The digital transformation of the Financial Services (FS) Sector is redefining the way FS organisations engage with their customers, staff, regulators and many other stakeholder groups. In a sector disrupted by new challengers and new technology, long-established FS companies are having to reinvent themselves to remain competitive and relevant. It is now critical to have the right people, technology and mindset across their organisations to drive transformation and capitalise on their growth potential.
While AI and data analytics can enable future success, customer loyalty and market penetration, leading FS companies recognise that it takes more than just technology to drive innovation and differentiation. Any success that technology enables is only possible through the knowledge, capability and creativity of the people who work within the organisation.
In the third quarter of 2018, PwC conducted our 22nd annual CEO Survey, which included 67 Irish respondents from the banking, insurance, and investment management industries. Based on their responses, we have identified five key findings, which every Financial Services leader based in Ireland must know.
We saw in the global CEO Survey that, when faced with new realities and uncontrollable external challenges, organisations are instead looking at how they can drive revenue growth on their own terms and in ways that they can control. We can see the same trends in the Financial Services research, indicating that FS organisations are moving forward with internally driven productivity agendas.
Organic growth initiatives are the greatest anticipated driver of growth, followed by identifying operational efficiencies and launching new products and services. In an industry synonymous with innovation, it is not surprising to see that 25% of FS CEOs plan to collaborate with entrepreneurs or start-ups compared to 16% of Irish CEO respondents overall. They appear to be planning to stay ahead of disruption by partnering with the sources of disruption.
Furthermore, according to this research, FS leaders are more likely to seek opportunities which lie within innovative collaborations, which can create not only new business models and products to market, but also bring new skills and capabilities into their organisation, which they may have found difficult to hire in a very competitive recruitment arena.
Our report shows that eight out of ten Irish FS institutions believe that Artificial Intelligence (AI) will significantly change the way they do business in the next five years.
Progressive FS institutions expect to use advanced innovative capabilities to unlock new areas of value from the data that they hold. By embedding analytical techniques via AI and machine learning to automate decisions, key staff are freed up to be involved in more value-adding activities and advance the organisation's growth strategy. However, despite these opportunities, Irish FS CEOs are lagging behind their global counterparts when it comes to introducing AI initiatives into their organisation. Just 66% say they have introduced or plan to introduce AI initiatives into their organisation, compared to 77% at a global level.
There is recognition among the FS leaders we polled that automation will replace certain roles that exist in organisations at the moment. Over half indicated their view that AI will displace more jobs than it creates in the long run, although their global peers are not so convinced.
The key question posed by automation and AI is not how many jobs will be replaced, but rather how jobs will change, and how FS will change as a result. The majority (81%) of FS CEOs polled feel that the Irish Government needs to develop a national strategy and policies for AI that take into account how current and future workers can remain and become more employable. Organisations need to be preparing now to ensure that their staff are equipped for a future where they work alongside AI, where they can make the most of the time that AI releases, and to consider strategically how to use advanced data analytics and technology in clients’ and customers’ best interests.
It may be an obvious point, but when it comes to the importance of timely and accurate data, the FS industry is at the top of the pyramid, however, it is striking that the business leaders in this sector are experiencing the same information deficit as their counterparts globally and in other sectors. On average, just 19% of Irish FS leaders said that the information they receive for business decision-making is adequate. There is a large gap between this and the majority believe that key information about important business disciplines such as competitor performance, supply chain, technology trends, customer preferences, business risks and employees is critical to determining future strategy.
The reason for inadequate data, according to the research, is the lack of analytical talent, but there is also the concurrent issue of the increasing volume of data being collected every day. FS organisations face the dual challenges of the cost of turning vast amounts of data into actionable intelligence, and the need for high-quality data analytics to prove compliance in a complex, regulated market. Irish FS CEOs also need to ensure that they are extracting the maximum value out of their data to allow them to leverage new technologies in sustainable ways and drive sustainable growth.
Six out of ten of Irish FS CEOs expect to increase their headcount in the next 12 months. However, this is occurring at a time when skills shortages are highlighted as one of the top concerns for CEOs, both globally and in Ireland. The problem is so acute that 84% of FS leaders say that the main threat to the growth of their businesses is lack of availability of key skills and 74% say the deficit in key skills is prompting higher people costs.
The skills challenge is a key factor stalling progress with emerging technologies, but solving it is not just a matter of hiring or developing IT specialists and data scientists. It is equally important to view the exploration and adoption of emerging technology as a mainstream activity of the organisation. If emerging technology is considered as just a side project of IT, it is unlikely to have any lasting impact on the organisation as a whole.
Banks are struggling to improve their return on capital and many institutions are being forced to restructure and cut costs. In the asset management industry, there is pressure on both margins and profitability. These changes are difficult to implement, therefore sustainable productivity is imperative for the financial services industry both globally and in Ireland.
Any transformation in the financial services sector will require humans and technology to work together in a more integrated way. If machines can take over routine manual tasks and help staff to better perform their duties, new opportunities will be created for institutions and their employees. To do this, employees themselves must be digitally enabled and trained, and organisations must do more to leverage the skills their people already have. There’s no one right way to approach the challenge that technological integration presents, but focusing on these key priorities is an important start: