An interesting article from insurance and risk experts Aon this week looked at the issue of digital disruption. Specifically, it explored how this disruption is being led by customer experience.
Here we look at this in more detail, and examine what it means for financial services firms.
Disruption - a growing force
The article claims that ‘Disruption is inevitable and no organization is immune’, quoting a McKinsey report that suggests that its current pace is ten times faster than the industrial revolution, at 300 times the scale, and with 3000 times the impact.
While this represents unprecedented opportunities, it also creates new risks.
We have looked before at how agile fintech start-ups are disrupting the financial services industry, and how traditional banks and providers can struggle to keep pace. Our blog on how to exploit digital transformation in banking has more on this.
Innovation vs disruption
‘Innovation’ and ‘disruption’ are often used interchangeably – but are they the same? The article doesn’t believe so.
Disruption, it believes, is typically created by newcomers to an industry. These entrants don’t just take on incumbents at their own game – often, they create an entirely new game. This can leave traditional firms reeling at the about-face that has just occurred in their sector.
Often, by disrupting one industry, firms have an unanticipated impact on others. The article cites the creation of the smartphone by Apple, which revolutionised not only the mobile phone market, but many others – for example, transportation. By putting a portable GPS into the pockets of billions, Apple can be said to have played a key role in the creation of Uber.
Uber’s ability to capitalise on this through its nimbleness and quick adoption of the technology enabled it to become hugely successful in a short space of time.
The role of the customer
Anticipating consumer needs is vital to the type of innovation seen here. Providing a better customer experience has enabled the successful disruptors to flourish.
Data is key to this.
It provides detail on what people are looking for, and underpins the direction of change. Today, reviews and customer ratings are vital – whether in travel, financial services or any other sector.
Our recent blog looks at why social media referrals are now so important in the buying cycle. Both in B2B and B2C, data built on customer experience drives sales.
Harnessing this data – identifying what customers are really looking for – can help you to identify opportunities for disruption and innovation in your own sector.
Compliance is the challenge
For the UK financial services industry, regulatory compliance can be the main obstacle to change.
Often, the ability to disrupt isn’t in doubt – the question is whether firms can do this and adhere to the FCA’s rules.
As Eric Boyum, Managing Director, Technology & Communications Industry at Aon says in the article, “We are at the precipice of unbelievably powerful advancements driven by technology. We no longer have to ask if we can do it, but if we should do it, and if we do, how do we do it responsibly.”
If you want to stay ahead of the competition, you need to be able to innovate – and disrupt – in a compliant way.
The FCA has spoken out in support of greater innovation. Its innovation hub, where firms can propose new ideas for financial products or services, Advice Unit for firms investing in automation and ‘regulatory sandbox’ where firms are encouraged to trial new delivery methods, solutions and services, evidence the regulator’s support for new approaches.
Making sure you stick to the rules when it comes to new approaches is essential.
Want to read more?
Our blog on How to adapt for the digital age: 5 tips for regulated firms shows how you can innovate in a way that’s compliant with FCA or PRA requirements.