I was fortunate to be invited to a roundtable on February 29 in London to discuss FinTech and the issues raised in the Financial Services Technology supplement from the Sunday Times.
The full link to the supplement is shared at the end this review. I wanted to share extracts from the supplement that I particularly noticed and also to give you my point of view looking at this from the lens of Digital Insurance.
So here are the edited highlights for those looking at the topic with an insurance mindset – and perhaps a little Asia bias reflecting my home region.
FinTech – it’s big and diverse.
- In 2015 just less than 200 transactions in FinTech were reported with a transaction value of just less than US$25 billion. That easily exceeds the total transactions for the previous 5 years ! However, excluding two mega deals the total reduces to just less than US$8 billion – twice the level reported in 2014.
The Digital Insurer comment: FinTech has crossed the industry divide and Insurtech is a hot topic for 2016. Looking through what could be valuation bubbles, the transformation of our industry is underway.
It’s all about the customer.
- According to Analysts “ Banking habits have been changing as users grow comfortable with conducting business on mobile devices and online, and the democratisation of smartphone ownership in recent years has allowed the network effect to kick in.”
- According to KPMG’s Customer Experience analysis companies excelling in customer experience have growth rates nearly 9% higher over the last 3 years than the average FTSE100 company.
- By 2020 more than 50% of the worlds population will own a smartphone.
- ‘They (millennials) are not interested in established and trusted brands, but more in recommendations from friends or even people they don’t know.”
The Digital Insurer comment: Yes – understanding and delivering excellence to customers is centre stage
Are we heading for a digital only world in financial services?
- 75% of people are receptive to technology driven advice, more than 50% of affluent Americans either are already or are thinking of using a robo-adviser.
- “Although there is some variation by age group between 60 and 75% of people prefer digital banking “.
The Digital insurer comment: Awareness and discovery phases will be digital. However, for more complex insurance products a human component will be required – especially if purchase frequency by each consumer is very low as it is in life insurance. Mistakes are being made by focusing on digital only.
Do the incumbents recognise the problem?
- 80% of insurer CEO’s are concerned that new entrants will disrupt their business model . 66% of CEO’s are concerned about the relevance of their products and 72% admit they are struggling to keep up with new technologies.
- “There is a recognition within organisations that they need to do something; they need to innovate…”
The Digital Insurer comment: Three years ago many insurance executives thought digital was simply an online website. Times have changed and strategies are being executed. The “how” aspects of the transformation are moving centre stage.
The challenges of innovation
- In-house Innovation @ Aviva Digital Garage: “must be firmly grounded in the real business to be effective.”
- The challenge for banks “The tolerance for failure is low…. our proposition is based on trust and we can’t break that trust. Our innovation and going out to the broader public by definition can’t be as a first mover”.
- @ UBS A view from wealth management “ As the market leader, which we are in wealth management, you should be the first one to challenge your business model: because you will have the power to compensate for potential changes in your revenue streams, you will have time to build up a successful new model. But this is not an easy path.”
- “The greatest challenge that banks,insurers an asset managers face is not really one of technology.”
The Digital Insurer comment: There is a diversity of opinion on how to innovate and who can innovate best. This probably reflects the difficulty in finding and inspiring the genuine innovators in the industry. Has, or will, the industry hire the “Steve Jobs” of the insurance industry – or will he or she emerge from under the radar? How do we balance the need to collaborate with the need to find the creative innovators?
UK as the FinTech centre or Singapore?
- Technology analyst: “It is very welcome that the UK government wants to help develop this exciting yet nascent sector. But please be aware that warm words need to be followed up with blisteringly hot actions by a number of actors.”
- The Monetary Authority of Singapore having committed US$225 million over the coming 5 years under its Financial Sector Technology & Innovation Scheme is developing a regulatory sandbox to provide a controlled experiment space for FinTech start-ups … It will allow FinTech start-ups to test their products in a live environment and to demonstrate a working concept to investors.
The Digital Insurer comment: InsurTech is going to be global in nature. We might see technology developed in centres such as Silicon Valley, Singapore, Berlin, Hong Kong, London or Shanghai. But expect to see the most value captured when it is successfully deployed to win new customers– whether by incumbent insurers or new start-ups.
Quite rightly the No 1 in the KPMG FinTech 100 Index is Zhong An from China – and they are leveraging the customer database of Tao Bao with a 100% digital insurance solution for merchants that has generated sales of more than 500 million policies in less than 2 years. With US$1 billion in cash they can decide how to broaden their proposition.
Tech companies – friend or foe?
- “Tech giants like Google and Amazon or ‘smart-retailers’ such as Starbucks are in a position to exploit their massive customer base, with their detailed data on customer behavior, payments apps, customer loyalty and real-time communication.”
- “The main advantage that tech firms and indeed smart-retailers have is their established distribution mechanisms and access to high quality data, with a strong capacity to process that information.”
The Digital Insurer comment: Experience in bancassurance , consistent with other industries, tells us that value migrates to organisations who are closest to their clients. Insurers are at risk of becoming manufacturers unless they compete to win the hearts and minds of customers.
What trends are we seeing in Fintech
- Gary Reader @KPMG : “ The trend (in insurance) is very much moving from Protection to Prevention”
- Michael Brown @ KPMG : “ The wealth management industry is buzzing about robo advisers.… robo-advisers will become mainstream around the world in the next few years.”