Oracle Industry Solutions—Financial Services
Digital Innovation: Seize Your Next Market Opportunity
A guide to creating strategic value for financial institutions.
A sea change is underway.
The financial services industry is changing rapidly—driven in no small part by the rise of agile, innovative fintech startups. They’re able to quickly take advantage of disruptive technologies, and deliver the exciting new user experiences that are fast becoming the norm.
At the same time, your own business needs are evolving. Traditional banks are required to report more accurately, and comply with demanding new regulations—all while maintaining transparency with shareholders.
Digital innovation: friend and foe?
With leadership that champions digital innovation and nurtures a collaborative culture, the very thing that threatens your business—digital innovation—could quickly become a major opportunity for growth, additional revenue, and market relevance.
Explore the causes behind the rapid change across financial services, examine the new strategic opportunities this change has created, and assess how those opportunities can be seized.
The disruption of traditional banking grows stronger worldwide, and banks must reinvent their services to meet today’s device-obsessed consumer expectations.
1. Everybody’s Changing
The changes—and their causes.
Financial services digital transformation is happening fast. Creating strategic value for your organisation depends on being able to understand—and take advantage of—this change.
But how and why is it happening at such speed? Here are four major drivers of change.
New fintechs.
To take advantage of new opportunities, financial institutions have been eager to embrace technological change. Many new fintechs have arrived on the scene, built by technically savvy digital natives. These companies don’t play by the same rules. They’re more efficient with capital, and more agile. It’s high risk, but also high reward. And because of their speed, they can fail fast and quickly move on to new innovations. For these reasons, fintechs can deliver brand-new digital products and move with more speed than large, established financial institutions.
700%
Increase in VC investment in fintech since 2015—from 3 billion USD to 22 billion USD
—Accenture
Big tech.
Consumers and businesses alike increasingly transact significant volumes through the major tech players, like Alibaba, Amazon, Facebook, Google, and Apple. These platforms facilitate relationships between customers and financial service providers. Whether or not we ever see a Google Bank, Google Wallet, Amazon Loads, Apple Pay, and countless other technologies are disrupting traditional banking functions: payments, money management, product comparisons, and financial advice.
$50bn
The value of Alibaba’s financial arm in 2016
—CH&Co
Established financial institutions.
It’s not only the new companies that are embracing digital revolution, however. 96 percent of investment CEOs say digital transformation is central to their business, according to a 2017 Roubini ThoughtLab study. In 2016, 24 percent said digital transformation was unimportant or only slightly important—so you can see how quickly attitudes are changing. Technology is helping financial institutions become more efficient, and offer greater value to customers. New regulations are forcing innovation, transforming the industry and driving compliance.
96%
Of investment CEOs say digital transformation is central to their business
—Roubini ThoughtLab
Customers.
Customer needs and expectations are changing, too. As other aspects of their lives become increasingly digitised, why shouldn’t banking modernise in the same way? Customers have grown used to slick digital experiences when it comes to transport, shopping, socialising, and more. They now expect similar, consumerlike experiences across all services—from medical care to telecommunications to utilities. Financial services are no exception, and consumer service expectations are constantly changing.
68%
Of millennials say desktop or mobile is their most frequent channel of interaction with banks
—Oracle research
2. Travelling at the Speed of Change
The problem.
The financial services industry is changing around us—practically beyond recognition. But your business transformation won’t happen overnight—particularly when you have the legacy IT infrastructure of a large financial institution.
Financial institutions are aware of the need for change. They know the benefits of flexibility and speed, but it’s not always as simple as merely deciding to implement change.
Changing infrastructure—and culture—can be a lengthy process. Meanwhile, fintechs are snapping up new customers thanks to their innovative, tech-driven products and services.
It [modernising legacy systems] is immensely complex. Legacy systems from different generations are layered and often heavily intertwined.
Keeping pace with change.
How can financial institutions stay relevant in a marketplace that’s moving on without them?
Banks can offer a whole lot more, but need to rethink their approaches. Digital innovation is the key—and getting it right can result in significant rewards.
Your next steps.
Change is a journey—one that may never end. It’s important to begin this journey early, but also to ensure you’re continuously moving and adapting—not just waiting to arrive at your destination. To do this, you’ll need to adopt new business models that enable ongoing agility.
Financial institutions that have started to modernise are seeing rapid returns. According to a study by Roubini ThoughtLab, leaders consistently outperform laggards across the financial services industry.
The laggard penalty can really add up.
The laggard penalty as a percentage of the average firm revenue by subsector.
