Whereas new movies in 2022 are easy enough to predict, with sequels from Top Gun Maverick (May), to Mission:Impossible 7 (September) and Avatar 2 (December), there is a lot less certainty in financial markets.
Predicting the most likely developments in the banking and insurance industry is much more difficult given the uncertainties coming from the Covid-19 pandemic, higher interest rates, disturbed global supply chains and insecurity from cyber-attacks.
Still, we* found a few areas where trends are likely to accelerate:
- IoT will grow - slowly
We have been hearing about the adoption of the Internet of Things (IoT) in the banking and insurance industry for years. However, a real breakthrough in the mass market still has not happened. Nevertheless, we expect adoption to grow slowly, but steadily.
- Financial services trends in banking, discussions focus on usage-based financing for the machinery industry to transform capex to opex (Deutsche Bank calls it asset-as-a-service, Deloitte equipment-as-a-service). So far, we mostly have seen pilots only. For 2022 and beyond we expect the establishment of service entities (“special purpose vehicles”) that provide connectivity, analytics, billing etc. for different banks and manufacturers, offering maximum flexibility and market coverage. Then banks can concentrate on their part of the process and don’t have to bother about IoT-related technology details.
- Financial services trends in insurance, the most prominent use cases are smart home, smart health, and telematics. The first two use cases have gained limited market penetration so far, due to data security and protection concerns in most countries. Telematics will likely see the highest adoption rate. But car manufacturers (like Tesla) are investing massively in collecting usage data themselves for new service offerings like car insurance. Manufacturers will not give away data for free. In 2022 we expect to see a tighter cooperation of manufacturers and insurers. This includes different business models in many cases, where the insurer will only act as the risk taker (and provide “insurance-as-a-service”) and the car manufacturer manages the customer relationship.
- Crypto - From urchin to role model
In mid-November, Bitcoin once again reached a record-high price of more than $68,000. But, to date, Bitcoin (and most of the more than 10,000 other crypto currencies) are digital assets that only serve as instruments for speculation (and maybe sometimes also to pay for criminal activities). Still, we have seen many serious developments in the crypto currency universe, like the decision of European Central Bank to start developing a Central Bank Digital Currency (CBDC). Plus, many countries have introduced regulations to provide a basis for banks to work on new projects.
In 2022 and beyond we will (again) see an increasing number of projects for different use cases based on blockchain or DLT, such as trigger solutions for programmable payments, stablecoins, CBDCs, electronic securities and trade finance. While many solutions are still in MVP/sandbox mode, more and more will go into productive use. This goes along with an increasing complexity due to the need to create interoperability between the involved stakeholders and their respective systems.
Interoperability will not be limited to the owner organization, but will have to span the entire network of partner banks, customers etc. One example underlining this complexity is the multi-CBDC network that was just proposed by J.P. Morgan and OliverWyman. So, without doubt, blockchain/crypto/DLT will make its way into some prominent parts of the IT landscapes of banks and insurance companies.
- Big tech’s banking dreams evolve
The trend of big tech companies “nipping at the heels” of the traditional financial services companies is going to morph. You will see Apple, Google and Amazon’s paths diverge in the ways in which they focus resources to generate revenues in the banking space.
In November 2021, Amazon Web Services announced a partnership with Goldman Sachs (GS) to offer financial data management and analytics services on the AWS cloud. This is a new subscription revenue stream for GS but, even more importantly, it’s part of a larger trend where banks partner with hyperscalers to offer cloud services – banking-as-a-service is just the beginning. This can be a sweet spot for AWS as banks have overcome their traditional anxiety to move data outside their firewalls to process in the cloud.
On the other hand, Google scuttled its exercise of working directly with banks (Google Plex) last October. The plan to pitch bank accounts to users seemed mostly dead. But then, just a couple days later, 11:FS Foundry announced a partnership with Google Cloud to offer an end-to-end solution for businesses building new financial services propositions to Google Cloud clients. This is just one of many announcements that we will see in 2022 as Google moves towards focusing the scale, technology and ecosystems behind financial services offerings instead of offering Google-branded products themselves.
In 2022, Amazon and Google will battle it out with Microsoft to dominate cloud and technology services to financial services companies. But Apple will use its mastery of the customer experience to take a different route.
Just as the iPhone has become embedded into modern lifestyle, financial services will ultimately become embedded into your way of living – and Apple is uniquely positioned to partner with traditional financial services to make this happen through its products. This will happen through the next generation of open banking - embedded finance - which is the contextual offering of financial services in a way that’s relevant to consumers, with an understanding of what their needs are. This is seamless, just-in-time financial services.
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*The article was co-written by Steffen Lorenz, Business Consultant, Financial Services, at Software AG.