The Future of Financial Services

The Future of
Retail Financial
Services
A global study of 500 senior banking and
insurance executives by Cognizant, Marketforce
and Pegasystems

3 -
Foreword
Organizations operating in the retail financial
services sector – banks and insurers – need
to work smart and fast to keep pace with their
gadget-happy customers. We may have a 24/7
love affair with our smartphones but it is clear
that in the future we will be sharing information
and making payments via fitbands, cars, TVs and
white goods, as the Internet of Things fuses the
physical and digital worlds. For incumbent banks
and insurers, the challenge will be to leverage the
possibilities of this new hyper-connected world to
embed themselves in their customers’ daily lives.
This partnership between customer and provider
will be a key defense against the growing ranks of
digital newcomers seeking to disrupt and dislodge
incumbents through an array of innovative and
smart new offers.
Cognizant, Marketforce and Pegasystems
combined forces to investigate how the retail
financial services sector is preparing for these
threats and opportunities. Our survey makes
interesting reading: organizations are aware that
serial waves of disruption leave them little option
but to change their operations but, worryingly, we
find too many are moving too slowly, either from
an excess of caution or complacency. This report
should serve as a wake-up call: organizations
need to accelerate their change programs or risk
finding their customers have already moved on.

- 4
Executive Summary & Key Findings
A customer revolution is underway, overthrowing
established business models and fueling
disruption. Financial services organizations
must change how they operate to ensure they
emerge on the winning side. Banks and insurance
companies that cannot keep pace will find their
customers, busy pursuing flawless service models
and smart solutions, have moved on without them
and they are stranded on the wrong side of the
digital divide – from which there will be no return.
For while consumers still have the same financial
needs – to access credit, pay their bills, plan for
retirement – it is no longer clear that they need
an incumbent financial services provider to
fulfill these needs. And customers, it seems, are
increasingly happy to build their own bank, cherry
picking the services they want from an array of
brand-smart, digitally savvy new entrants – and,
in the process, unpicking the value chains that
underpin existing insurance and banking models.
Our global survey shows organizations are working
hard to stay current but remain adrift of many
key innovations, from extreme personalization to
blockchain technology. Worryingly, many of our
surveyed organizations do not expect to achieve
key digital markers for another five years – but by
2020 it may already be too late.
Our key findings show a sector alert to the
challenges and opportunities of ongoing
digital disruption but equally aware that legacy
constraints and a risk averse culture mean they
are trailing innovation pacesetters in fintech.
Increased collaboration between incumbents
and fintech1
will be essential to ensure the best
ideas get the capital, scale and speed-to-market
to continue to delight customers.
Into which of the following categories does your organization
most naturally fit?
Banking
Consumer Finance
Financial Advice
Investment Management
Insurance
Payments
Other
How significant a player is your organization in its principal
market?
Top 10 player
Top 20 player
Top 50 player
Outside the top 50 players
Key Findings
Customer experience: staying relevant
Organizations are scrambling to remain relevant
to new customers: 79 per cent agree that their
organization will have to change its operations
significantly over the next five years to keep pace
with customers aged 18-25.
Customer experience: omni-channel
Today’s customers expect a flawless end-to-
end experience across all channels, yet fewer
than 4 per cent of our respondents say they
have achieved full omni-channel integration.
Organizations are looking to make good on this
expectation, however: by 2020, 89 per cent of our
respondents expect to achieve full omni-channel
integration. This either suggests a massive surge
of investment over the next five years – or an
industry in denial about the scale of the task
ahead.
This omni-channel offer is in a state of flux,
as technology gives rise to new channels and
renders others obsolete: 73 per cent expect to
integrate wearables into their channel strategy
within five years and over the same time frame
70 per cent expect video chat to largely replace
branch appointments. Indeed, six out of ten now
believe a digital-only channel model is viable.
1. Fintech is the shorthand term used to describe the thriving technology start-up sector that is incubating disruptive new models for mobile
payments, money transfers, loans, fundraising and asset management

5 -
Internet of Things: moving from price, to
value
The Internet of Things (IoT) promises another
tidal wave of digital disruption but one that could
provide real opportunities for financial services
organizations to better understand and serve
their customers:
»» 93 per cent agree that finding innovative ways
to provide value-added services to customers
based on data-driven insight will be crucial to
long-term success
»» 86 per cent agree that once consumers
recognize the data potential of the IoT they
will increasingly seek to benchmark their own
behavior against their peers
Wearables: payments on the go
The IoT could transform payments, enabling
frictionless on-the-go payment. Our respondents
predict rapid take-off as consumers embrace the
convenience of payment-enabled wearables: 20
per cent expect it to be common for consumers
to make financial transactions using wearables
within one year, 59 per cent within two years and
91 per cent within five years.
Other connected devices will also be payment-
enabled by 2020: 87 per cent expect it to be
common for consumers to make financial
transactions using Smart TVs and 68 per cent via
home appliances.
Insurance Rebooted: from grudge purchase
to long-term partnership
This has clear implications for insurers, enabling
them to not only improve underwriting, manage
risk and offer dynamic pricing but also build
long-term relationships with customers in what
could be a once-in-a-generation opportunity to
move beyond the annual grudge renewal. More
than half our respondents expect the majority
of insurance policies in Household and Health
lines to be dynamically priced based on data from
connected devices within five years, rising to 77
per cent for Motor carriers.
Indeed, there is the potential for a complete
rethink of the relationship between insured and
insurer, with data providing the bedrock of a
partnership where both parties work together to
make life better. 80 per cent of our respondents
believe most insurers will regularly provide
personalized risk information to their customers
and that pre-emptive risk management, rather
than just providing compensation, will become
core to the insurance value proposition by 2020.
Personalization: the customer of one
In an age of extreme customer expectations,
organizations need to use accelerated data flows
to offer personalized experiences and frictionless
service. This is on corporate agendas, with three-
quarters of our respondents expecting to offer
full personalization, and 83 per cent planning to
predict individual requirements within five years.
Yet legacy systems remain a roadblock to full
personalization: 85 per cent said a lack of
single customer view prevented a high level of
personalization and more than eight out of ten
are struggling with data processing, analytics and
access to sufficiently rich customer data.
Securing access to this rich data will require an
understanding that data is now a commodity,
which consumers guard and monetize on their
terms. Organizations will need to have strategies
to access data and engage with the rise of the
Personal Data Store: 79% believe personal data
stores will be commonplace within five years.
Self-service customers
Systems must also be readied for the rise of the DIY
customer, with connected consumers increasingly
keen for self-service options in their dealings with
financial services providers. Yet just 38 per cent of
our respondents can meet a majority of customer
requirements through automation as 94 per cent
say legacy systems are the main bottleneck in
meeting customer demand for full self-service.

- 6
When self-service options stumble, customers fall
back to the safety net of the contact center, where
computer-generated recommendations are seen
as a significant solution to Customer Experience
(CX) problems: 85 per cent agree that increased
use of computer-generated recommendations
in contact centers would reduce errors and
ultimately improve customer outcomes. Yet,
despite this compelling business case, our findings
show budgets have not yet been unlocked, with
just one in five making extensive use of computer-
generated recommendations to guide contact
center staff.
Avatars, robots and Siri
Customers are increasingly happy to engage with
non-human interfaces to resolve their service
issues: 76 per cent agree the widespread use
of virtual assistants such as Siri on the iPhone
means customers are more willing to engage with
automated assistance and advice.
This could be a profound change: almost three-
quarters of our respondents agree that in the
future customers will interact with a human-like
avatar until they reach the point of needing to
speak to a real person.
Blockchain: on the radar
Not only must banks and insurers battle rising
customer expectations and fierce competition
from new entrants but they also face a
possible extinction-level threat from blockchain
technologies. 60 per cent believe that blockchain,
a distributed public ledger which can securely
record any information and the ownership of
any asset, will prove to be the most significant
technology development to affect financial
services since the Internet and 45 per cent think
the combination of blockchain wallets and peer-
to-peer (P2P) lending could herald the end of
banking as we know it.
While few companies are taking action yet –
indeed 35 per cent of our respondents have
never heard of blockchain – those who do have
some knowledge of it see rapid adoption among
consumers:
»» One in five (22 per cent of our respondents)
expect it to be mainstream practice for
consumers to hold most of their financial
assets in a blockchain wallet within five years,
rising to 55 per cent in ten years and 71 per
cent in fifteen years
»» 12 per cent expect the settlement of insurance
claims using IoT data, blockchain and smart
contracts to be mainstream practice within
two years and 74 per cent expect it to be
mainstream by 2025
»» 42 per cent say it will be mainstream for
consumers to hold their personal data,
including ID, in a blockchain within five years
An appetite for innovation?
This all suggests that financial services
organizations continue to face relentless and
significant disruption. The response must be
ongoing innovation in order to keep pace with
new entrants and ever-changing customer
behaviors. Yet this is an industry that is averse to
the kind of risk taking that fosters true innovation:
only 30 per cent of our respondents said their
organization would tolerate a 50 per cent failure
rate on innovation pilot projects and more than
six out of ten believe their governing board should
set the failure rate for innovation pilots much
lower, below 30 per cent.
This runs counter to the fact that respondents
overwhelmingly agree that innovation is essential
to keep pace with customers in a changing world:
98 per cent agree that the key to successful value
proposition innovation in retail financial services
is to think beyond traditional industry boundaries
to identify new ways of meeting consumer
needs. True innovation is a mindset that doesn’t
merely extrapolate today but completely rethinks
tomorrow. Achieving this will mean new ways of
working, of designing systems and of leadership.

7 -
Towards an Omni-channel Customer Experience
The Internet of Things – The Next Phase of Digital
Disruption
The Future of Personalization
The Future of Customer Service
Is Blockchain the Next Big Disruption?
The Innovation Imperative
Conclusions
8
13
19
23
28
33
38

- 8
Chapter One
Towards an Omni-channel Customer Experience
Research suggests customer-centric rhetoric
is, at last, translating into improved customer
satisfaction: one customer service index found
that customers of UK banks and building societies,
for example, are more satisfied than they have
ever been2
, while beleaguered insurers have seen
a welcome rise in Net Promoter Scores, if not yet
loyalty3
.
There is, however, no scope for complacency as
customer expectations, shaped by disruptive
digital frontrunners, outstrip the capacity of
institutions to keep pace. Research suggests too
many banks are out of touch with what customers
really want: one survey found 62 per cent of retail
banking executives believed their bank offered
excellent service compared to just 35 per cent
of customers4
. And even when financial firms
appear to be getting it right, customers are still
willing to stray in search of something new or
better as customer experience initiatives, once
cutting-edge, quickly become yet another hygiene
factor for the connected customer5
. And those
customers are online, on the phone, mobile and
in-branch – and expect their financial services
providers to keep pace with their unique multi-
touch-point journey.
This matters because customer inertia has been
replaced by customer activism: dissatisfied
customers not only share their experiences via
social media but also show growing propensity
to switch providers. Incumbents are at the sharp
end of the new switching economy as digitally-
savvy new entrants snap up restless customers6
.
Millennials: Generation Disruption
This trend will only intensify as Millennials, often
referred to as Generation Y and loosely covering
those born between 1980 and 2000, come into
their own, as trendsetters and spenders: research
by Standard & Poor’s expects this will hit from
2020 when, in the US alone, Millennials will have
annual spending power of US$1.4 trillion and
represent 30 per cent of total retail sales. The rise
of this influential generation should put incumbent
financial institutions on notice: Millennials not only
have an appetite for disruptive new technologies
but also an affinity with brand-savvy digital leaders
with the capacity to innovate, excite and engage.
Low fee peer-to-peer models and crowdfunding
platforms clearly strike a chord with a generation
hard hit by the financial crisis and subsequent
recession.
The Millennial Disruption Index, a three-year
study of industry disruption conducted by Viacom
subsidiary Scratch, found that banking was most
vulnerable to disruption from this, the largest
generation in American history. Some of the
findings make bleak reading for incumbent banks
struggling to stay relevant: one in three said they
were open to switching banks in the next 90 days;
a similar proportion predicted they wouldn’t need
a bank at all in five years’ time; and an alarming
three-quarters said they would be more excited
by financial services provided by Google, Amazon,
Apple,PayPalorSquarethanfromtheirownbanks.
This suggests incumbents cannot underestimate
the threat posed by these digital leaders when it
comes to the Millennial customer.
agree that their organization
will have to change its
operations significantly over
the next five years to keep pace
with customers aged 18-25
79%
2. UK Customer Satisfaction Index (UKCSI), Institute of Customer Service, October 2015
3. Consumer Intelligence report, published in Insurance Times, February 2015
4. Banking Redefined, IBM, 2015
5. Few people display unwavering loyalty to their provider, and two in five banking customers state they would consider switching their account to
another provider, according to a 2014 report from YouGov
6. A Uswitch.com survey found that satisfaction with big banks is falling across the board allowing new entrants to sweep up votes
Seven years on from the financial crisis and under the continued glare of regulatory
scrutiny, financial services organizations are working hard to make good on
promises to put the customer first.

9 -
Our respondents clearly recognize the growing
power of this generation and the challenge of
meeting their still-evolving needs: eight out of ten
agree that their organization will have to change
its operations significantly over the next five years
to keep pace with customers aged 18-25.
There is no shortage of research into the Millennial
customer and while the picture will continue to
evolve as the generation matures, there are some
clear preferences:
»» For the generation that sleeps with their
smartphone to hand, technology solutions
must be user-friendly, secure and reliable –
always
»» Value for money really matters: Millennials
shop around and will trade data for discounts
»» Self-service is increasingly preferred for speed
and convenience
»» Human interactions still count and should be
personalized and authentic
For financial services organizations, seeking to
emulate the customer-obsessed experiences
pioneered by digital leaders like Amazon, this
“Millennialization” trend has clear operational
implications:
»» Flawless omni-channel service will increasingly
be a hygiene factor as customers fuse their
online and physical experiences
»» Product and service innovation will be
essential as Millennial customers reject high
fees unless they see clear value in return
»» Technology solutions must support self-
service, whether the customer is online or in
the branch
»» Recruitment, training and employee
reward structures must focus on delivering
genuine personal interactions, with front-
line staff supported by computer-generated
recommendations and holistic real-time
customer data
Millennials may find digital their natural comfort
zone but they do still seek out human contact,
particularly in moments of financial stress or when
making more sophisticated decisions7
. Indeed,
some research suggests Millennials, particularly
those aged 18-24, place real value on talking to
real people: one survey found the availability of
real people to talk to topped brand and quality
of digital services when selecting an insurance
provider8
.
Millennials: the “omni-generation”
For this reason, financial institutions seeking to
courtthisgenerationmustprovideaflawlessomni-
channel service. Other industries have already
uncovered the bottom-line benefits of providing
a seamless transition between channels. In the
retail sector, for example, shoppers who buy in-
store and online have a 30 per cent higher lifetime
value than those who shop using only one channel,
providing a real incentive for retailers to invest in
technology solutions that enable customers to
convert on any channel9
. Financial institutions
are not immune to these trends: one global study
found that omni-channel customers not only give
their bank a higher Net Promoter Score but also
hold more products with their primary bank than
digital-only or branch-only customers.
This virtuous circle of engagement cannot be
ignored by financial services organizations as they
seek to retain market share in the face of fierce
competition. Research found that globally more
than one third of customers bought a new banking
product at a bank other than their primary bank
in 2014 and this rate of invisible defection will only
accelerate as digital start-ups with smart solutions
make it easy for customers to defect. In response,
incumbents will need to build a flawless omni-
channel offer: seamless, simple and personal
experiences with a smart digital component that
acts as a gateway to other products.
7. A survey by Capital One Investing found Millennials seek out financial advisers in times of market volatility
8. Born Yesterday: Will Millennials Disrupt the Insurance Industry? Pegasystems, 2015
9. IDC 2015 from Google

- 10
How much progress has your organization made in achieving
a seamless customer experience across all available
channels?
Already achieved full
omni-channel integration
Integrated most
channels but not all
Integrated a few
channels but not all
We have not integrated
any channels
Not applicable - we have
only one channel
Fewer than 4% have achieved full
omni-channel integration...
Yet our survey finds this is still a work in progress
for most retail financial services organizations: just
under 4 per cent of our respondents claim they
have achieved full omni-channel integration. And
while 85 per cent have integrated at least some
channels, there is still a resistant 10 per cent that
have yet to integrate any channels at all, leaving
their customers exposed to inconvenient and
inconsistent service. This is already a frustration
for customers: one study found that customers
typically use two communication channels to
resolve customer service issues and more than
half said they frequently received conflicting
information from the different channels10
.
...but in five years’ time 89% expect
to get there
Financial firms are clear, however, that this
is not sustainable and the vast majority are
now investing heavily to close the gap with the
frontrunners: more than half (53 per cent) of our
respondents believe they will achieve full omni-
channel integration within two years and 89 per
cent will get there within five years.
How soon do you expect your organization to achieve full
omni-channel integration?
Within 6 months
Within 1 year
Within 2 years
Within 5 years
Within 10 years
Never

New channels, new customers
Theseinvestmentsmustincludenewandemerging
channels in order to stay relevant to the on-the-
go consumer. Although the smartphone remains
the consumer’s device of choice, and is likely to
remain so for some time, market penetration
of wearable devices is accelerating: worldwide
shipments topped 76 million in 2015, up 163.6 per
cent on 2014 and will hit 173.4 million in 201911
.
This is not just a consumer-led trend: by 2018,
Gartner estimates that two million employees will
be required to wear health and fitness tracking
devices as a condition of employment.
For now, consumer adoption of wearables is
dominated by fitness trackers, largely because of
their focused use and accessible price points, but a
tipping point is approaching: smart wearables are
forecast to take the lead in 2018 as advancements
in user interface and functionality drive uptake.
expect to integrate wearables
into their channel strategy
within five years
73%
These forecasts should serve as a wake-up call
for financial services organizations. Just nine per
cent of our respondents offer wearable devices
as a channel and a further seven per cent have
pilots under way. This is clearly on the industry’s
0 10 20 4030
10. The Millennialization of Customer Service, Nuance White Paper, 2015
11. International Data Corporation Worldwide Quarterly Wearable Device Tracker, September 2015
0 10 20 40 50 6030

11 -
radar, however: almost three quarters (73 per
cent) expect to have integrated wearables into
their channel strategy within five years.
Frontrunners are already trialling wearable devices
to communicate and serve their customers: in
Singapore, for example, Mercedes Benz Financial
Services (MBFS) has launched an app for Apple
Watch allowing customers to receive up-to-date
information on their finance contracts through a
simple glance at their wrist, including the number
of remaining payments on an instalment plan
and the next payment due date. There is a clear
appetite for this, with nearly one in three of MBFS’
customers currently active users of this wearable
account management tool. Financial services
organizations that fail to keep pace with customer
appetite for smart wearables could find it is a
competitor that steals this opportunity for a 24/7
connection with the customer.
More clicks, less bricks
Customers, even Millennials, still crave the human
touch when managing their finances yet the bricks-
and-mortar branch and the much-despised call
center too often leave them dissatisfied by their
experiences. Bain & Co estimates that 50 – 70 per
cent of call volumes at a typical bank are bad or
avoidable12
.
Many routine interactions work better and cost
less when handled digitally: certainly the uptake
of online and mobile banking suggests customers
like the convenience of having their finances at
their fingertips. Indeed, banks that encourage
branch use may actually be driving customers
away: in the US, frequent branch use correlates
with an almost three times higher likelihood of
switching than infrequent use13
.
Technology can be used to reduce branch visits:
Barclays, for example, is trialling the use of mobile
check deposits, which allows customers to pay
in checks by sending a digital image of the check
from the camera on their smart device. One
survey suggests 75 per cent of consumers would
welcome the options to deposit checks using their
smartphones14
.
expect video chat to largely
replace branch appointments
within five years
70%
Video chat, a channel that customers have
embraced in their personal and work lives, can
reduce branch visits while still delivering human
contact: Dutch bank ABN Amro, for instance,
has been advising on and processing mortgages
via webcam so that customers do not have to
physically hand over documents at a branch,
while Barclays is rolling out a 24/7 video chat
banking service that lets customers communicate
with employees from their mobiles, tablets or
laptops. This could lead to a rapid drop-off in
branch use as our respondents see video chat
going mainstream within five years: almost one
third expect video chat to largely replace branch
appointments within two years and 70 per cent
expect this to happen within five years.
believe a digital-only channel
model is viable64%
Indeed, as new human-centered digital channels
emerge, the long-predicted demise of the branch
could enter its final stages. A digital-only channel
model looks increasingly viable according to 64
per cent of our respondents. In the UK, digital-only
start-up Atom has received regulatory greenlight
from the Prudential Regulation Authority (PRA)
and Financial Conduct Authority (FCA): there will
be no branches, with Atom operating entirely
through an app on a smartphone.
12. Customer Behaviour and Loyalty in Retail Banking, Bain & Co, November 2015
13. Bain & Co, November 2015
14. Survey by Intelligent Environments, July 2013

- 12
Given the lower cost to serve and the reduction
in petty frustrations that can arise from branch
interactions, those that back a pure digital offering
could start to open up clear blue water between
those still tethered to a bricks-and-mortar
network. Given the pace of change, institutions
must be prepared to have all models on and off
the table.
Operational next steps
Our findings make clear that financial services organizations have a long way to go to meet the omni-
channel expectations of today’s connected customer. For the 96 per cent that fall short of full omni-channel
integration, the key message must be to start now and work fast. And that work must target true omni-
channel integration rather than just adding new channels to the existing muddle: the projected proliferation
of connected devices and customer channels meansmulti-channelstrategies will be increasingly unworkable.
Organizations must build a single architecture channel strategy that combines consistency with flexibility in
order to deliver a seamless customer journey across existing, emerging and yet-to-be conceived channels.

13 -
Chapter Two
The Internet of Things – The Next Phase of Digital Disruption
In 2016, 5.5 million new things will get connected
every day, with 6.4 billion connected things in use
worldwide, up 30 per cent from 2015. By 2020,
there will be 20.8 billion connected things15
. And
this is only the beginning: Cisco estimates that
99.4 per cent of physical objects that may one day
be part of what it calls the “Internet of Everything”
are still unconnected.
This tide of data opens up opportunities for
financial services organizations to find new ways
to understand and engage customers. Asking
the right questions of the right data will allow
companies to transform the customer experience
by anticipating their needs, personalizing products
and providing dynamic pricing. Digital leaders
such as Amazon, Google and Uber understand
the power of data, and they use its insights to
deliver smart and intuitive technology solutions
and superlative customer experiences. It is one
reason why their entry into financial services is so
feared.
While incumbents are not defenseless - banks and
insurers have their own treasuries of customer
data - unless they keep pace with the IoT , they will
be blind to much of the data their customers are
generating as they move through this new hyper-
connected world. As data-driven insights power
business transformation, from risk prevention to
hyper-local personalization, the gap between the
“data haves” and “have nots” will widen, marking
a clear divide between the winners and losers of
the IoT age.
agree that finding innovative
ways to provide value-added
services to customers based
on data-driven insight will be
crucial to long-term success
93%
Yet just as data goes into hyperdrive, so consumers
are rethinking the data free-for-all. Unnerved by
high profile data security breaches and armed by
increasingly stringent data protection regulation,
customers will increasingly only allow access to
their data when they trust a counterparty and
see clear value in return. Banking and insurance
providers cannot afford to be shut out of the
data marketplace – they must build trust through
transparent policies and robust systems and find
new models to motivate customers to share data.
Few disagree with this: nine out of ten of our
respondents agree that finding innovative ways to
provide value-added services to customers based
on data-driven insight will be crucial to the long-
term success of their organization.
The wearable devices market already shows,
however, that customers are comfortable sharing
data when its collection is in tune with their own
personal goals. Mass-market apps like Jawbone
UP59 and Fitbit60 demonstrate consumers will
wear gadgets to capture a wide range of data
points about their day to day activities in return
for insights into their personal health and fitness
and that of fellow community members. Indeed,
benchmarking is a popular way to engage
customers and incentivize positive behaviors:
Jawbone, for example, reports that when
community members have three or more friends
on their team, they move at least 10 extra miles a
month.
agree that once consumers
recognize the data potential
of the Internet of Things, they
will increasingly seek to
benchmark their own
behaviour against their peers
86%
A new hyper-connected world is emerging. A torrent of machine-to-machine (M2M)
communication is now being added to the vast volumes of data generated by our
digitised payments, social media postings and web movements.
15. Gartner, November 2015

- 14
This data-for-insight exchange offers a clear
model for the financial services industry in the
age of IoT, allowing banks and insurers to embed
themselves in the lives of customers by providing
meaningful communication that adds real value
and promotes engagement. Indeed, peer-to-peer
benchmarkingisexpectedtobeaconsumer-driver
trend that will facilitate data sharing: certainly 86
per cent of our respondents believe that once
consumers recognize the data potential of the
IoT they will increasingly seek to benchmark their
own behavior against their peers. Gamification
techniques will make this form of data-sharing
enticing and engaging, allowing drivers to use
data from in-car telematics to rank their driving
against other policyholders or householders to
use data from smart energy meters to compete on
energy-efficiency. As data becomes a commodity,
those organizations that can offer real value to
consumers in return for access to their data, be
it insights into their own behavior or that of their
peers, will be rewarded by joining the “data haves”
of the future.
Pay-as-you-go, any time, any where
The IoT is building a world where everything,
from the clothes we wear, to the cars we drive,
the gadgets we use and the buildings we live
in, are connected and transmitting data about
our routines, our habits and behaviors. This
proliferation of connected devices has clear
implications for enhanced payment capabilities,
enabling frictionless payments for consumers on-
the-go through near-field communication (NFC)
facilities or at home through smart appliances.
This is still an emergent trend. Cards remain the
go-to payment option but there’s clear appetite
for more convenient options than chip-and-pin as
consumer comfort with contactless cards grows16
.
Payments via mobile phones are already growing:
according to one survey, the number of people in
the US using their phones to pay for goods and
services at the point of sale will continue to climb
steadily, with 2016 set to see significant growth
withthetotalvalueofmobilepaymenttransactions
expected to surge 210 per cent as nearly one in
five smartphone users make mobile payments17
.
As contactless and mobile payments become
mainstream, it will allay consumer caution about
making payments using other connected devices.
Wearable fitness trackers are an obvious entry
point. In the US, fitness tracker Jawbone has
already linked one of its devices, the UP4, with
mobile payment capabilities through a link-up
with American Express. Disney’s MagicBand,
meanwhile, is an example of a wearable success
story: the contactless wristband for its theme
parks and hotels can be used as a room key,
theme park ticket and payment account as well as
enabling personalization of the guest experience.
Apple Watch already acts as a portable payment
device in the UK and the US through Apple Pay.
Further ahead, a Canadian start-up is developing
the Nymi Band, currently undergoing pilot testing
with MasterCard, using biometric security based
on the customer’s unique heartbeat, a solution
that could overcome the latent security concerns
of consumers.
believe it will be common for
consumers to make
financial transactions using
wearables within five years
91%
It is not just fitbands and smart watches that could
have a payments capability. Smart garments
could also be heading to the high street as the
technology emerges from the testing phase and
is promoted through uptake by athletes and
coaches18
. Indeed, Barclays has already teamed
with Lyle & Scott to develop a NFC payment
capability built into the sleeve of a jacket.
16. According to the UK Cards Association (Kevin Jenkins, MD UK & Ireland at Visa Europe in The UK Cards Association press release, September 2015),
the number of contactless transactions in September 2015 topped 103.2 million, up 220 per cent over the year, with touch-to-pay now being
described as the “new normal” in the UK
17. Emarketer, October 2015
18. Gartner, November 2014, believes smart garment shipments will grow from 0.1 million units in 2014 to 26 million in 2016

15 -
“How soon will it be common for consumers to make financial
transactions using the following?”
Within 1 year Within 2 years
Within 5 years Within 10 years Never
Thisisearlydaysbutourrespondentspredictrapid
take-off as consumers embrace the convenience
of payment-enabled wearables: 20 per cent
expect it to be common for consumers to make
financial transactions using wearables within one
year, 59 per cent within two years and 91 per
cent within five years. Banks are ahead when it
comes to wearables: 26 per cent of banks are
already using or piloting wearables as a customer
communication or service channel compared to
just seven per cent of insurers, even though there
are clear benefits to insurers to offer pay-as-you-
go cover using data from wearables.
Given limited adoption to date, this suggests
the field remains open for the industry to regain
the payments initiative and establish an early
mover advantage in wearable payments for the
connected customer.
Into the smart home
expect it to be common for
consumers to make
financial transactions using
Smart TVs within five years
87%
In the home, meanwhile, tech giants are already
rolling out smart home kit, including intelligent
thermostats, smart meters, smoke alarms and
lighting systems while white goods manufacturers
are adding sensors to washing machines, dryers
and fridges. Many households already have a
Smart TV – one with built-in internet connectivity
allowing it to access a range of online services –
and already tech companies are developing allied
payment services. Samsung, for example, has
developed a TV version of Samsung Pay for its
Samsung Smart TV, allowing owners to associate a
credit or debit card with the payments service so
if they see an app, a game or other item they just
press the “Pay Now” button and enter a security
pin to purchase it from the comfort of their sofa.
Our respondents clearly see this appealing to
consumers: while just 12 per cent expect this to
be a common feature within one year, give it a
further 12 months and more than half expect it
to be common for consumers to make financial
transactions using Smart TVs, rising to 87 per cent
within five years.
think it will be common to
make payments through
smart appliances within five
years
68%
Payments via white goods appliances and smart
home controllers will be slower to take off: only 5
per cent expect these to be common within one
year, rising to 23 per cent within two years and 68
per cent within five years. Even so, the fact that
more than two-thirds of our respondents expect
consumers to be commonly making payments
through a smart appliance by 2020 is a sign of just
how quickly the IoT could revolutionize all aspects
of daily life.
Banks must be alert to these developments: if a
bank’s app rather than an inbuilt payment system
is used when your smart refrigerator orders milk,
the bank owns the data and the relationship,
Connected
white goods/
smart home
controllers
Wearable
devices
Connected cars
(e.g. at petrol
stations)
Smart TVs
0
20
40
10
30
50

- 16
creating new opportunities to gain insight, engage
customers and remain relevant.
Insurers: building new relationships
For the under-pressure insurance industry, the
IoT will undoubtedly be a data shot in the arm. A
sector that has seen margins shredded by a fire-
storm of price-driven competition and spiralling
claims costs is being presented with a one-time-
only opportunity to reinvent itself: rather than
the annual renewal being a grudge purchase
dominated by price, data inflows from the IoT will
allow insurers to position themselves as trusted
partner of the policyholders, providing data-driven
insights to better manage risk, identify unmet
needs, charge by the minute while on-cover and
work hand-in-hand with policyholders to improve
quality of life.
expect the majority of motor
insurance to be dynamically
priced within five years
77%
Data flows from sensors embedded in vehicles,
household appliances, buildings and personal
fitness trackers will allow insurers to finely
calibrate their risk exposure and offer dynamic
pricing based on actual customer behavior.
For an industry that has been slow to capitalize
on the digital revolution, creating openings for
tech-savvy P2P insurers to carve out market
share, the compelling bottom-line benefits of
improved underwriting and reduced claims
costs are expected to spur rapid investment in
IoT initiatives. Our survey shows huge appetite
to use M2M data to overhaul pricing: more than
half expect the majority of insurance policies in
Household and Health lines to be dynamically
priced within five years, rising to 77 per cent for
Motor carriers. Motor’s head start is a reflection
of its early adoption of telematics. A number of
carriers already have innovative telematics offers,
which are growing in popularity with drivers as
a means to reduce costly premiums or reduce
costs of running a car: telematics-driven Discovery
Insurance in South Africa provides fuel voucher
rewards to customers based on data about their
driving.
How soon do you expect the majority of insurance policies
to be dynamically priced based on data from connected
devices?
Health insurers are also catching on to the benefits
of using data from fitness trackers to reward
policyholders for healthy lifestyle choices. South
African health insurer Vitality is already providing
perks to customers who use the health app Move.
believe most insurers will
regularly provide personalized
risk information to their
customers by 2020
80%
Yet the success of these initiatives goes beyond
data-for-discounts. The data from fitness trackers,
telematics and other IoT devices presents insurers
with an opportunity to engage customers on a
regular basis rather than the once-a-year renewal
or the stress-point of a claim. They could, for
example, provide personalized risk information:
Motor Household Health
0
20
40
10
30
50

17 -
crime patterns in the customer’s neighborhood,
traffic black spots on regular routes or increased
health risks from lack of activity. In the US,
Ohio-based Progressive uses a telematics offer,
Snapshot, that beeps when customers make a
hard brake, providing instant feedback to help
customers improve their driving. With Snapshot
reportedly boosting recruitment and retention
rates – with a retention uplift of 40 per cent for
those that earn a substantial discount19
– it’s clear
that the feedback of data to customers can deliver
real wins for insurers on the renewals front-line.
Our respondents certainly see this as an attractive
model to engage customers: 80 per cent of our
respondents believe most insurers will regularly
provide personalized risk information to their
customers by 2020.
agree that within five years,
pre-emptive risk management
will become core to the
insurance value proposition
80%
By sharing the insights gleaned from a customer’s
day-to-day behaviors, insurers will be able to
“nudge” customers towards behaviors that reduce
their daily risks, adding real value to the insurer-
insured relationship. Insurers would be able to
inform drivers, for example, that their favored
route to work has black ice and recommend safer
alternatives, inform a driver when it is time for
an oil change, or use data from a fitness tracker
to advise a diabetic to test their blood sugar. By
embedding themselves in the policyholder’s life
through valued interactions and insight, insurers
will be able to disrupt the cycle of churn that has
so undermined the profitability of many lines. Our
respondents clearly see data-sharing as a key to
building a sustainable insurance model: eight out
of ten agree that within five years, pre-emptive
risk management, rather than just providing
compensation, will become core to the insurance
value proposition.
Financial Services and the Internet
of Things: beyond payments
It is not just insurers that will have the potential to
re-imagine the relationship with the customer in
the IoT age. Bankers, too, will be able to use the tide
of new customer data to better understand their
customers, offer personalized financial advice:
a holistic view of customer spending would, for
example, allow banks to provide highly relevant
financial advice based on real understanding of a
customer’s spending habits.
Location data has the potential to reduce fraud
by enabling banks to use data from multiple
points to authenticate transactions or automate
time-consuming paperwork: flagging location
data when viewing properties, for example, could
trigger autofill data into a mortgage application
or trigger a claim at the site of a road accident.
Beacons in bank branches could help improve the
branch experience for customers, ensuring more
timely assistance and a seamless flow through the
premises, while analyzing customer propensity to
use self-service kiosks and ATMs. IoT data could
also be used to better understand collateral and
manage lending risks: data from in-car telematics
could be used to fine-tune the terms of a car loan
while readings from fitness trackers might expose
when customers are engaged in activities that are
detrimental to their financial health, be it gambling
or drug taking.
There will need to be clear privacy policies and
opt-ins for organizations to access the customer’s
day-to-day lives: products and practices must be
designed with customers’ best interests at heart,
and data collection must always be transparent
and systems secure. Get this right, and IoT-
enabled financial services organizations will be
able to take the customer relationship to the next
level.
19. Progressive CEO Glenn Renwick, November 2013

- 18
Increased data inflows from IoT could transform the relationship between financial services providers and
their customers. Yet it is not the volume of data that counts: it is the ability to use this data in real time to
make better business decisions now and action customer experience improvements now to make every
moment in the customer journey count. When it comes to the IoT, the operational focus for banks and
insurers should be adding value through real-time analytics and decisioning of the data they already have
– which is already too vast for most organizations to make sense of – before they seek to hoover up more
data from the ever-expanding data universe.

19 -
Chapter Three
The Future of Personalization
We are Generation Selfie and, encouraged by
our experiences with digital leaders Amazon
and Netflix, we increasingly expect the banks
and insurers we interact with to have operating
models in place that recognize us as individuals
and personalize our unique customer journey
accordingly.
Yet too many organizations still rely on blunt
customer segmentation tools, based on income,
age and postcode, which fail to recognize the
diversity of preferences and behaviors of their
customers. Too often interactions with financial
services involve customers having to repeat
the same information and organizations failing
to provide a one-stop service across different
products or to understand a customer’s history.
These disjointed experiences not only leave
customers frustrated by poor service but also
expose how little they are understood or valued
as an individual by their financial services provider.
Littlewonderstart-upscangaintractionbytreating
customers as valued partners: personalized
marketing and the use of crowdsourcing for
product ideation ensure customers feel a valued
part of the experience rather than just another
number.
Customize to survive
Insurers have been trapped in a price-driven war
for market share: with some markets already
teetering on the margins of profitability, there is
nowhere left to go. A sustainable model for the
future must seek out higher margins and capitalize
on this one-off opportunity to shift from an annual
grudge purchase towards a valued and long-term
relationship.
Banks face similar pressures as new entrants
continue to eat away at core business, from
payments to loans, unbundling traditional banking
value chains. To retain customers in the face of this
threat, incumbents need to position themselves
as life-long partners able to offer personal and
valued insight to help customers navigate their
increasingly complex financial lives.
It is not just about retaining the customers you
already have: effective personalization can also
deliver top-line growth. When Dutch health insurer
Agis deployed real-time website personalization to
improve the relevance of content for each visitor
it achieved a 24 per cent uplift in conversion. This
model is now being used to improve telephone
sales by dynamically offering a different phone
number to connect customers to the most
appropriate call agent their individual needs, with
existing customers presented with a different
phone number, answering the customer desire
to be recognized by the corporations they are
already invested in.
One third of our survey respondents
expect their organization to offer full
personalization within two years and three-
quarters within five years...but 24 per cent
have no plans to offer this
Financial services executives are clear they cannot
ignore customer demand for personalization:
one third of our survey respondents expect their
organization to offer full personalization within
two years and three-quarters within five years.
Worryingly, however, just under one quarter (24
percent)havenoplanstoofferfullpersonalization:
The Internet brings the world to our fingertips and makes us kings of all we survey:
we curate our own news feeds that reflect our own interests and prejudices, our
cameras are turned not on the world but ourselves, we broadcast the minutiae of
our daily lives and log our steps, our heartbeats, our sleep.