Unlike traditional high street banking services, [digital-only banks] are offering customers the ability to manage their own money with an app. They’re built with modern technology that allows them to plug into external services, such as lending, investing, or shopping from other providers and rival banks.
3. Joining the API Economy
Open bank APIs are fast becoming the operating model of choice for the financial services industry’s new digital economy. Driven by digital consumers, innovative fintech startups, emerging technologies, and regulatory changes—including the Second Payment Services Directive (PSD2)—today’s businesses are at a tipping point regarding potential growth.
Sharing data and technology platforms with third-party organisations may seem counterintuitive for traditional banks, but embracing this methodology could open up significant opportunities. Increased product innovation and improved customer service are just two benefits the API economy will introduce.
Netflix used its API to extend its service to more than 200 different devices—televisions, games consoles, smartphones, tablets, and more—in less than two years.
Bank leaders of the future will have a clear focus on their end customers and markets, and will collaborate with other organisations to accelerate their market position—either through increased use of digital technology platforms, and/or digital insight that supports their specific business strategies.
Gains from the API economy.
The next two sections of this digibook will explore how your organisation can use the API economy to benefit in both the short and long term.
- Short term: Collaborative innovation will allow you to exploit new revenue streams through emerging fintech models.
- Long term: Developing a new cloud banking platform will give you the opportunity to evolve into a trusted, customer-centric organisation—constantly innovating and providing greater customer experiences.
4. Short-Term Gains: Collaborative Innovation
Collaborative innovation.
In the API economy, partnerships between established financial institutions and fintech startups will allow each party to benefit from the other’s strengths—allowing traditional institutions to take advantage of innovation, fresh talent, and the agility to quickly meet and monetise customers’ evolving expectations.
Monetising your intellectual property.
Rather than hiding it away from the world, your IP could become the path to various new revenue streams. By allowing third-party access to your systems, you can immediately benefit from new fintech without having to invest time, budget, or people in developing it yourself.
You should be curating the best use cases and services for your customers, regardless of who makes that product.
Monetising your intellectual property.
Rather than hiding it away from the world, your IP could become the path to various new revenue streams. By allowing third-party access to your systems, you can immediately benefit from new fintech without having to invest time, budget, or people in developing it yourself.
Banks can increase net profits up to 45 percent by adopting newer digital fintech solutions.
What can fintechs provide traditional financial institutions?
- Digital innovation now: Collaboration can happen immediately.
- Agility: Fintechs provide the chance to capitalise on and monetise new trends with greater speed and flexibility.
- New audiences: As more customers move to fintech solutions, collaboration will allow financial institutions to monetise these customers.
What can traditional banks provide fintechs?
- Scale: Fintechs usually start small and scale up—sometimes to global proportions. Their business models support scalability, but only up to a point. When both share a common technology platform and business strategy, financial institutions have the potential to help fintechs reach more customers.
- Cost-effectiveness: Fintechs need access to a complete platform with minimal up-front investment. With the right cloud platform, financial institutions can deliver this.
- Enterprise requirements: Compliance and security are essential to fintechs, but it can be difficult to innovate while meeting ever-changing regulatory requirements. By starting with a common, proven cloud platform, fintechs can get to market even faster—and more securely.
- Credibility: Dealing with customers’ money requires trust. Having the backing of a large financial institution will lend fintechs greater credibility, and help to attract more customers.
Success story: Rabobank.
With the EU GDPR regulation looming, Rabobank wanted an easy-to-use API management solution with an integrated security layer. With Oracle API Platform—using Oracle API Platform Cloud Service and Oracle Apiary—Rabobank can now deploy gateways in hours rather than weeks, resulting in a 90 percent reduction in time to deployment. Further, they’re now compliant in advance of the GDPR deadline.
5. Long-Term Gains: Building Your Cloud Platform
Building a culture of innovation.
The API solution is an opportunity to share your intellectual property and keep up with the innovation pacesetters. But by building your own cloud-based platform, you can partner with the most innovative fintech competitors—giving you the chance to review your product offering, outpace the competition, and achieve long-term growth.
And there’s an emerging opportunity to sell financial services to enterprise customers that have moved their financials to the cloud, too. You’ll be able to create new revenue models faster, and offer services delivered by third parties hosted on your platform.
Banks that transition to be a platform more than a service provider stand the greater chance of staying viable and successful.
What can you do with a cloud platform?
- Weather the storm: When the only constant is change, an agile cloud platform can help you react quickly and efficiently to transformation, and prevent you from getting left behind.
