The High-Stakes Evolution of Financial Services

It is captivating to think the first known bank in the world is believed to be the Bank of Venice, founded in Venice, Italy, in 1157. It was established to facilitate government borrowing and manage the city-state's finances. Since then, the world of banking, insurance and financial services has greatly evolved to mobile banking, robo-advisors, AI driven financial modelling in real-time with rapidly evolving and changing customer expectations at the epicenter of the innovative technologies that are enabling greater consumer convenience, efficiency, and accessibility. The 26th PWC Annual CEO Survey of 2023 quotes “Evolve or die”, after it revealed that nearly 40% of CEOs in their survey do not think their companies will no longer be viable in 10 years if they continued as BAU. This could not be more evident for the Financial Services and Insurance industry. Futurist Gerd Leonhard highlighted in 2015 how Humanity is changing more in the next 20 years than in the previous 300 years combined. We are at a pivotal point in our entire human history. Eddie Obeng in a Ted-Talk referred to it as “Smart Failure for a Fast-Changing World”, where he shared how we spend our time responding rationally to a world which we understand and recognize, yet no longer Exists!

The financial services industry of today is undergoing such a profound transformation, driven by rapid technological advancements, with fear and anxiety on the minds of the key decision makers and executives that are navigating their organization’s futures in the turmoil of industry convergence. In short, industry convergence can be described as the fusing of the provision traditional products and services now offered by non-traditional industry players – i.e. How retailer will now provide financial services and products today. We see this evidently with Starbucks who are regarded as largest neobank in the US boasting 28.7 million customers as at 2023, and regarded as the 11th largest bank in the US. Who would have ever dreamed that one of the world’s top hot beverage providers would be the largest provider of financial services such as savings accounts, checking accounts, payments, loans, and other banking products entirely through digital channels, typically accessible via mobile apps or web platforms? It is evident that traditional banking models are being disrupted by fintech companies, neobanks and digital platforms that have reshaped how financial services are delivered to the end customer.

The speed of change in the world is so evident that what you discover today, is that about 1 in 100,000 ideas is found to be making money or delivering benefits two years after its inception. And yet financial services decision makers and executives in South Africa are running the turtle vs the hare race as the turtle in this case, hesitant to make tough decisions and risking obsolescence on the back of what they believe they have in time and a strong brand. The profile of today’s consumer has changed, research has shown that between 2000 and 2015, our attention spans shrank by a whopping 25% and recorded at just 8 seconds as at 2022, with the average person spending about 5.4 hours a day on their mobile phone. In real life, the average person spends 30 to 40% of their time talking about themselves; online that figure jumps to 80%. The goal from a business standpoint is to design experiences that offer balance with an opportunity to make connection both on and offline, and South African financial services institutions are not exempt from this. Succeeding in the experience economy requires a careful curation of resources to position meaningful value and authenticity and keep it beyond 8 seconds. However, one can’t help but wonder just how long can financial services institutions ride the wave with the fear of taking the leap and taking that brave decision to be the first – a well-known no no in the world of financial services in South Africa.

The Desperate need of the Modernisation of Core Banking running in the Cloud

It is well known that majority of our traditional players in the banking and insurance fraternities are running legacy core banking applications with plans for modernisation, however it is not without hesitation even with the continued negative impact to customers, impacted by a series of prolonged and highly disruptive system outages. Legacy systems have long been marred by issues such as process inefficiencies, high time to market, rigidity, and the limited functionality to integrate with new-age applications in the cloud. There is a fierce contest between the cost to upkeep these systems operationally viable the business case to invest in their modernisation and running them in the cloud, all with its key associated risks, key benefits and ultimately one shot to get it right. I recognize the weighty considerations involved in the decision to modernize core banking and empathize with decision-makers who grapple with the complexities and uncertainties surrounding such a pivotal transformation, at the same time also understand the implication of doing nothing and its own associated cost, which could result in more than just significant monetary losses.

Today's consumers expect seamless digital banking experiences, including real-time transactions, personalized services, and omnichannel access. Modernizing core banking systems enables banks to meet these expectations by offering faster, more convenient, and more personalized services to their customers who are leveraging other platforms for this where banks are failing to meet their requirements. There is also the matter of regulatory requirements, which are constantly evolving, increasing the bank’s risk probability of losing its banking license, penalties, and reputational damage which erodes customer trust. Often, legacy systems are often more vulnerable to cybersecurity threats, data breaches, and system failures due to their outdated architecture and lack of robust security features.