- 20
thisresistancecouldprovedamagingascustomers
flock to competitors offering precision calibrated
“customer of one” experiences.
When do you expect your organization to have moved
beyond customer segmentation, into the following?
Full personalization
Prediction of individual
requirements/behavior
Within 5 years
We have no plans to achieve this at present
The data inflows required to deliver this level
of customization will transform all interactions,
enabling organizations to predict individual
requirements and behaviors so that each touch
point anticipates next steps to create a flawless
end-to-endservice:40percentofourrespondents
expect to predict individual requirements within
two years, with 83 per cent expecting to achieve
this within five years. Again, it seems the CX gap
between those that can anticipate a customer’s
needs and the 17 per cent that have no plans to
achieve this will be telling in the years between
now and 2020.
Up close and personal with
customers
expect to be using data from
wearable devices in just two
years, rising to 68% within
five years
38%
Building this highly detailed picture of the
customer, and just as importantly acting on that
data in real-time, will require access to data from
the devices customers have with them the most:.
Wearable devices that are with the customer
always and everywhere are expected to show the
most rapid take-off in terms of customer profiling:
38 per cent expect to be using data from wearable
devices in just two years, up from just 5 per cent
now and rising to 68 per cent within five years.
Meanwhile, given our love affair with our cars,
the connected car is expected to become a data
juggernaut in the years to come, providing insight
not only into our movements but also our attitudes
to risk, through our driving behaviors, and also
our preferences, through the music we download,
the shops we visit and the on-the-go payments
we make. Inevitably given the pace of the renewal
of cars already on the road, it will take longer for
financial services companies to access data from
connected cars: 22 per cent expect to use data
from connected cars to profile customers in the
next five years, rising to 59 per cent in five years.
Insurers have a clear lead over banks here: 21 per
cent are already using data from connected cars
and 44 per cent will be in two years’ time, whereas
none of our surveyed banks are currently using
this data and only 11.5 per cent will be two years
out.
Smart hubs, still an emerging home technology,
will also take time to go mainstream: one in five
of our respondents expect to use data from
smart home hubs in the next two years. This
quickly accelerates, however, as adoption of the
technology increases, particularly as Millennials
set up home: this digitally-savvy generation is
twice as likely as the total population to install
a smart home product20
: six out of ten of our
respondents expect to use data from smart home
hubs five years out. Again, insurers take the lead
here, seeing clear synergies between data flows
from smart home hubs and connected white
goods and their core business of assessing and
pricing risk.
0
20
40
10
30
50
0
20
40
10
30
50
20. The NPD Group Connected Intelligence Home Automation Advisory Service, June 2015, reported that one in four Millennials has already installed at
least one such device and 41 per cent already aware of and interested in owning smart home products

21 -
When do you expect your organization will use data from the
following sources to build a profile of its customers?
We already do this Within 1 year
Within 2 years Within 5 years
Within 10 years Never
Data road blocks
Legacy systems are a significant barrier...
say a lack of single customer
view prevents a high level of
personalization
85%
Personalization may be on the agenda but our
survey finds organizations are struggling to make
this a reality. Legacy systems are a significant issue
for incumbents, with 85 per cent citing a lack of
single customer view as an obstacle to achieving
a high level of personalization. Achieving a holistic
view of the customer has long been a challenge
for financial services organizations, with customer
data held in disparate product and departmental
silos, blinkering their view of the customer
and creating disjointed customer experiences.
One survey of insurance executives found that
organizations have been deterred from building
the long-elusive single view of the customer
because of the scale of the legacy challenge: 71 per
cent cited the high cost of technology solutions,
61 per cent cited the scale and complexity of the
challenge and almost a quarter cited previous
failed projects as a reason for slow progress21
. It is
clear, however, that with agile digital new entrants
snapping at their heels, time is running out for
financial services organizations, and resolving the
long-running saga of legacy systems must now be
a priority.
struggle with the availability of
sufficiently rich customer data87%
Our respondents also cited the difficulty of
processing very large data sets (cited by 84 per
cent) as an obstacle to personalization. Certainly
the torrent of data now flowing through the
modern enterprise is testing all businesses22
and
the acceleration of M2M data as the IoT is brought
to life will only compound this challenge. And it
is not just the processing of large data sets that
is thwarting personalization: 85 per cent of our
respondents are also struggling to find sufficiently
powerful analytical tools.
In our survey, the top obstacle to personalization
was the availability of sufficiently rich customer
data, cited by 87 per cent of respondents.
Organizations may be struggling to crunch
through existing data inflows but they are clear
that additional data sources will be required to
deliver finely calibrated personalization. Data
flows from the companion devices that define
21st century life, be it the connected car or app
data from the smartphone that never leaves our
side23
, will be key to building the detailed view that
enables a “customer of one” service model.
Privacy, trust and transparency
Customers may want personalized service but
they are increasingly aware that the data flows
that enable personalization carry both clear value
Wearable
Devices
Smart home
hubs
Connected
Cars
Connected
white goods
0
20
40
10
30
21. Customer-Centric Differentiation in Insurance: Meeting the Data Challenge, Visionware, September 2015
22. IDG Enterprise’s 2014 Big Data survey reported that 65 per cent of respondents felt occasionally overwhelmed by incoming data, 53 per cent
per cent reported that the data influx had delayed important business decisions and 42 per cent said business had been either occasionally or
frequently lost due to an inability to quickly find sought-after information
23. 87 per cent say of Millennials say their smartphone never leaves their side, day or night. Research by Kleiner Perkins Caufield & Byers, Internet
Trends 2015

- 22
and, following a number of high profile security
breaches, risks. Indeed, not only are customers
increasingly prepared to put a price tag on their
value of their personal data24
but they are growing
warier about which organizations they trust to
handle and store their data: a survey from the
Economist Intelligence Unit found 71 per cent
of people in the UK lack confidence in the way
companies collect, use, handle and share their
data.
And while the IoT makes it possible for
organizations to stalk customers through the
digital and physical worlds, it is clear there are
limits to how much personalization customers
will tolerate. One survey of in-store interactions
found there’s a clear boundary at which point
personalization strays from being helpful to
unwelcome: “creepy” personalization included
facial recognition that enables targeted advertising
(73 per cent), salesperson greeting you by name
based on mobile trigger (74 per cent) and facial
recognition that identifies your spending habits
to salesperson (75 per cent)25
. While this research
focused on retail interactions, banks intending
to use facial recognition to personalize branch
experience, might want to take note.
Customers, of course, are adjusting to this new
data ecosphere: while facial recognition may be
“creepy” now, in time it may be welcome as a way
to validate secure transactions. This adjustment
will be helped if organizations are consistently
clear and transparent about their data intentions.
Building trust through transparency, empowering
the customers through opt-ins and investing
in robust encryption and security will be key to
accessing the data bounty generated by the IoT.
Here banks do have an advantage: a survey by
Unisys in 2014 found consumers have more trust
in banks to look after their personal data than
telcos, utilities, supermarkets and governments.
believe personal data stores
will be commonplace within
five years
79%
Customers are not passive in this data trade and
are being increasingly proactive to understand,
protect and monetize their personal data. This
trend is evidenced by the growth in personal
data stores (PDS), an online service that enables
an individual to store, manage and release their
personal data in a highly secure and structured
way. Our survey indicates that PDS will be
commonplace within five years: while only nine per
cent of our respondents as individuals currently
use a PDS, they expect this to increase rapidly,
to 45 per cent within two years and 79 per cent
within five years. Banks and insurance companies
must be ready to respond to the data-empowered
customer, both with a strategy to incentivize
customers to provide access to data, leveraging
their trusted reputation, and operationally with
systems that interact seamlessly and securely
with the customer’s PDS.
Legacy systems continue to thwart efforts to transform the customer experience. Organizations must
embrace a rules-based CRM system to buffer the customer from this toxic tangle, shifting the data to the
front office where it can be put to use delivering a seamless and personalized customer experience based
on a holistic view of the customer.
24. A survey from Symantec, State of Privacy Report, February 2015, found that 8 per cent of consumers now value their information at over €10,000
25. Instore Personalization: creepy or cool? Survey by RichRelevance, April 2015
26. Gartner, June 2015

23 -
Chapter Four
The Future of Customer Service
This year the advisory firm identified self-
service as one of the top three CX priorities
for organizations26
as consumers increasingly
seek out the convenience of DIY, be it making
banking deposits or initiating an insurance
claim. Customers are certainly keen on the DIY
approach, as their extreme expectations are ever
harder for organizations to fulfil: 82 per cent of
companies agree that their customers are harder
to please than three years ago, 60 per cent say
it is difficult to please them and 42 per cent say
customers use social media to shame their
company into doing what they want. Customers
themselves admit to diva-ish tactics: when seeking
help online, for example, 66 per cent expect
a same-day response and 43 per cent want a
response within an hour or less while the much
maligned call center is for a majority of customers
a channel of last resort27
. Research shows that
nearly three out of four consumers prefer to solve
their customer service issues on their own, and
almost two thirds feel good about themselves
and the company they are doing business with
when they resolve a problem without talking to
customer service28
. Millennials are particularly
keen on self-service options, making the DIY shift
essential to win business from this tech-savvy
self-reliant generation. Even Millennials, however,
say they prefer the personal touch when it comes
to more sophisticated financial transactions,
such as investments and pensions. By offering a
self-service route for low value transactions and
routine tasks, organizations will then be able to
spend more time serving those who still require
personal attention, be it to handle more complex
issues or to meet an individual’s preference for
human interaction.
can meet a majority of
customer requirements
through automation
38%
Yet our research shows financial services
organizations fall far short of offering a fully-
automated self-service model: just 38 per cent
can meet a majority of customer requirements
through automation. This means six out of ten
organizations are failing to deliver a service that
not only keeps customers happy but that also
lowers the cost to serve. Banks are ahead on self-
service, with 45 per cent able to currently meet
the majority of customer requirements through
automation compared to 22 per cent of insurers.
Given that automation offers a clear way to speed
up routine tasks, strip out costs and please
customers, insurers cannot afford to fall behind
on the DIY revolution.
Proportion of customer requirements that can currently be
met by self-service
All
The majority
A significant minority
A tiny minority
None
Inthefuture,customerservicewillincreasinglymeanself-service.Backin2011Gartner
predicted that by the end of this decade 85 per cent of customer relationships would
be managed without human intervention.
27. Lithium Technologies, October 2014
28. Survey by Aspect Software, April 2015
29. The State of Unassisted Support, 2014, Technology Services Industry Association

