Financial services disruption: the incumbent, the start-up and the tech giant

The financial services sector, perhaps more than any other, is being disrupted by advances in technology, changes in demographics and customer behaviour.

In key areas including insurance, lending, savings and investments, and transactions, PwC analysis suggests that this “disruption” is having a positive impact on consumers, businesses and the financial services industry serving them.

Financial services disruption

Of the total £106 billion of estimated new business by 2030, PwC estimates more than half (£53.6 billion) will be driven by insurance (£49.5 billion) and SME lending (£4.1 billion) advances as firms operating in this area mobilise to meet changing consumer habits.

Emerging risks and new tech could drive disruption in commercial lines insurance equivalent to 25% of current revenues, leading to an estimated market uplift of £27.6 billion by 2030. Disruption opportunities in the life and pensions sector could also benefit the market by £15.7 billion.

Almost a quarter (24%) of the personal insurance market could be disrupted by 2030 due to the changing nature of risk and better data, resulting in a £6.6 billion boost.

Financial services companies must embrace the cloud

Stephan Fabel, director of products at Canonical, discusses how the financial services industry is rapidly adopting emerging technology to compete with cloud-native disruptors. Read here

The tech giant and start-up

New entrants are already capitalising on the demand for new, more customer-centric and digitally enabled services. Examples include apps supported by AI-driven digital assistants allowing customers to buy and manage their home and rental insurance policies with minimal effort.

Globally, SME’s financial needs are increasingly being met by new players such as the internet giants. In the UK, big tech or smaller digital challengers could dominate the currently underserved micro-SME lending sector, due to the better information they possess and the improved user experience they can offer. This could kickstart commerce worth an extra £4.1 billion (37%) of today’s SME market.

With consumer habits continuing to evolve rapidly alongside major advances in technology, industry giants, who still hold the customer share advantage, will vie with start ups and major tech firms for the new business, the analysis finds.

These financial services incumbents will need adopt the same philosophies as these start-ups and major tech firms in order to compete in this new world.

Shazia Azim, head of Strategy and Financial Services COO at PwC, said:

“Our analysis shows an upswing of more than £100bn by 2030, if sector incumbents and new entrants successfully horizon scan evolving consumer needs across key areas including insurance, SME lending and asset management.

“FinTech presents a fantastic opportunity for financial services businesses to harness technological disruption and help shape the future of the industry. Crucially it helps level the playing field for those start ups and scale ups using and developing cutting edge technologies. As a result, these newer players will be better equipped to battle for market share with the larger firms still adapting to the rapid pace of change.

“It’s clear that firms operating in a sector where the consumer is becoming more sophisticated and more demanding will have to embrace technological disruption – or be disrupted themselves.”

Financial services businesses are unprepared for technology disruption

The decade since the global financial crisis has been one of huge disruption for the financial services industry; it’s a very different ecosystem today. Read here

5 innovation enablers

Customer appetite, trust, and shifts in macro economic trends are influencing customer demand for new products. This will drive innovation in five key “enablers” areas, which are weighted in favour of market debutantes.

1. Technology — new entrants are cloud-based and put customer experience at the heart of their technology design. Contrast this with some incumbents’ reliance on legacy technology frameworks that depend on systems developed in the 1960s and are still used to support $3 trillion of commercial flows.

2. Regulation — challengers are able to create new services and attract customers onto their platforms without having to fulfil the majority of complex licensing requirements required by traditional players.

3. Switching — regulation is making switching easier and more straightforward than ever. Challengers are targeting new demographics and creating a clear distinction between old and new.

4. Talent — traditional financial services roles are being replaced and augmented by automation. The focus on data and analytics is creating intense competition for digital and data-savvy talent, to the advantage of tech giants directly aiming to serve the FS sector.

5. Funding — the relative size and availability of funding.

How technology is impacting the finance and banking sector

Technology is changing the way businesses operate and deliver products to consumers in many sectors. We have alarms that detect poisonous substances in our air, medical equipment that can identify life-threatening conditions before they become an issue, or smarter computer software to make controlling vital equipment easier than ever before. Read here

A three way fight

The first mover advantage often belongs to the big tech players or start-ups. However, these groups do not have a monopoly on the creative mindset, responsive business models and transformational approach needed for operating in a disrupted landscape. Unlike, the financial services incumbents.

Sector incumbents can combine those attributes with their established relationships and foundation of trust, and consequently be well-placed to service their markets, PwC suggests.

Andrew Kail, head of financial services at PwC, said:

“There are plenty of examples of disruption taking place across the financial services market. Traditional firms and fintech start-ups are offering consumers new ways to transact and manage their money. Illustrating the competition in the market, digital players from beyond the sector are creating financial services from scratch to produce attractive new products.

“We’re really only seeing the beginning of the disruptive change that will change the face of every sub-sector, from insurance to asset and wealth management and from transactions to pensions. And for firms operating in any of those markets, tomorrow’s competition could come from anywhere.

“PwC is currently working with more than 800 UK and global businesses on financial services technology projects.

“Consumers and businesses using innovative products want more tailored, more efficient and more secure technology. In order to meet this demand we may also see more joint ventures between the behemoths and the new entrants to combine forces around market share and new product.”

Avatar photo

Nick Ismail

Nick Ismail is a former editor for Information Age (from 2018 to 2022) before moving on to become Global Head of Brand Journalism at HCLTech. He has a particular interest in smart technologies, AI and...

Related Topics