Financial services firms across the board are saddled with legacy systems where it is difficult to meet customer needs and difficult to structure data in a way that provides insight. Many times too, acquisitions have introduced different, inconsistent data sources into organizations, resulting in a patchwork data model that cannot be industrialized.
Rather than overhaul existing systems – a process that can and will require years of transformative work – global management and consulting firm, Oliver Wyman suggests, in its State of the financial services industry 2019: Time to start again report, that companies start from scratch, adopt a venture mindset, and build entirely new technologies and organizations that are completely customer-centric.
A challenged consensus
In its report, Oliver Wyman challenges the consensus that repairing and revamping complex legacy infrastructure is the answer, and suggests that firms instead free themselves completely from legacy systems and work instead to develop a portfolio of tech investments that are funded in quick but careful and small phases.
It then also suggests firms adopt a greenfield approach, that is a method where existing firms build entirely new businesses to meet a specific customer need, to develop entirely new technology infrastructures that will stand alone from and complement the existing business.
The Greenfield approach
The paper examines the potential that exists for industry players to begin anew, areas in the industry where new technology and businesses are already having a proven impact, and how existing firms can deploy a greenfield approach to deliver new growth and to accelerate transformation of the existing business.
“We believe the quality and low cost of new technology, the potential for dramatic change in competitiveness, the potential for reduction in conduct and cyber risk, and the scope for smooth migration all add up to making this idea compelling now,” writes Ted Moynihan, managing partner and global head of financial services with Oliver Wyman.
“First, time to market and build costs have decreased dramatically thanks to advances in cloud-based services and technology,” say the report’s authors. “Second, starting with a blank slate, it is possible to create businesses that are digital by design and have significantly lower run costs. Third, new business models and data driven approaches are winning over customers,” an important consideration in a space where big tech players like Amazon and Apple have only scratched the surface of what they might do in financial services.
Quicker and cheaper
The report says using a greenfield approach, it is possible to build a digital banking or insurance platform that is open to customers in just 12 months, at a materially lower cost than in the past. It points to startup firms which have been able to go to market with rudimentary banking and insurance propositions for less than $5-million (plus considerable sweat equity, they note). Incumbent firms, they say, are going live with more robust offerings for between $10-million and $60-million.
The paper examines different cost and innovation drivers across the gamut of financial services, from retail and corporate banking, both P&C insurance and life insurance channels, and in wealth management and asset management. It also explains what firms need to have in place before embarking on a greenfield build and where to begin.
Customer data are the key
To be truly effective, they say a greenfield solution needs to answer a specific customer need, often identified by evaluating existing consumer data, in an area that is already strategically important.
“The starting point is not a request for large amounts of funding to build the “answer.” The initial ask would be to work intensively on customer data to identify opportunities, make the unknown better known, and earn the right for the next level of funding,” they write.
The venture then needs to develop compelling customer solutions and evolve them quickly, using the flywheel effect: “Data gathered from initial offerings is used to understand the customer better and create new solutions which (in turn) bring in more data. Features are launched and tested with customers rapidly. Eventually it is difficult for competitors to even catch up.”
In cases where business lines are struggling to generate new growth, where disruptive threats are going unaddressed and in an industry where innovation efforts are incremental or not linked to the business at all, in short, Oliver Wyman says a greenfield approach will allow companies to sidestep the challenge of legacy infrastructure and get to a customer-centric solution more quickly.