- 24
One study of tech support businesses in the
US found that the cost of resolving a customer
service incident via phone now averages US$510;
email incidents, with their back-and-forth
conversations to gather additional data stretching
out resolution, average nearly US$700. Real-time
chat interactions, however, average US$150 but
the real win is web self-service, at just US$4. This
is a win:win, because the same study found that
most customers prefer this low cost self-service
channel when seeking support for a product
problem (65 per cent) compared to phone (just
11 per cent) or social media (five per cent)29
.
say legacy systems are the
main constraint on meeting
customer demand for full
self-service
94%
Financial services organizations that are serious
about customer experience must remedy this
self-service gap. Our respondents are clear about
the main obstacle, with 94 per cent identifying
legacy systems as the main constraint on meeting
customer demand for full self-service. A key
challenge is that these out-dated and siloed
systems cannot use customer data in real-time,
which means routine tasks are derailed because
of incomplete or out-of-date data: just nine per
cent of our respondents say their organization
can use all the data it holds on the customer in
real time during every customer interaction. This
is expected to rapidly change as organizations
scrabble to keep pace with customer self-service
requirements: 46 per cent expect to be able to
use all customer data in real time within two years
and 86 per cent within five years. Addressing this,
given the scale of the legacy system challenge, will
mean organizations must move business logic
from the tangle of back-office legacy systems to a
user-friendly digital front-office.
The DIY Toolkit
While full self-service may lie five years or more off
for the majority of our cohort, in the interim we
find financial services companies are deploying
a range of services and tools to help guide
customers through online interactions: static help
pages (used by 81 per cent), online chat (80 per
cent), co-browsing (79 per cent), avatars (58 per
cent) and help from the contact center (56 per
cent).
When asked which was the most used channel
by customers who found themselves stuck or
confused during an online interaction, the top
answer was help from a contact center (44 per
cent): it would seem that customers still seek
the safety net of human interaction when self-
service options stumble, making it imperative
that organizations have seamless backup from
the contact center. The next most used backup
by customers was avatars (42 per cent), which
indicates that customers have no particular
preference whether the support is human or
virtual as long as their query is handled seriously,
speedily and satisfactorily. Nordic insurance
company Alka, for example, uses live chat to
support customers through the online process,
enabling agents to handle multiple enquiries at
once while also growing the top line, as it has
proved popular as an independent sales channel.
The insurer receives 3,000 and 5,000 customer
enquiries per month via the live chat format, a
sign of its popularity with customers.
agree that increased use
of computer-generated
recommendations in contact
centers would reduce errors
and ultimately improve
customer outcomes...
85%
An important tool in the self-service toolkit is the
use of computer-generated recommendations,
whether delivered by an avatar or a contact
30. Blue Prism case study

25 -
center agent during live chat: indeed, 85 per
cent of our respondents agree that increased
in contact centers would reduce errors and
ultimately improve customer outcomes.
...but just one -in- five make extensive use of
computer-generated recommendations to
guide contact center staff
Yet this remains an aspiration: just one in five
make extensive use of computer-generated
recommendations to guide contact center staff
and only 14 per cent to directly guide customers.
There are signs of change, with 43 per cent and
48 per cent conducting pilots or making minor
for contact center staff or direct to customers
respectively. However, that still leaves more than
a third engaging in customer interactions without
data-driven insights to speed and smooth the
customer experience. Despite the compelling
business case to deploy computer-generated
recommendations to improve CX, uptake remains
sluggish. This suggests organizations have not
yet appreciated the urgency of the competitive
threat, given customer appetite for the kind of
smart solutions pioneered by innovation leaders.
agree the widespread use
of virtual assistants such as
Siri on the iPhone means
customers are more willing
to engage with automated
assistance and advice
76%
How soon do you expect your organization to make extensive
use of computer-generated recommendations for guiding
contact center staff?
Indeed, customers are fast outstripping financial
services providers in their willingness to embrace
new CX models and are quickly becoming
accustomed to interacting with automated and
virtual assistants: 76 per cent of our respondents
agree the widespread use of virtual assistants
such as Siri on the iPhone means customers are
more willing to engage with automated assistance
and advice. Companies serious about staying
relevant will need to keep pace with customers,
who consistently show an appetite to adopt and
adapt to innovation: of those respondents not
yet making extensive use of computer-generated
recommendations for contact center staff and
customers, eight out of ten plan to achieve this
within five years. The one in five who expect this
to take ten years or more could find the gap
between customer expectations and service
reality becomes too wide to bridge.
Robots: the new face of banking?
This gap is already looming. The application of
robotic automation, high powered analytics and
computer-learning can significantly improve the
customer experience while driving out costs.
Robot Process Automation eliminates human
error, reduces costs and increases the speed
of routine processes: one major global bank
0
20
40
10
30
50

- 26
automated a wide range of processes, including
Fraudulent Account Closure, Loan Application
Opening and Right Of Set Off, eliminating over
120 Full Time Equivalent (FTE) positions and
reducing its bad debt provision by £175 million
per annum30
. In insurance the cost of miscoding
on claims adds up to millions per year, not even
counting client dismay at this “moment of truth”;
yet insurers could achieve 80% first-pass accuracy
through auto-adjudication31
. Given that a software
robot would cost around one ninth of an FTE
person working in the UK or US, or a third of the
cost of an FTE working offshore in India, the cost
savings are likely to prove compelling. Indeed, a
recent slew of predictions from Gartner, forecast
that by 2018, 20 per cent of business content will
be authored by machines, autonomous software
agents outside of human control will participate
in five per cent of all economic transactions
and more than 3 million workers globally will be
supervised by a “robo-boss.”
Even tasks long the preserve of highly paid
investment managers can be “roboticized”.
Following in the digital footsteps of investment
disruptors Betterment LLC and Wealthfront Inc,
US banking giant Bank of America has developed
a robo-adviser platform for Merrill Edge, its online
trading hub, which will use algorithms and artificial
intelligence to provide investment advice to
clients, specifically targeting Millennials. Managed
through an app, the robo-advisers suggest
investments and regularly rebalance the portfolio
and realize losses for the sake of tax efficiency.
According to a study by A.T. Kearney, robots could
be managing assets worth US$2.2 trillion by 2020,
about 5.6 per cent of US investment assets, up
from just 0.5 per cent today.
Almost three quarters of our
respondents agree that in the future
customers will interact with a human-like
avatar until they reach the point of needing
to speak to a real person.
The typical banking customer or insurance
policyholder, of course, is unaware that much
of their business is being handled by software
robots. This is set to change as humanoid robots
start to join the economy: almost three quarters
of our respondents agree that in the branch of
the future customers will interact with a human-
like avatar until they reach the point of needing to
speak to a real person.
“How likely is it that, in the branch of the future, customers
will interact with a human-like avatar until they reach the
point of needing to speak to a real person?”
Very likely Likely
Fairly likely Not likely
This future may not be too far ahead: already
Japan’s biggest bank is trialling humanoid robot
employees. The robot, Nao, is programmed to
speak 19 languages and, through a camera on
his forehead, analyzes customers’ emotions from
0 2010 305 2515 35
31. The Robot & I: how new and digital technologies are making smart people smarter, Cognizant white paper, 2015
32. Blythe Masters, CEO of Digital Asset Holdings

27 -
their facial expressions and tone of voice. The
robot will greet customers in one or two branches
of Mitsubishi UFJ Financial Group, quickly
assessing their language needs, asking which
services they need and, using stored insight into
more than 5.5 million customers and over 100
different products, can then route the customer
to the appropriate staff member based on past
experience, products utilized or current mobile
activity. This is not just a gimmick: Nao uses each
interaction to learn a customer’s preferences and
personality, enabling it to increase the accuracy
of each subsequent interaction. For customers
of Mitsubishi UFJ Financial Group, the future is
already here.
CASE STUDY
Mars National Bank
Mars National Bank, a community bank in Pennsylvania, has opened what it calls the “Branch of the Future”,
offering a highly automated banking experience featuring biometric security. It still employs real human
beings to greet customers as they walk in before directing them to the highly automated service area. There,
customers can engage with transaction “pods,” use meeting rooms, and even access safety deposit boxes
via biometric authentication. The bank’s state of the art branch, however, is an extension of an increasingly
digital offering: the myMNB Mobile banking app includes account management, bill payment, “Popmoney”
(a person-to-person direct payment service) and mobile deposit. It’s a seamless blend of bricks, clicks and
biometrics.
Customer appetite for innovation means they are increasingly willing to embrace web-based self-service
and avatar interaction. Financial services organizations must keep pace with their customers or risk losing
market share to competitors willing to invest in computer-guided service and automation to smooth the
customer journey. A modern CRM system facilitates digital self-service but banks and insurers must also
seek out solutions that are agile and able to flex on a monthly, if not weekly, basis in order to evolve hand in
hand with customers’ changing needs.