Running core banking systems in the cloud offers a multitude of benefits, both quantitative and qualitative, for financial institutions. Beginning with how moving core banking to the cloud eliminates the need for significant upfront capital investment in infrastructure, leveraging a pay-as-you-go pricing model, reducing operational costs, and improving cost predictability whilst enabling scalability allowing banks to easily scale up or down their computing resources based on demand. According to the 2022 Accenture Banking Cloud Rotation Index, 73% of bank executives expect a rate of return ranging from 15% to 76% in less than 18 months, enabling a faster time to market for banks by up to 50%.

The automation tools, managed services, and DevOps capabilities offered by a cloud platform enables the streamlining of core banking operations, reducing manual effort, and enhancing overall efficiency. This allows banks to focus resources on value-added activities rather than routine maintenance tasks. Running core baking in the cloud further providers robust disaster recovery and data redundancy capabilities, ensuring a high availability and resilience for core banking systems. Banks can recover from disruptions quickly and minimize downtime, reducing the risk of financial losses and reputational damage. At the heart of our approach as the BCX FSI (Financial Services & Insurance) Team is a genuine understanding of the difficulties and anxieties inherent in this process, and an approach that leverages shared risk and shared value, fostering a collaborative and mutually beneficial engagement.

Embracing Fintech Innovation: South African Financial Institutions' Blueprint for Success in the Era of Digital Transformation and Cybersecurity Imperatives

Direct digital transformation investments will accelerate to a CAGR of 16.5% for 2022 to 2024, up from a CAGR of 15.4% for 2019 to 2024, making up 55% of all ICT investment by the end of 2024. FinTech is one such investment area for financial services institutions. One might ask, what is the difference between traditional banking and fintech? Fintech, short for “financial technology”, refers to a wide range of applications, including mobile payment platforms, peer-to-peer lending, robo-advisors, blockchain, digital currencies and other cutting-edge technologies where financial services institutions leverage them to streamline financial processes, improve access to financial services, and enhance the overall customer experience. Fintech in South Africa is growing legs in transforming the financial services landscape, and driving towards the achievement of greater financial inclusion for the unbanked. This is evident with such a high degree of smart phones in South Africa recorded at 53.4 million, against a mobile subscriber base of 96 million according to the 2020 State of the ICT Sector report instituted by ICASA. McKinsey’s 2023 research report on the growth of fintech shows that revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2023 and 2028.

Customers want the same level of excellent customer experience in every interaction and over any channel they use to connect with their bank, as with any other interaction they have with retail house brands they have come to love and trust, citizen services, and a general sense of good hyper personalised customer service. South African financial institutions are presented with a pivotal moment to leverage fintech innovations as a catalyst for accelerating their route to market, enhancing customer centricity, and fortifying their market share amidst intensifying competition from fintech disruptors unencumbered by legacy brick-and-mortar constraints. By embracing fintech solutions, traditional banks can unlock a plethora of opportunities to revolutionize their offerings and meet the evolving needs of today's digital-savvy consumers. Through agile deployment of cutting-edge technologies, such as artificial intelligence, blockchain, and data analytics, banks can streamline operations, optimize customer interactions, and deliver hyper-personalized financial solutions tailored to individual preferences and behaviours.

Moreover, the strategic integration of fintech tools enables traditional financial institutions to transcend geographical boundaries, reaching previously untapped markets and demographics with innovative digital products and services. From mobile banking apps to robo-advisors and peer-to-peer lending platforms, fintech empowers banks to broaden their customer base and deepen engagement through seamless, omnichannel experiences that foster trust and loyalty. Furthermore, by embracing a customer-centric approach to product development and service delivery, banks can position themselves as trusted advisors and partners in their customers' financial journeys, driving long-term loyalty and advocacy.

In the face of fierce competition from nimble fintech start-ups and neobanks unburdened by legacy infrastructure, traditional financial institutions have an opportunity to forge strategic partnerships and alliances that leverage the strengths of both parties. By underwriting or backing neobanks, banks can capitalize on the agility and innovation of digital-native challengers while leveraging their established brand, regulatory expertise, and customer trust to drive value and market penetration. This collaborative approach not only enables banks to tap into new revenue streams and customer segments but also fosters a culture of innovation and agility within the organization, positioning them at the forefront of digital transformation in the South African financial services landscape.

