Wednesday, October 11, 2017
The power of artificial intelligence (A.I.), robo advisors and predictive analytics has been a trending topic in the financial services industry for months now. The recent public discussions about the promises and problems that come as robotics and A.I. merge to give us robots with anthropomorphic appearances and capabilities have broadened interests in how this type of technology can be used in financial services. One specific area of focus has been how these advances might help identify new opportunities for better serving the consumer while accessing new sources of revenue.
A report published by Javelin in December 2016 entitled Wealth Management in a Mobile First Era: How to Turn Robo Savers Into Robo Investors discusses what shape these value-added services to consumers might take and how financial institutions could possibly monetize these offerings. The main basis for the conclusions drawn in the report is built on the "promise" of Gen Y (defined by Javelin as 25-34). As has been well-documented by now, this generation is the largest one ever and thus will inevitably compose a significant percentage of the US banking population.
The law of large numbers suggests that this fact is not to be discounted. But there are features about this generation that are as interesting, if not more, as its sheer size. Today, Gen X - the generation immediately preceding Gen Y - is the largest income-earning demographic with an estimated total of $7.4 trillion. However, by 2020, Gen Y will match Gen X in this category and, by 2025, Gen Y's total income aggregate will be approaching 50 percent more than what Gen X will be earning.
To monetize this trend, financial services providers will need to build a relationship with the emerging affluents in Gen Y before they are "affluent' but while they are still "emerging." The largest of players in the industry traditionally have the technology and associated services to do this. For them, A.I. and robo capabilities will help further fine-tune their targeting and give them more value-added services to use in growing their relationships with this segment.
Players not in the tier-one segment of the industry will need to use other tools in order to get a piece of the action. This will require being proactive, not reactive. It will require being strategic, not tactical. And most of all, it will require technology – such as AI, robo reporting, et al. This is the reality of recent innovation that only a few commentators discuss; i.e., technology is changing the competitive landscape in the financial services industry. Technology is making it possible for banks and credit unions to compete with other institutions of any size. It isn’t a slam dunk but it is possible, if those not in the league of giants that provide financial services to consumers make the effort.
These two factors – the introduction of continuing advances in technology around AI, data analysis, robo reporting, digital platforms, etc. and the sheer size of the Y and Z generations – are going to make the current demands on the complex systems, the ones that make financial services delivery possible, seem primitive. There are organizations that understand this and are changing the way they test the performance and quality levels of their systems and the offerings they deliver. Yet, there are a surprising number of organizations that seem to think the dated strategies that have served them to date will be just fine in the future.
Those satisfied to count on the present tools to prepare for the future do so not because they are ill-informed or unaware. The tendency to take the "if it's not broken, don't fix it" position persists largely because the undertaking required to introduce the continuous development and continuous testing into an evolving Dev/Ops model is non-trivial. Yet without making the necessary plans and investments to move in that direction, what isn’t broken now will break later – at the worst possible moment and, likely, in the light of day where social and the traditional media can ensure it is well documented. Deploying the next generation strategies that can prevent an organization from experiencing some form of this unpleasantness isn't easy, but longer term it is much less expensive and time-consuming than the impact to a brand that fails to meet the expectations of the its consumers.