- 28
Chapter Five
Is Blockchain the Next Big Disruption?
Certainly the surge of fintech scrums, growing
VC investment, increased press attention
and blockchain conferences where suits now
outnumber hoodies suggests there is growing
interest in a technology that has the potential
to be a game-changer for all aspects of financial
services, from current accounts, clearing and
settlement to insurance claims. One blockchain
evangelist has described the technology as
“analogous to email for money”32
.
Blockchain, a distributed public ledger which
can securely record any information and the
ownership of any asset, gained notoriety as the
platform for the cryptocurrency Bitcoin – perhaps
not the most promising start for a technology that
is now being touted as the savior of the global
banking system. Indeed, financial institutions were
initially wary of blockchain: not just because of the
murky Silk Road and Mt Gox scandals but because
the technology appeared to have the potential to
circumvent traditional banks altogether.
On a blockchain (where the block is a string of
code), the information is transparently held in
a shared database, without a single body acting
as a middleman: this creates opportunities to
strip out massive costs by cutting out inefficient
intermediaries while executing trades in seconds.
Santander InnoVentures, the Spanish bank’s
fintech investment fund, estimates blockchain
could save lenders up to US$20 billion annually in
settlement, regulatory and cross-border payment
costs33
.
It is not just costs that will be transformed.
Because the ledger is shared between many
different parties it can only be updated by
consensus of a majority of the participants in
the system and, once entered, information can
never be erased: this makes it tamper-proof and
ensures a verifiable chronological record of every
transaction made. This is the back-end overhaul
that has so long eluded the financial services
industry, allowing payment speed and security to
be provided without the need for cumbersome
banking IT systems.
“Smart contracts” could also be embedded within
blockchain, as videos can be embedded in emails,
leading to automated pay-outs on contracts
within the financial services value chain. Indeed,
almost any intangible document or asset can be
expressedincode,whichcanthenbeprogrammed
into a distributed ledger: loyalty points, air miles,
health records, votes. Even physical assets,
such as artworks or diamonds, could have their
ownership trails verified on blockchain to prevent
forgery and ensure authentication of source.
Nine out of ten agree that blockchain will
disrupt all areas of the financial chain
There are no aspects of the financial services
chain that will not be impacted by widespread use
of blockchain, although front-end retail will be less
affected than back-end clearing and settlement
area. While nine out of ten of our respondents
agree that blockchain will disrupt all areas of the
financial chain, including current accounts, it is
cards & payments and clearing & settlement that
will bear the brunt of the upheaval: over half our
respondents said these areas will feel significant
disruption from blockchain technology.
The jury is still out on whether blockchain is the savior of a financial services industry
under pressure from digital disruption, eroding margins, increasingly audacious cyber-
attacks and ongoing regulatory scrutiny, or just another technological false dawn.
33. Santander InnoVentures, June 2015
34. Bitcoin Venture Capital, published by CoinDesk, June 2015

29 -
The blockchain dash
For now, financial institutions are still scrambling
to understand the implications of blockchain
and how to harness its power. There has been
a splurge of investment in blockchain start-ups
and fintech joint ventures: venture capitalists
ploughed almost US$400 million into dozens of
digital currency start-ups in the first six months of
2015, a fourfold jump from all of 2013 – and that
does not count investments kept quiet for stealth
projects34
.
Bitcoin’s open source blockchain is decentralized
and open to anyone but many in banking are
wary of this: this is an industry used to guarding
its secrets closely and which remains mindful
of regulatory oversight. As a result, a number
of banks have developed proprietary in-house
models, such as Citigroup’s Citicoin, a digital
technology it is testing in the bank’s laboratory.
Commonwealth Bank of Australia has teamed
up with open source software provider Ripple to
build a blockchain system for payments between
its subsidiaries. Others, such as JPMorgan, UBS
and Barclays, are backing start-up R3 CEV, which
is setting up an invitation-only private blockchain.
Digital Asset Holdings, meanwhile, is creating an
off-the-shelf private blockchain product.
have never heard of blockchain
35%
Despite the hype, this is still an emergent
technology: 42 per cent of our respondents claim
to understand blockchain but 23 per cent admit
they do not and 35 per cent have never even
heard of it. What’s more, many are in the dark as
to whether their organizations are on top of this
potential game-changer: respondents confessed
they did not know if their organizations were
undertaking research (46 per cent), had formed a
working group (69 per cent), formulated a strategy
(83 per cent), were collaborating (80 per cent) or
had dedicated teams working on blockchain (84
per cent). This lack of awareness reveals that
blockchain is still at the “wow” rather than a “what
and when” phase of the innovation life cycle.
believe that blockchain will
prove to be the most
significant technology
development to affect financial
services since the Internet
60%
Among those of our respondents who said
they had at least a general understanding of
blockchain, 60 per cent believe it will prove to be
the most significant technology development to
affect financial services since the Internet, albeit
that still leaves a third who do not see it as a rival
to the revolution unleashed by Tim Berners-Lee’s
1991 invention of the World Wide Web. This is an
early-stage innovation, however, and it is likely
that as blockchain initiatives emerge from proof of
concept, the disruptive power of the technology
will become more evident.
Therearemanychallengestoovercomefirst.These
include restricted scalability – Bitcoin’s blockchain
handles seven transactions per second compared
to VisaNet’s 47,000 – as well as issues of access
and standardization, given the fragmentation of
effort and potential for friction between public
and private blockchain initiatives35
. Innovators are
optimistic these hurdles will be overcome in the
coming decade: one survey found that almost one
in five believe blockchain will have the greatest
impact on the financial services space in the next
three-to-five years, and almost nine per cent
believe blockchain will be the “new normal” across
the financial spectrum by 203036
.
Just 17% have a strategy for blockchain
and only 16% have a dedicated team
working on blockchain
35. Goldman Sachs, Emerging Theme Radar research note, December 2015
36. Capital One survey of innovators at Money 20/20, October 2015

- 30
Our respondents have some distance to
travel before blockchain becomes “normal” in
their organizations: just 17 per cent say their
organization has a strategy for blockchain and
only 16 per cent have a dedicated team working
on blockchain. In the wake of these pioneers,
however, there are some fast followers, with 31
per cent forming working groups and 20 per
cent partnering with a fintech specialist, while a
solid group at least have the technology on their
radar, with 54 per cent saying their organization is
undertaking research into the potential impact of
blockchain.
Blockchain wallets
One in five expect it to be mainstream
practice for consumers to hold most of their
financial assets in a blockchain wallet within
just five years...
For retail banks the big threat could come from
blockchain wallets, where consumers could hold
most of their financial assets on the blockchain,
eliminating the need for third parties, to enable
secure peer-to-peer transactions. Millennials
have already shown a clear appetite to embrace
P2P models, such as Venmo, so it is not too much
of a stretch to see consumers using blockchain to
manage their financial affairs in the future. One
in five (22 per cent of our respondents) expect it
to be mainstream practice for consumers to hold
most of their financial assets in a blockchain wallet
within five years, rising to 55 per cent in ten years
and 71 per cent in 15 years.
think the combination of
blockchain wallets and
P2P lending could herald the
end of banking as we know it
45%
The jury is still out on how this will impact
incumbent banks: 45 per cent of our respondents
believe the combination of blockchain wallets
and peer-to-peer lending could herald the end of
banking as we know it. That 55 per cent disagree
with this apocalyptic vision suggests there’s
cautious optimism about the industry’s chances
in a blockchain-enabled world. How the current
scramble to investigate blockchain initiatives will
tip this balance is a question that will be answered
in years to come.
How soon will the following become mainstream practice?
Within 1 year Within 2 years Within 5 year
Within 10 years Within 15 years
Within 20 year Never
Consumers holding
most of their
financial assets in a
blockchain wallet
Certain types of
insurance claims
being settled using
IoT data, blockchain
and smart
contracts
Consumers holding
their personal data,
including their ID,
in a blockchain
0
10
20
30
5
15
25
35
40

31 -
Insurance claims: a new paradigm
12% expect the settlement of insurance
claims using IoT data, blockchain and smart
contracts to be mainstream practice within
two years...
74% expect it to be mainstream by 2025
Claims have long been a difficult issue for insurers.
It is the costliest part of insurance, the most
vulnerable to fraud and also the “moment of truth”
when insurers have an opportunity to delight
— or disappoint — in a largely undifferentiated
marketplace. Blockchain has the potential to
transform the claims process: drawing on data
from IoT to validate a claim – evidence rain
damage to a crop, for example – could then auto-
trigger the filing of a claim, which is then promptly
settled via a smart contract on the blockchain.
Given the insurance industry’s reputation for
conservatism, it is interesting to note that 12 per
cent of our respondents expect the settlement
of insurance claims using IoT data, blockchain
and smart contracts to be mainstream practice
within two years, and from there rapid take-off is
predicted: 47 per cent expect it to be mainstream
within five years, 74 per cent within ten years and
85 per cent by 2025.
This vision of a smart, automated future is already
at proof-of-concept stage. IBM is working with
Samsung on ADEPT, (Autonomous Decentralized
Peer-to-Peer Telemetry), which uses blockchain
to build a distributed network of devices. This is
IoT 2.0, building a ledger of existence for billions
of devices that would autonomously broadcast
transactions with ADEPT serving as a low cost
bridge between many devices to create intelligent
semi-autonomous things. A washing machine,
for example, could manage its own consumables
supply using smart contracts to issue commands
to a retailer to order new supplies of detergent,
perform self-service and maintenance, and
even negotiate with other devices, both in the
home and outside, to optimize its environment,
including power bartering. Information that
contracts have been issued, and fulfilled, would be
broadcast to the smartphone of the householder.
Blockchain and IoT combined really are bringing
the future forward. While this massively reduces
costs and fraud for insurers, it does risk the
customer relationship shifting to manufacturers
of connected goods, who could embed warranties
and insurance as smart contracts within their
appliances: insurance companies need to
have strategies to handle these still-evolving
opportunities and threats.
Blockchain:yourpersonaldata store
The tamper-proof nature of the blockchain has
clear advantages to an industry under siege
from cyber-fraud, hackers and organized crime.
Consumers are also likely to welcome a technology
that would no longer leave their personal data
sitting on centralized servers, vulnerable to attack
or theft, but instead keep it on a blockchain and
allow temporary release to organizations for
specified transactions or periods of time. Forty-
two per cent of our respondents believe it will be
mainstream for consumers to hold their personal
data, including ID, in a blockchain within five years,
rising to 73 per cent within ten years.
It is worth pointing out, however, that the features
that make blockchains so attractive in terms
of security are also likely to give rise to privacy
concerns. Blockchains are append-only data
stores – data can only be added, not deleted. They
are also distributed, being maintained by a peer
network across multiple nodes, each of which has
a copy of the blockchain and has equal authority
to add to it, but data cannot be altered without
being detected and rejected by the other nodes in
the network. Yet privacy law is still evolving in the
digital age: there is now a right to be forgotten, be
it related to past insolvency or gender transition,
and there are clearly scenarios where data held in

