In a world driven by mobility and technological convergence, financial and lifestyle services are increasingly blurred and financial institutions are being dramatically reshaped as a result.
One of the greatest factors influencing this change is the heightened expectations of tech-savvy customers particularly Generation Y, otherwise known as Millennials (18 to 34 years old).
At Telstra we have been researching the financial habits of Millennials across eight countries in the Asia-Pacific region as well as the United Kingdom and the United States of America to get a 360-degree view of disruption within the industry and a glimpse of the next generation of financial services.
With significant influence, our research suggests Millennials' interactions with financial institutions are forcing the industry to reinvent itself. Equally, their expectations are defining the role they want finance to play in their digitally-driven lifestyles. It’s therefore easy to see how this group is playing such a huge role in shaping and influencing the traditional and enduring industry we know to be financial services.
In fact, the change to the industry is so dramatic that Millennials may be the first generation to live their lives never requiring, nor engaging with, a traditional institution and only ever associating the word ‘branch’ with a tree.
So just how are they doing it?
Mobile technology and social media are two key driving forces. Social media is fast becoming the theatre for Millennials to discuss their money matters. Telstra’s research shows that last year, they drove 40 per cent of the financial conversations on Facebook – 76 per cent of which occurred on mobile devices.
These figures echo reports that more than 50 per cent of interactions with banks in both developing and developed nations are conducted through mobile devices. This trend is set to grow across all demographics with 37 per cent of the global adult population forecast to be mobile banking users by 2020.
While this spectacular growth in digital communications technology creates a huge opportunity for institutions to become more embedded in their customers’ lives, it also represents a threat for traditional players. As it is the very same technologies connecting institutions and customers that is also offering new players a way to disrupt the market either as new entrants, or as enablers, and they’re targeting like-minded Millennials.
The new trinity
‘Trust, relationships and technology’ is the new trinity for this generation and they are seeking more value from relationships with their financial service providers. Currently, most Millennials don’t feel that their relationship with financial institutions is ideal and as their affluence increases, so too does the gap. Not surprisingly, affluent Millennials are the most demanding; they seek a true value partnership with their financial services provider and less than half believe they are receiving one.
As a result of Millennials' expectations, there is an ongoing and shifting trade-off between privacy and personalisation that’s forcing institutions to continuously balance competing imperatives such as speed, convenience, flexibility and customisation to become and remain relevant.
Spending nearly one and a half times more time on their mobile devices than all other generations, Millennials have adopted the smartphone as their preferred method of engagement. Fortunately, they also have an appetite for new ways to spend, save and invest.
The solution therefore, is to build platforms that create innovative ways to connect with customers through speed of delivery, rapid scalability and functionality with extreme agility.
As identified, trust also matters and, maybe not surprisingly given the historical reputation for security and privacy, banks are still overwhelmingly seen as the most trusted institutions – a huge asset in a world of frequent threats to online security.
To leverage this trust, traditional financial institutions should consider redefining their relationship in line with emerging expectations – changing from being a financial institution to part of an online financial ecosystem. To quote our CEO Andrew Penn: 'In the future, if a business is not mobile-first and digital to the core, if it does not present on an app or an icon on a customer’s handset, then effectively it will simply not exist'.
Collaboration between traditional and non-traditional players will create new ecosystems that unlock value through re-bundling. This will be enabled by capabilities that include:
1. Software-defined cloud networks that can be reconfigured in real time by applications to dynamically provide the required features and access.
2. Analytical platforms that provide access to data and tools so institutions can quickly gain new insights into the customer and turn them into operational actions.
3. Cybersecurity and identity platforms that protect highly distributed composite services, personal data and that can evolve to address new and emerging threats for both Millennials and institutions.
4. Digital platforms that reduce the cost, time and complexity of building, deploying and maintaining applications. They also allow institutions to expose data and services to ecosystem partners in a manageable but highly usable way.
The prize for executing these capabilities well is a smarter, faster, agile, more efficient, convenient and relevant institution that is well positioned to adapt to the changing risk profile of the industry. How today’s financial institutions adjust to this new reality will go a long way to defining their future success.
Rocky Scopelliti, Global Industry Executive – Banking, Finance & Insurance at Telstra