passes. After all, a core simplification
project really can take three-to-five years. positioning, regulatory circumstances, and
Devising a talent plan for 2020, and getting organisation capabilities.
As we see it, most financial institutions are the right staff in the right places? Creating For our part, we encourage institutions
currently focusing much of their IT attention an innovation hub possibly in Asia, or to take a realistic view of their situation
on the short-term. We understand this: on redesigning your architecture? These can holistically, across the entire IT organisation
any given day, there are fires to fight, with take several years too. To be competitive in to understand the current state, the desired
regulatory fixes, fraud attempts, budget the game in 2020, there are steps to start state, and how to get from here to there.
discussions and so on. But with the trends taking now. With 2020 rapidly approaching, this is no
we have described here, you will not want to time for a piecemeal approach.
Here is what success looks like: when
look up after a few more years of short-term
the next change comes, you are ready. At PwC, we work with clients to build IT
thinking to notice that the calendar says
You have the models and architecture in 2020 Readiness Programs. These start with
2020.
place to quickly understand, leverage, a strategic review that lets CIOs and other
In fact, we think that many financial and operationalise emerging technologies executives understand where they stand,
institutions are looking at all of these without creating chaos in the organisation. and what they will need to support business
issues, to some extent. But they are often And you are able to do this while you keep strategy by the end of the decade. We
looking at them reactively, in silos, without the lights on at a fraction of todays expense. examine an institutions operating model,
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in
this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information
contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else
acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
At PwC, our purpose is to build trust in society and solve important problems. Were a network of firms in 157 countries with more than 208,000 people who are committed to delivering
quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
For more information about the global Financial Services marketing programme, please contact ine Bryn on +44 (0) 20 7212 8839 or aine.bryn@uk.pwc.com
www.pwc.com/fstech2020
2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
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