Monica O’Reilly is the vice chairman and the U.S. financial services leader of Deloitte.
Customer needs and expectations have evolved dramatically in recent years—and they will continue to evolve in the coming decade. Factors including new technologies, economic pressures and the growing purchasing power of digital-native generations are shaping what customers want from their financial institutions.
Customers expect fast, seamless and personalized experiences from their banks. But while digital channels powered by AI are increasingly preferred by most for routine transactions, attended channels that can provide the human touch are still important for moments that matter. Indeed, Deloitte research found that about as many millennials prefer the branch for financial advice as those who prefer digital channels. But that, too, may change with rapid advances in the capabilities of generative AI (GenAI). Take investment advice, for example: Deloitte has predicted that 78% of investors will interact with GenAI-enabled investment advice applications by 2028.
As a result, traditional financial services industry (FSI) business models must advance to meet evolving customer needs and preferences. A platform-based business model, in which companies from within and across industries form partnerships to offer customers integrated journeys and diverse products and services in a single location, is one approach that has real potential. Customers are already comfortable using subscription services and digital ecosystems in other areas of their lives—as demonstrated by the success of streaming services offered by technology firms.
But is the financial services industry ready to make the leap? Traditional financial institutions have so far been slow to make significant investments in ecosystems. Fintech and big tech companies, on the other hand, are actively developing ecosystem capabilities. As a result, financial institutions can expect growing competition from such innovators.
This pressure to evolve quickly comes while the industry is facing significant headwinds. The potential for “higher for longer” interest rates and dampened consumer spending are impacting revenue growth in many sectors squeezing profitability, and regulatory scrutiny is intensifying. Financial institutions must navigate these challenges while also investing in new growth opportunities and meeting customer demands.
Building Blocks Of An Ecosystem Model
A successful financial services ecosystem would provide one-stop shopping for various products and services through strategic partnerships and “co-opetition.” For example, if a customer qualifies for a home loan, the platform could automatically connect them with insurance providers in an integrated, frictionless experience. This approach has already been demonstrated in automobile sales, where the insurance is “embedded” into the purchase. The ecosystem could also leverage AI and advanced data analytics to go beyond the home purchase by providing customers with predictive insights and tailored recommendations across their retirement planning and investment portfolios.
A viable ecosystem would need to maintain compliance with rigorous regulatory standards for third-party risk management and approval processes for participating providers to ensure consumer protection. Even so, this model could create mutually beneficial opportunities for both well-established financial institutions and their non-FSI partners, including fintech startups, large tech firms and consumer businesses. Tiered subscription frameworks could provide customers with different levels of access to advisory services, investment insights and financial planning tools.
Potential Advantages And Disadvantages
For customers, an ecosystem model offers the convenience of connectivity. They can manage every element of their financial life from one dashboard, instead of managing multiple products on multiple websites. If they trusted that the platform was designed with their best interests in mind, they could rely on it to meet all of their financial needs. For financial institutions, an ecosystem model presents opportunities to create new revenue streams and products. By building partnerships and analyzing how customers interact across different financial services, they can develop targeted products and services that better meet their customers’ needs.
However, regulatory hurdles could slow progress. For example, the CFPB’s recently released final rule on consumer data rights protection will place new demands on financial institutions and others to make sure there’s an operationally sound approach to protect consumers and maintain their trust in using these models. There’s also a risk of market concentration, with only a few dominant platforms emerging—similar to what has happened in the tech sector—and raising antitrust concerns.
Preparing For The Future
Maintaining the status quo is not a realistic strategy for the financial services industry. The writing is on the wall: Traditional business models will either plateau or decline. Institutions need to be open to change and proactively explore new ways of meeting and anticipating the needs of younger generations.
It’s time to ask some important questions:
• Is the industry ready to embrace an ecosystem model?
• What requirements must be met for a new business model to thrive?
• How can organizations balance innovation with regulatory compliance?
By deploying innovative offerings, financial institutions will influence and impact almost every aspect of how customers interact for their financial well-being. Doing so will require collaboration and co-creation with other future-shaping institutions such as tech companies, consumer and retail brands, energy producers, health care organizations and regulators. And perhaps most importantly, these new models are designed to benefit not just financial institutions but individual customers and society as a whole.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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