New digital-savvy competitors have been challenging the financial services (FS) industry, and forcing traditional players to transform themselves to survive and thrive in the emerging marketplace. Over the last few years the fintech sector has boomed, consolidated and matured considerably, with many incumbent banks and insurers becoming more open to change from the ‘outside-in.’

As I continue my in-depth analysis of our Financial Services Change Survey 2017, one of the trends I’ve noticed is those getting the best results in their change programmes are also those approaching external ecosystems and partners with an open mind.

Looking ‘outside-in’ can take a variety of forms – meeting changing customer expectations; handling regulation; dealing with competitive disruption from incumbents and new players; looking for new growth opportunities; engaging in innovation; and partnering. First, let’s take a look at the hard data.

The FS Change Survey found change leaders, those who implement change faster and better than their peers, are 15 to 25 per cent more receptive across all types of change drivers. The starkest differentiator for these leaders is how they approach ‘outside-in’ change: 75 per cent of change leaders place a high importance on digital ecosystems as part of their change programmes, compared to 49 per cent for their lower performing peers. They are defining new ecosystems and their place within these ecosystems. The majority (84 per cent) of change leaders are more likely to partner with digital innovators and fintech firms to accelerate their digital transformation, compared to 52 per cent of their peers.

These findings confirm the results from our 2017 Technology Vision for Insurance, which found that 76 per cent of insurance executives believe competitive advantage will be determined not by their organization alone but by the strength of the partners and ecosystems they choose. 94 per cent agreed that adopting a platform-based business model and engaging in ecosystems with digital partners is critical to their business.

More and more insurers and banks have been investing in the fintech sector and the Spanish banking giant BBVA is a good example of this. In 2016, the bank became a limited partner in San Francisco- and London-based Propel, allocating $250 million to the venture capital firm specifically for fintech investments. Earlier this year, BBVA also acquired Mexican B2B payments platform OpenPay, adding to its startup portfolio, which already included Finland’s Holvi, user experience design company Spring Studios and the neo-bank Simple.

To stay relevant in the age of disruption, organisations must be able to quickly consume new innovations from outside – clear a path for fast proof-of-concept and engagement (e.g. risk, tech, procurement, legal processes). However, traditional banks and insurers need to avoid crushing good ideas and tangling up startups with corporate red tape. It is often hard to commercialise and scale fintech and other innovation within large legacy architectures and operating models. The complexity involved in integrating across layers of legacy systems and data is time consuming and costly. FS firms that adopt a ‘plug-and-play’ approach towards external capabilities will see greater opportunities for growth, by making their operations open (e.g. vendor contracting, service management) and technology/data open (e.g. flexible and standardised APIs that are easily accessible to developers). 

One area of ‘outside in’ change very close to home here in London is Open Banking. These new application processing interface (API) standards and the European Union’s revised Payment Services Directive (PSD2) take effect in 2018, so we can expect new partnerships opening up between banks and a host of third party providers. Curiously at the same time in May 2018, the General Data Protection Regulation (GDPR) comes into force and puts greater emphasis on data protection and privacy. Navigating this path between openness and privacy will be a challenge for the industry.

So there is no silver bullet for ‘outside-in’ change. What is clear is that you need to do it in your own way and with a clear vision of what the bank or insurer wants to be in the digital economy. This vision shapes when to partner, collaborate or invest externally to achieve speed to value in change. To do this, industry leaders will look outside at the market, client, regulatory, social, and technological environment for opportunities and challenges ahead. This will happen at the board level, but also across the business a curiosity and openness to fast-paced change will be encouraged. The future success stories in FS will be those who can use ‘outside-in’ change to transform their core business today and build the new business they need for the years ahead.

To find out more about the Financial Services Change Survey or to join our FS Change Directors Forum, please contact me. You can also connect with me on Twitter.

You can read more survey results here.

For more on open banking, I’d recommend two other blogs by my colleagues:

Jeremy Light’s The Open Banking Opportunity and Alan McIntyre’s Bank Boards: Embrace the Beauty of Open, API-enabled Digital Payments.

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