- 32
a blockchain would be contrary to this legal right.
Blockchains also create opportunities for people
to collaborate on datasets in a peer network:
this could be useful for crowdsourcing and peer-
to-peer lending models but could create issues
when those datasets concern personal data on
individuals who may not have consented but find
malicious or incorrect data difficult to remove. The
implications of blockchain pose major questions
not just for financial institutions but for wider
society.
Blockchain is an emerging technology that could
trigger wholesale disruption, with some pundits
warning it could end banking as we know it while
others argue it could be the savior of financial
services sector. Banks and insurers need to be
aware of the risks, and opportunities, presented
by blockchain: the earlier these are understood
at the highest levels of the business, the sooner
organizations will be able to understand the
implications, develop strategies to mitigate the
risks and harness its power and begin a potentially
transformative operational overhaul. It is too early
to say whether the claims made for blockchain
are hyperbole but one thing is clear: banks and
insurers cannot afford to be complacent.
CASE STUDY
Visa Europe: innovation in international remittances
Visa Europe’s innovation hub Visa Europe Collab is testing blockchain technology to improve the transfer of
money overseas. It is a service that is a vital lifeline for millions of families across the world but one that can
be expensive, cumbersome and slow even in the digital age and was seen as ripe for disruption by peer-
to-peer payments on the blockchain. Partnering with Epiphyte, a start-up specializing in distributed ledger
solutions, Visa Europe Collab is trialling whether blockchain can improve international remittances for both
sender and receiver in terms of fees, speed and ease of use. Unlike many financial companies, which are
pursuing closed proprietary ledgers, the payments giant is conducting the test project on the live Bitcoin
blockchain: because this is open source it means local players can integrate with this and extend the reach
of the network. This is seen to be a creative solution to what is called the “last mile” problem, in which much
of the cost of remittances is down to the physical kiosks that pay out the hard currency.
This is just the beginning, with Visa Europe Collab investigating other possibilities around cryptocurrencies
and blockchain within the payments ecosystem. Clearly, this incumbent is determined to leverage blockchain
to improve its services and capabilities rather than lose its head start to P2P disruption.

33 -
Chapter Six
The Innovation Imperative
According to the Global Center for Digital
Business Transformation, 40 per cent of today’s
leading companies will be displaced from their
market position by digital disruption in the next
five years37
.
Interestingly, this means even current tech giants
will find it challenging to remain in the top spot
unless they constantly stoke the fires of innovation.
Venmo, the hot P2P payment app, for example is
owned by one-time payment disruptor PayPal,
which is already considered a legacy incumbent
that could not have developed Venmo itself:
instead it bought the app through its acquisition
of Braintree. Similarly, social media giant Facebook
is working hard to stay fresh through acquisitions,
buying WhatsApp and Instagram.
The challenge that faces all organizations, both
incumbents and challengers, is that there is no
single technology to which they must adapt but
instead a series of disruptions assaulting them
almost simultaneously. The most significant
disruption in the next five years is believed to be
the impact of digitally-savvy new entrants (50 per
cent of our respondents said this would unleash
significant or massive disruption by 2020),
followed by the peer-to-peer model (41 per cent),
the Internet of Things (39 per cent) and Blockchain
(34 per cent).
Digital competition: disrupt or be
disrupted
Digitally-savvy new entrants certainly present a
clear and present threat to incumbent banks and
insurers. Survey after survey shows consumers,
particularly Millennials, have an appetite to
switch to smart digital solutions that offer a
frictionless end-to-end experience. In insurance, a
Marketforce survey found 92 per cent of insurers
expect digitally-enabled players that are new to
financial services to become a significant force
in insurance within five years, and 55 per cent
expect this to happen within two years38
. Possible
new entrants include an internet search provider,
an online retailer or even a social network.
Banks are also feeling the heat of fierce
competition: in 2014 a record 29 firms applied for
banking licences from the UK financial regulator,
the Prudential Regulatory Authority (PRA), sharp
contrast to 2010 when Metro Bank was the first
new bank to obtain a license in the UK since
the 19th Century. As with insurance, banking
customers are attracted to smart digital solutions:
One survey found one in five customers would
bank with PayPal if it offered a current account
while studies regularly show Millennials would
happily switch to financial services provided by
Google, Amazon or Square, that is if they need a
bank at all39
.
New entrants in lending and payments
disaggregate banks from key parts of the value
chain The range of digital-only services already
encompasses the full value chain:
»» Investing services, like the robo-adviser
Betterment or RobinHood
»» Saving and investing apps, such as Acorns or
Moneybox, which invest spare change from
everyday purchases
The past decade has seen a relentless cycle of disruption and innovation. The pace
of change means all bets are off as disruption and innovation stress-test existing
models, with past market dominance no guarantee of success, or even survival, in
the future.
37. Global Center for Digital Business Transformation, a Cisco/IDC initiative, June 2015
38. Future of General Insurance 2015, Marketforce
39. The Millennial Disruption Index, Scratch, 2015

- 34
»» Credit card alternative, Affirm, which allows
customers to obtain a micro-loan at a point of
sale instead of using a credit card
»» ATM challenger Nimbl, a cash delivery service
»» Student loan refinancing service, such as SoFi
»» Small business lending: new services from
mobile payments companies iZettle in Europe
and Square in the US
It is not just that these nimble new entrants
provide intuitive frictionless solutions but, as with
the social banter of a Venmo exchange, they also
manage to make the experience fun and engaging.
New entrants seem to be able to strike the right
balance between one-click convenience and the
warmth of human interaction.
Incumbents need to foster the same customer-
obsessed mind set, harnessing the power of
digital technology, such as gamification and social
media functions, to create experiences that are
engaging and rewarding for customers. Spanish
bank BBVA has successfully deployed gamification
to encourage customers to use its online banking
service, with users rewarded with points and
badges based on how often they use the online
platform. It helps guide customers through the
lesser-known functions on the platform, such as
electronic tax payment, modification of personal
information, banking products and service
applications. This encourages customers to
share more data with the bank, which can then
use the data to launch personalized challenges
and rewards. By linking the game with the bank’s
sponsorship of the football league, the game
has also proven a useful tool for new customer
acquisition as existing customers share online
quizzes, video games and social media chat with
their friends.
Risk averse, innovation afraid
of our respondents said their
organization would tolerate
such a 50% failure rate on
innovation pilot projects...
30%
Replicating not only these experiences but also the
crucible of innovation that gives rise to the likes of
Venmo is a challenge for incumbents, with their
centuries of history, their entrenched corporate
cultures and cumbersome legacy systems.
Indeed, our survey finds that the appetite for risk
in innovation is relatively low: while innovation
experts believe companies should accept a 50
per cent failure rate across all innovation pilots in
order to fuel a culture of innovation, only 30 per
cent of our respondents said their organization
would tolerate such a failure rate.
...and more than six out of ten believe
their governing board should set the failure
rate for innovation pilots much lower,
below 30%
Furthermore, more than six out of ten believe
their governing board should set the maximum
failure rate for innovation pilots much lower,
below 30 per cent. This conservatism is a brake on
innovation: in Silicon Valley, the crucible of digital
innovation, the mantra is “fail fast, fail often” and
some estimates put the start-up failure rate to
be 90 per cent. This is clearly beyond the pale for
banks and insurers, now walking in the shadow
of the 2008 financial crisis and under the scrutiny
of regulators. Indeed, this balancing act between
innovation and regulatory compliance could
well be the defining skill of 21st century financial

35 -
services leaders. This is not just a tight-rope walk
for banks and insurers: governments that wish
to host best-in-class financial services sectors
must ensure that regulatory regimes are carefully
calibrated so that they safeguard against the kinds
of behaviors that characterized the 2008 crisis
while also nurturing and tolerating innovations
that will deliver better outcomes for customers.
Would your organization’s
governing board find it
acceptable for there to be
a 50 per cent failure rate
across all innovation pilots?
What failure rate for
innovation pilots do you
think your organization’s
governing board should
tolerate?
Yes
No
Up to 20%
Up to 30%
Up to 50%
Up to 70%
But are banks and insurers now too cowed by
the fear of failure? Analysts at PwC estimate
that roughly 80 per cent of financial institutions
rely excessively on incremental innovation –
marginal improvements that focus on “better,
faster, cheaper” or “me too” imitations of their
competitors” – rather than focusing on real
innovation.
Breakthrough innovation that can really shift the
needle on ROI requires an enterprise-wide culture
of innovation, with those at senior level tolerating
failure, carving out time, resource and budget for
innovation and encouraging and supporting new
ideas.
agree that “the key to successful
value proposition innovation
in retail financial services is
to think beyond traditional
industry boundaries to identify
new ways of meeting consumer
needs”
98%
A number of institutions have recognized their
limitations, fostering arm’s-length innovation
hubs and “laboratories” to foster innovation, often
in partnership with fintech partners, who have a
clear mandate to innovate and think “outside the
box”. Our respondents are clear that this will be
essential: an overwhelming 98 per cent agree
that “the key to successful value proposition
innovation in retail financial services is to think
beyond traditional industry boundaries to identify
new ways of meeting consumer needs”.
Already some companies are thinking outside
their industry box to deliver true innovation
to customers. Insurance company More Than,
for example, used a lean start-up approach to
develop its innovative pet telematics offer, Waggle
Pets, which in return for a monthly fee provides
deliveries of healthy pet food, a wearable pet
activity tracker, toys, treats and preventative
treatments. It partnered with animal charity
RSPCA to ensure the treatments and food are
healthy, a tie-up that ensures peace of mind for its
pet-loving policyholders. Banks are also extending
partnerships to improve their relevancy to their
customers. In the US, for example, a regional bank
offers car financing through a mobile app: when
the customer enters information about the model
of car, if the bank has a relationship with the
dealership, the app displays the price the bank
has negotiated with the dealer and determines if
the buyer is qualified to receive financing from the
bank, providing the customer with a frictionless
service and puts the bank at the forefront of this
major purchasing decision.

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