In the past, financial services institutions have been slow to adopt new technologies and business models. The pandemic has changed the sector dramatically as banks are now looking for ways to improve their margins and cut costs in a competitive market.
The result is an industry-wide transformation where innovative startups with improved business models challenge traditional players who have not innovated in decades - since the global financial crisis.
As we emerge from the global pandemic crisis, it has become clear that our old business models are no longer viable. Markets and customers have changed, and new opportunities exist for all types of institutions to grow—if they can change to meet them. As a careful study of companies across all industries reveals, competition is as fierce now as ever before.
Worldwide research conducted by MIT interviewed 297 executives from 12 different industries, with only 15% working at banks or other financial services institutions.
A bold 93% of them have changed their business over the past year by overhauling tech infrastructure or acquiring another company. Nearly 80% will change how they conduct business in the future. More than ever before, organisations are identifying areas of expense that lack a clear return on investment. Therefore, it is not surprising to see IT projects at the top of the list for most financial services entities. More specifically, those firms expect to ramp up tech investments by 62%, and another 64% will be moving their IT and business functions to the cloud, which is higher than 46% across all industries.
With the economic recession and instability, financial services must adapt. The best way for them to survive and thrive in the future is by leveraging innovation as a business model. They need to rethink processes and systems from all angles: internal (technology), external (customer) and social responsibility (society).
Financial institutions are also looking at mergers and acquisitions as a way to survive the pandemic; according to recent reports from Reuters, change in this sector have escalated dramatically. For example, spending on M&A deals was up 80% for July through September 2020 from the previous quarter’s data to $1 trillion in transactions.
Mergers and acquisitions have long been a way for an organisation to grow by purchasing, or merging with, another company. Such moves supplement the original business—or even gain expertise in a technology that’s going mainstream.
While organisations have had the responsibility of innovating quickly and changing fast, it has been necessary for them to consider new business models. 81% of respondents across industries said they evaluated new business models in 2020 or planned to launch one over the next year; among financial institutions specifically, 55% reported that enhancing customer experience is paramount—compared with 35% across industries.
When building your own company’s strategy, make sure you take into account how customers want to engage with your organisation as well as what their needs are now and will be in future years ahead!