The convergence of fintech innovation and traditional banking presents South African financial institutions with a unique opportunity to reimagine their business models, drive sustainable growth, and shape the future of finance in the digital age. BCX is one such technology partner that is leading the digital transformation charge in fintech with a pleather of digital offerings underpinned by business value creation to help traditional financial services institutions to embrace fintech solutions, forge strategic partnerships, and prioritize trust and security. Helping your financial services organisation to navigate the complexities of fintech with confidence, resilience, and a customer-centric mindset that propels you ahead of the competition and cements your position as “Industry Leader” in this ever evolving fintech landscape.

South African Insurance in the Era of Transformation – Are Insurers Ready for the Challenge?

Post the devastating and unprecedented impact of Covid-19, Insurers are driving toward a greater client retention strategy through a digital ecosystem beyond just risk. In today's rapidly evolving landscape, insurers in South Africa face a dual challenge: not only must they navigate the complexities of traditional risk management, but they must also adapt to the shifting expectations of consumers and regulators alike. According to a 2023 Forrester report, 85% of insurance firms will implement or plan to implement IoT and telematics solutions to drive enhanced risk assessments, leveraging the latest advancements in AI-driven predictive models, and leading data science capabilities to deliver decisions faster on a shared platform. By harnessing the power of AI and predictive analytics, insurers can gain deeper insights into customer behavior, improve underwriting accuracy, and enhance claims management processes.

Insurers will need to redefine their core competencies considering new digital network economies and rebuild their business strategies around them. For example, they will need to partner with other industries (value partnerships, industry convergence) and develop relevant products and services, such as home insurance and security system bundles. They will need to take advantage of digitalisation to integrate and optimize their products and services to improve the customer experience. For instance, they could deliver point of purchase insurance coverage with a mobile app, covering cycling equipment and personal injury protection for cyclers at a resort. Identifying the key drivers of customer behavior to help improve policyholder acquisition and reduce churn. Gathering feedback across broker and customer journeys, to better understand behavior and take action that is in the best interests of all parties involved.

As the BCX FSI Team, our leading data science capabilities enable insurers to extract actionable insights from vast amounts of data, driving informed decision-making and strategic planning. Moreover, our cloud advisory team can advise on multiple modern cloud platforms that enable scalability, agility, and flexibility, enabling insurers to adapt quickly to changing market dynamics and customer preferences. With robust cybersecurity offerings, we ensure that insurers' data and systems remain secure and protected against evolving cyber threats. Additionally, our team of technically skilled technology architects and professionals are dedicated to supporting insurers through every phase of their digital transformation journey, from strategy development and solution design to implementation and ongoing support.

The consequences of inaction are multifaceted for insurers in South Africa, ranging from diminished customer satisfaction and retention rates, taking up to 36 months to win back just 1% of market share today, to decreased operational efficiency and profitability. Moreover, insurers may find themselves ill-equipped to address emerging risks and challenges, such as cybersecurity threats and regulatory compliance requirements, further eroding trust and confidence among stakeholders. In today's fast-paced digital environment, the imperative for insurers to adapt and innovate has never been greater. By proactively leveraging our services as BCX as a trusted technology partner, insurers can future proof their operations, drive sustainable growth, and deliver greater value to their customers in the evolving insurance landscape.

The Bottom-Line

The Bottom-Line is that Technology cannot fix everything, however it can unlock significant business value for financial services institutions when the urgency to act is adhered to. The BCX FSI Team is committed to working together in building futureproof and sustainable digital financial services businesses that serve the experience needs of all their constituents. 60% of South African consumers believe there will be no need for a branch by the year 2027, 86% prefer to conducting day-to-day banking digitally, 73% prefer to use a mobile application, this compared to 13% who preferer internet banking, and 88% would be comfortable with a digital bank if it provided access to a call-centre. We as BCX pride ourselves in our ability to make the South African financial services institutions run better, leading with innovation, driving impactful investment and exploiting opportunities for mutual and inclusive growth. BCX brings about unparalleled experience and a strong track record of value delivery in both service excellence and internal efficiencies, that will help our clients in this industry to exploit opportunities for value across its numerous value chains. We look forward to fostering and growing a mutual partnership with all our customers, one of successful transformation and innovation in meeting the vision for success for all our clients.