The industries that make up financial services, whether retail banking, capital markets, payments, or insurance, comprise a varying collection of sectors each with its own defining set of characteristics. However, while these sectors are unique, most are being impacted by a common set of disruptive forces. All are having to respond to shifting customer needs and expectations, powerful new competitive threats, and increasingly stringent and dynamic regulatory oversight while transforming into digital organizations.
Overlay on this concerns about global trade as the OECD forecasts 2020 will see the lowest growth since the financial slowdown, continuing China/US trade tensions and Brexit. And this is all before the potentially devastating impact of COVID-19 on global trade.
In the light of these factors, perhaps unsurprisingly, the latest Omdia ICT Enterprise Insights survey has found that the financial services sector is uncertain and cautious about its near-term prospects and has realigned ICT priorities in the expectation of tough times for the next 12–24 months.
Examining the response of just two sectors, retail banking and personal lines insurance, we can see both the common threads and where each sector is having to respond differently in the context of its own market needs.
The most profound shift across both sectors is that operational cost reduction has emerged as the top business imperative, superseding revenue growth which had been the top priority for the last three years. Both sectors see continuing to invest in ICT as being critical to achieving sustainable operational cost reduction. As a result, 90% of retail banks and 80% of insurers are growing their ICT budgets in 2020/21, up from 69% and 61% respectively in 2019/20.
Another common investment focus is legacy system modernization. Both retail banks and insurers have invested heavily in digitizing their mobile and online frontends over the last decade to meet growing customer expectations. However, both sectors are now increasingly constrained by the inflexibility and lack of functionality of their core internal operations. As a result, legacy modernization emerges as the most import overall technology trend among 58% and 56% of insurers and retail banks respectively. Omdia expects to see banks and insurers accelerate ICT spend in legacy modernization in 2020/21 with cloud migration, automation, and the application of AI/ML to decisioning being key areas of focus.
Key differences are also revealed in the research. Banks continue to see serving customers through digital channels as key to growing, or at least maintaining revenue, while also driving efficiency. The highest priority projects for banks in 2020 are online banking, product development, and mobile banking for 33%, 32%, and 31% respectively of survey respondents. In contrast, the insurance sector is slowing spend on digital channels for the first time. While spend will still increase in this area overall, the relative priority has fallen, especially among P&C insurers. Instead insurers are prioritizing spend in fraud detection with 42% of respondents citing this as their highest priority project for the next 18 months with 25% planning on undertaking major strategic investment.
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This report was contributed by knowledge partner: