Regulations, Innovations, and Customer Expectations: The Forces Shaping Banking and Insurance in 2019

The financial services sector is in the midst of a transformation as a confluence of trends and market forces reshape the way banks and insurance companies operate. Increasing competition from fintech companies is disrupting the business models of our well-established and still-dominant large banks, forcing them to reengineer their business processes to deliver more customer-centric products and services. The heightened expectations of modern customers are further putting pressure on banks and insurers at a time when regulatory requirements are reaching an all-time high.

South Africa’s banking sector – dominated by the traditional Big Four as well as the more recently established Capitec – is working tirelessly to reinvent itself to better meet modern market and consumer demands. The well-established insurance sector is undergoing changes as more established incumbents square off against younger innovators who are built from the ground up to deliver exceptional frictionless customer experiences.

As we look at the year ahead, it is worth taking stock of the macro trends shaping the banking and insurance sectors and what measures decision-makers can implement to take advantage of emerging opportunities while mitigating against undue risk.

Trend 1: It’s all about the experience

Gartner predicts that 80% of firms will compete on customer experience by 2020, but only 50% will have a full understanding of what their customers value and need. For banking and insurance companies, improving the customer experience is of paramount importance. The emergence of lean fintech rivals that forego burdensome infrastructure – such as bank branches – in favour of tech-driven alternatives (such as apps or online platforms) is putting immense pressure on banks to quickly reengineer their business processes. That these fintech apps and platforms are built from the ground up to deliver highly relevant, personalised experiences and engagement only adds to the pressure.

The Millennial customer, with their high levels of engagement, proficient use of technology, and heightened expectations, now account for 27% of South Africa’s total population. Their preference for digital brand experiences – interacting with brands or businesses via mobile or desktop devices – is forcing banks and insurers to rethink their how they engage with their customers. It’s not enough to layer an app over legacy processes either: the systems driving those interactions are simply too outdated to deliver the quality of experience sought by the modern consumer.

In fact, customers want instant, personalised engagement with the service providers they choose, creating challenging conditions for attracting new customers while also increasing the risk of losing existing customers to competitors that are more adept at meeting modern demands. Banks and insurance companies will need to find innovative ways of understanding their customers better and to introduce personalised solutions in real time. Many modern consumers don’t follow traditional purchasing patterns – for example, renting instead of purchasing a house shortly after getting married, or using Uber instead of purchasing a new car – and insurers will need to develop products that fit this customer’s lifestyle or risk losing them.

Trend 2: Regulatory pressure mounts

Banks and insurance companies have never faced as much regulatory change as they do now. The emergence of new regional and global banking regulations following the 2008 global financial crisis is forcing a seismic shift in how banks manage risk. Basel III, Dodd Frank, CCAR, EBA Stress Testing, US GAAP and IFRS in its various iterations affect every aspect of banks’ business models, operations and infrastructure. Managing the cost and complexity of compliance is a burdensome process that many banks struggle with thanks to outdated legacy systems that lack the requisite agility.

The insurance sector is under similar pressure: the introduction of IFRS17 in 2019 will require insurers to report on a number of aspects – products, customers, future revenue, etc. – at a granular level. Getting to that level of detail will be hard for insurers who still rely on outdated systems pulling data from multiple siloed data sets – their current technology simply can’t deliver the necessary level of detail at the required speed. Failure to comply could see revenue-linked penalties of as much as 5-10% of total revenue and may see a suspension of the insurer’s licence to operate.

The process of compliance needs to start with the development of a single source of consolidated data. This should extend beyond updating and consolidating legacy systems and siloed data sets: the modern customer has data spread across multiple social networks, job roles, and past purchasing behaviour. Insurers’ ability to tap into a broad pool of customer data to make accurate estimations of a customer’s risk profile will be critical as regulatory bodies demand greater granularity.

Trend 3: Using tech to build the Intelligent Enterprise

Not so much a trend as a forced change wrought by rising customer expectations and increased regulatory pressures, banks and insurance companies are getting back to what they do best: developing products and services and selling them to current and prospective customers. The concept of every business being an IT business is falling away as the complexity and speed of doing business increases. Many are turning to global technology providers that can remove complexity while building capacity for greater customer-facing innovation.

This makes sense: many middle- and back-office operations are standard across insurers: a policy is a policy; a claim is a claim. Adopting off-the-shelf tech products that are proven to support these processes is increasingly seen as a smart move. Relying on global standards further allows insurers to free up resources that focus on improving the customer-facing level of the business.

Banks and insurers are also turning to powerful new emerging technologies to help them rise to the challenge. An in-memory database such as SAP HANA allows banks and insurers to move all data from multiple disparate systems into a single integrated space to start building a data lake containing all policy documents, customer data, claims data and more. Once there is a single version of truth – one set of accurate verifiable data – companies can start to extrapolate data and display it in a variety of ways via dashboards so that finance teams, actuaries and C-level execs can make improved business decisions. This guides product development and financial forecasting: for example, an analysis of historic data, current macro trends and external factors such as the likely effects of climate change provides insight into the types of claims that are likely to impact an insurer’s business.

By implementing SAP’s powerful in-memory S/4HANA Finance as the digital core, banks and insurers gain a single source of truth for the business that can be analysed in real-time for accurate business insights. This helps establish the foundation of the Intelligent Enterprise, one that can analyse its data with unlimited granularity for improved predictive capabilities and increased connectivity and automation.

Through the SAP Regulation Management solution, banks also gain access to a global repository of compliance best practice that can drastically improve coverage of regulatory requirements, improve proactive planning and response capabilities, and reduce the cost and time to compliance. In fact, based on the experience of SAP’s global customer base, the SAP Regulation Management solution can reduce compliance-related costs by as much as 20-30%.

The future belongs to banks and insurance companies that can evolve to intelligent enterprises that focus on high-value outcomes, invent new business models and unlock new revenue streams. It is time for insurers and banks to ask: do my current systems allow me to get closer to my customers while also meeting regulatory demands? If you can’t respond with a confident yes, it’s time you scheduled a rethink of the technology core powering your business – and your ability to compete.


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