Published On: March 21st, 20226 min read

Market disruption isn’t new in the financial services industry. It has, thanks to a number of technological factors, accelerated significantly. And one of the most disrupted industries is the financial institution. Financial & Insurance Services (FIS) organizations are facing wave after wave of disruption as the elements at the very core of their financial services company continue to see environmental changes and innovation.

What kind of changes? Advancements of both threats as solutions in cybersecurity, the growing consumer appetite for digital wallets, inflationary pressures, and even the Great Resignation are creating challenges and opportunities for financial institutions. This list is just the start. As Daryl Plummer, Distinguished VP Analyst and Gartner Fellow, noted, “Disruption does not stop. It stays disruptive until something else disrupts it.”

Digital leaders and tech companies — both in IT and on the business side — need to be ready to respond to disruptions, not be afraid of them. “We have to be willful about acting on it,” Mr. Plummer adds. “If you wait for disruption to happen, you’re going to get pushed aside.”

Being ready for them means understanding those disruptions that are right in front of us, and then strategically stepping through a process that allows your organization to first recognize and then respond with new and improved business models.

shaking up the financial services sector

As stated at the beginning of this article, disruptions are not new. However, in the world of traditional financial institutions, there are several that stand to be the most impactful now and in the near future.

Emerging Insurance Products

As the world continues to change and cyberspace expands in new directions, the opportunities for insurance products are shifting, too. Protection for cybersecurity events and liability insurance coverage are already being offered by some fintech companies, and it can be expected that the needs in this area will grow as the metaverse and edge computing continue to advance.

That doesn’t take into account the need for innovative social change products. As financial institution companies make public commitments to diversity, for instance, there will be a desire to insure themselves against damages if they aren’t able to meet those goals. The same is true for green initiatives. Citizen space programs may seem out of reach for most now, but will quickly become more accessible, and insurance products will need to align with the demand.


Crypto & Digital Wallets

Nearer to home, and closer in need, are the drive to offer products and services for crypto investments and digital wallets. How can that be tracked? Is there a need? How will financial institutions advise customers on the value and growth of non-fungible assets?

Digital wallets offer a different facet of the challenge for traditional banks. With 15% of digital wallet users telling McKinsey & Co. researchers that they regularly leave their homes without traditional payment methods, digital wallets are expected to grow in use, acceptance, and popularity. Many of these wallets are provided by non-financial technology platforms today, like Apple and Google, but that doesn’t mean there isn’t an opportunity for financial institutions to step into the space with new innovations.

Now, that leaves us with the question of “who is protecting NFT purchases and financial transactions?” NFT and crypto are inherently protected by the blockchain. Not only are digital wallets growing in commonplace usage, as more solely digital transactions occur, globalized standards for currency like crypto become far more plausible to consumers than a bank account, and demand rises. This, in turn, affects inflation as fiat currency rapidly inflates, there is potential for additional movement into more stable crypto assets.

Inflationary Pressures

Inflation will continue to impact how businesses and consumers approach their finances, planning, and investing. With prices increasing, consumers are likely to be more wary of their spending and may even need new, original banking services and products to help them get through financial issues. 

At the same time, historic jumps in the US Consumer Price Index have made investors concerned about market changes and instability. Technology may offer solutions that were previously unavailable during times of slowed economic growth.

Talent and the Great Resignation

Added to all of the above are concerns about talent and the Great Resignation in the financial sector. While this is an issue for any industry, it’s especially important in FIS, as disruptions come from existing competitors and those in adjacent market share as well as factors associated with the above-mentioned variables. Skilled resources will be difficult to find and keep for existing financial infrastructure, and those with the talent to drive innovation and change will be in high demand.

DMI can help traditional financial services companies transform and responded to disruption

DMI has helped FIS organizations successfully identify and adapt to disruption in financial services. From that experience, we’ve identified five steps companies and financial institutions can take to recognize opportunities and respond to disruptions. 

Step 1: Become Aware

In the middle of our day-to-day operations, it can be difficult to lift our heads and not just notice the world around us, but where opportunities for change exist. This doesn’t mean knowing what the change should be, just that something different is needed.

Being aware of the things going on outside of your bubble — within your market, societally, economically, competitively, even politically — can help you see signals for disruption. This may seem obvious, but it’s surprising how often it simply doesn’t happen.

Step 2: Create Hypothesizes

The next step is to follow the tried and true process of the Scientific Method: build a hypothesis and then test it. Think about what the trends or changes you’ve become aware of could mean for your industry and your business. At this stage, you want to consider what the problems and solutions could be.

Step 3: Research

To truly address the disruption, you’ll need to understand it. Dig in and educate yourself on the situation and all of its facets. This may cause you to double down on your hypothesis or re-think it entirely. Build up evidence that you can use to drive your experiments.

Step 4: Experiment

After creating a hypothesis and validating it or reworking it with research, it’s time to develop solutions, proof of concepts, that test the hypothesis.

It’s important to recognize that this comes with some risk and a need to embrace failure as part of the process, but there are countless successful financial institutions and technology companies that are doing this and doing it well. Examples include Google, Amazon, Intuit, and many more.

Step 5: Measure

Understanding the level of success of your experiment requires measurement. You may need to be creative in defining success; initial revenue or user numbers may be low, but that doesn’t mean the solution isn’t valuable or needed. It may be about degrees of success instead of hitting a specific KPI.

A failed experiment isn’t a bad investment. There could be a number of reasons that it came up short. You may need to rethink your hypothesis or your measure of success. It could even be that you are so far ahead of the curve that people aren’t ready for your solution. You may have overshot the time horizon where your solution is needed with its time coming later.

Be Ready for Disruption in FIS

The four disruptors discussed are only examples. You don’t need to look farther than a news website to find more. Each disruption is a potential opportunity, however, a chance to serve customers better and address new and emerging challenges effectively. 

For those who keep their head on a swivel and are pushing your organization to be more proactive in the face of disruption, DMI is here to chat. We’d love to hear from you and discuss what’s working, what’s not, and the exact challenges you face.