- Lead the way: Business is not just about survival. And with your new-found agility, you’ll be able to try new things and adopt a fail-fast culture of innovation—making use of new technology, creating new revenues streams, and getting ahead of the competition.
- Win customers: When you’re leading the way in innovation, providing new cross-channel, personalised customer experiences, and passing on cost efficiencies, you’ll quickly gain a competitive edge.
- Comply with confidence: As technology rapidly changes, so too will the rules and regulations that manage it. By building your platform with a trusted cloud partner, you’ll be able to stay on top of incoming regulations with greater ease.
What does this look like?
So what might your platform for innovation look like? The following chart shows how banks can innovate, get to market more quickly, and deliver the consumer-centric experiences your customers demand.
Where Do You Start with Financial Services?
Deploy all or strategic components
A culture of change.
To achieve this, your finance leaders must spearhead a shift in internal thinking toward a culture of constant change. Recognise the need for innovation, and enable it. Employees should feel encouraged to innovate—adapting to market trends and moving quickly to implement change.
In other words, you’ll want to create a startup mentality. One that can identify and take advantage of new opportunities while using the strength of your platform as a complete, proven back-end solution to drive you to market with unbeatable speed.
Success story: Westpac Banking.
We are responding to the changing face of banking by significantly enhancing our branch and digital offering. Providing more flexible and agile branches and continuing to innovate in online and mobile are key to the success of our strategy. Oracle’s platform will help us provide a single source of customer truth that delivers a consistent and high-quality experience.
6. New Technologies
Revolutionary business innovations.
Technology advancements are driving change everywhere. But what are these advancements? What are the actual innovations you could take advantage of with a secure, scalable, agile, and collaborative cloud platform?
The Internet of Things (IoT).
The Internet of Things opens up countless opportunities. Connected devices, products, and processes give banks the chance to better track customer behaviours, needs, and wants—leading to more personalised user experiences.
Furthermore, machine-to-machine connectivity across the entire supply chain will allow traditional banks to provide more value to business customers—helping them achieve stronger commercial results than ever before.
Big data and real-time analytics.
With all of these connected devices, machines, and components—plus the vast swaths of data from financial transactions—traditional banks have huge opportunities to discover insights that could change the face of banking in their favour.
By using data science to collect and analyse big data, banks can improve, or reinvent, nearly every aspect of banking. Data science can enable hypertargeted marketing, optimised transaction processing, personalised wealth management advice, and more—the potential is endless.
Artificial intelligence (AI).
The vast amounts of data held by banks is now being used to predict activities and improve results. AI is proactively analysing that data and solving business problems in real time. Systems are becoming self-learning, and chatbots are improving quality responses with less effort. Lead times are being reduced, quality is being improved, and efficiencies are increasing.
Blockchain.
It’s the technology that underpins Bitcoin, but it’s having a profound effect on all transactions—disrupting the entire financial services industry. The next stage will be to leverage blockchain to improve transparency, IP protection, collaboration, compliance, payment, and execution throughout the supply chain.
Blockchain promises to increase transactional trust and reduce fraud, as every participant has a bird’s-eye view into every step of that chain.
What comes next?
In this rapidly changing world, no one really knows. After all, who could have predicted the rise of technologies like AI, blockchain, and IoT? But that’s essentially the point. We can’t predict with absolute certainty what’s next, so you must build a platform that will enable you to react rapidly to future changes. You must adopt a culture of change and innovation, capable of attracting and retaining the brightest talent. And you must embrace disruptive new technologies as they appear, allowing you to develop and capitalise on new revenue streams. With Oracle’s help, a powerful cloud platform will become the beating heart of your organisational transformation.
The Components of a Complete Financial Services Cloud Platform
CX Cloud
Oracle CX Cloud Suite is an integrated set of applications that span the entire customer lifecycle from marketing to sales, and commerce to service.
HCM Cloud
Use a single global human resources solution that aligns common global HR processes, supports local compliance needs across multiple countries, and engages your workforce.
ERP Cloud
Streamline your enterprise business processes with Enterprise Resource Planning (ERP) Cloud. With ERP Cloud Financials, Procurement, Project Portfolio Management and more, you can increase productivity, lower costs, improve controls and bring greater insight to the business.
Oracle Risk Management Cloud
Oracle Risk Management Cloud, you can confidently manage risk and have systems of control to meet compliance requirements imposed by external bodies; BASEL II and required internally. It can quickly detect potential process and control issues, and provide line-of-business leaders with strategic risk insights.
Big Data and Analytics Cloud
Oracle Analytics Cloud delivers business analytics for traditional data and big data across the entire enterprise.
