From inflation, the five interest rate hikes, and the high cost of living, straining pockets, to climate change and natural disasters impacting risk ratings and insurers, the past year has been a gruelling one for both consumers and businesses across Australia. And lest we forget the heightened cybersecurity concerns sparked by recent high profile data breaches and security incidents.
All of this puts the Australian banking, finance and insurance industry in the middle of a perfect storm. External, internal, and often complex forces are driving the need for the country’s financial market to transform. So, what’s on the horizon for an industry that’s powering the economy whilst also needing to continually adapt and evolve as consumer demand grows?
Australian banks have closed over 400 physical branches across the country this year. This is an indicator of growing consumers’ appetite to use digital channels to conduct their banking. According to the Australian Banking Association, 98.9% of customer interactions are now taking place via apps online, and only 13% of payments are using cash.
As digital banking continues to be table stakes for banks, we will see an increased focus on core banking modernisation. As a result of the financial crisis in the last couple of years, some of these initiatives were started in-house and launched without adopting the culture and practices that would ensure success, leading to suboptimal results.
A rise in Banking-as-a-Platform and Banking-as-a-Service is also imminent as core modernisation picks up pace. The concept of composability, which involves deconstructing massive, unwieldy systems into more flexible, modular parts, will be a favourable approach. The approach will work not only with banks’ evolving technology structure but also with their operating models. As banks experiment with modernising services in a more incremental manner, this approach will provide open yet secure access to high-quality data, enabling seamless user experience.
Insurance is a traditionally conservative sector when it comes to technology spends. But things are set to change with more digital transformation projects being initiated. These transformation projects will focus on simplification, enhanced customer experience and cost optimisation. This is evidence of insurance being a growing market in Australia; currently at $81 billion and projected to grow 4.5% each year in the next five years. There has also been a 50% increase in the number of insurtech companies operating in Australia.
In the quest for innovation and gaining competitive advantage, we expect insurance firms to prioritise going to the market with unbundled insurance products to provide more opportunities for customisation and personalised solutions and offerings. For example, there could be motor insurance unbundled with driving insurance and parked car insurance. The driving insurance could be a flat fee or fee per mile. The parked car insurance could be a flat fee with a premium for regularly parking overnight in a high-risk location. This approach also provides for embedding insurance products into other products and services.
We also expect to use cases of connected devices (or IoT, the Internet of Things), cloud, artificial intelligence, machine learning, and data analytics to accelerate the provision of improved and customised offerings, optimise costs, and prevent fraud.
In Australia, multi-generational wealth transfer is expected to rise to $45 trillion through 2045, with beneficiaries in the usually traditionally relationship-based industry being more inclined to digital experiences. Only 13% of beneficiaries will retain their ancestors’ advisors.
Recently, high net worth individuals have expressed dissatisfaction over existing wealth management platforms’ digital experiences. Reasons include friction, making customers increasingly dependent on their advisors. We expect 2024 to see a growth in hybrid models with personalised omni-channel experiences become the interim step where advisory help is available as and when required.
We see the evolution of personalisation, advisor enablement and transformation that require disruptive technologies like generative AI. However, for them to be fully effective, wealth management platforms will need to be stable, flexible, decoupled and composable using high-quality data.
Another factor shaping the wealth management industry is ESG, which plays a greater role in investments. Providing high-quality ESG data readily to investors will enable them to make more informed investment decisions. High-quality, timely and accurate data, along with the automation of risk and compliance, will contribute to the reduction of friction in investment execution.
Banking and financial services will see continued modernisation and digital transformation, growing use of AI and analytics, increasing personalised experiences, and automation of operations compliance in 2024. Successful firms will prioritise delivering customer value in dynamic and disruptive business environments. This will involve removing friction between people and their finances and increasing trust and confidence while maintaining and enhancing financial competitiveness.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.