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A growing number of digital-native start-ups, as well as established tech-savvy incumbents, had been disrupting traditional business models long before Covid-19 arrived.
The pandemic gave those disruptors more impetus, forcing the hand of companies that had previously dithered around digitisation. A so-called tipping point was reached.
Digital solutions were adopted to facilitate customer interactions, enable remote working, support supply chains, create new avenues to market, save costs and streamline operations.
A 2020 global survey by McKinsey & Company concluded that Covid-19 “accelerated the adoption of digital technologies by several years and that many of the changes could be here for the long haul.”
The survey notes that interactions within both external supply-chains and internal operations are being rapidly digitised to support remote work and decision-making. But it is on the product side that the most pronounced step-changes are occurring.
The rate at which companies are developing digital or digitally-enabled products and services is accelerating across the board. But the pace of this change has been quicker in some industries, including financial services.
This wave of digital disruption will create opportunities for businesses and consumers in the post-pandemic world as digital-led innovation transforms banking, wealth management and investing, and new technologies such as blockchain disrupt existing financial services and create new possibilities in areas such as asset ownership, transfer and monetisation in both the physical and virtual worlds.
The human factor in tech disruption
The pandemic’s impact on global financial markets was unprecedented in the modern era. The Covid-19-induced market crash spooked investors and eroded wealth while the subsequent rebound created opportunities to recoup losses and realise significant returns.
Capitalising on the investment opportunities that emerged amid the market turmoil required cool heads and astute decision-making. This scenario reaffirmed the need for advisory-led wealth management and investment advice at a time when technology was becoming more pervasive.
“The pandemic helped to entrench the high-tech, high-touch wealth management and investment model,” affirms John Elliot, Head: Fintech and Open Banking Partnerships at Investec.
This model blends man with machine, applying intelligent digital technologies like automation to handle mundane back-office tasks, and artificial intelligence and machine learning to support investment decisions and asset allocations, as examples.
The pandemic helped to entrench the high-tech, high-touch wealth management and investment model.
Platform-based fintech innovation is also making financial services more inclusive by creating the economies of scale needed to lower costs and investment minimums while broadening access to financial services, advice and a more diverse range of assets via digital channels for both individual and institutional investors.
This digital-led innovation drive will continue to present opportunities for companies that are able to combine human insight with technological innovation to create new kinds of financial services.
For instance, fractional share ownership – providing investors with the ability to purchase a portion of a stock that is less than one full share – creates opportunities for more consumers to invest in equities, including access to shares in the world’s most valuable companies.
Providers that can transform or reimagine the customer experience by improving the digital interfaces that clients use to access existing or new financial services will also create opportunities to gain market share and capture the emerging generation of digital-native consumers.
Customisation through open and programmable banking
Open banking allows approved third-party applications to securely connect to a client's bank account via open application programming interfaces (APIs). This enables financial service providers to better serve the increasing number of clients who prefer to transact digitally.
“Historically, it's been hard to innovate in the financial sector because banks and financial service companies held considerable client data that fintechs found difficult to access,” explains Wayne Summers, Head of Open API’s at Investec.
“Leveraging open APIs would stimulate innovation in financial services and reduce barriers to entry. In this way, the transition to open banking has a huge part to play in driving economies forward.”
Access to consolidated client information across a customer's banking and investment portfolios via open banking is going to transform the way we bank and invest, Summer’s believes.
“Third-party providers could use this data to build tools that meet specific client requirements, while driving new business ventures for banks. This will revolutionise the way we manage our money and grow our wealth.”
For example, Investec has partnered with Monese and adopted the fintech service provider’s Banking-as-a-Service (BaaS) platform to improve onboarding services for clients in the UK and launch a business current account for private companies.
Programmable banking, a new client initiative in South Africa will take the customisation that open banking enables to a whole new level. The ability to access core banking systems will allow customers to craft the banking experience they want by creating novel services or improving existing processes.
“Clients ultimately know their businesses best. Programmable banking will allow them to access an account within which they can code different rules to perform specific tasks and functions that will add significant value to their day-to-day operations,” says Devina Maharaj, Head of Programmable Banking
For now, programmable banking remains in the domain of the software developer. But advances on the horizon will soon make programmable banking available to everyone.
Clients ultimately know their businesses best. Programmable banking will allow them to access an account within which they can code different rules to perform specific tasks and functions that will add significant value to their day-to-day operations.
Digital assets supported by blockchain and crypto
Digital disruption is even challenging the traditional concept of money with the advent and rise of cryptocurrencies and the underlying blockchain technology.
“More than 80% of the world's central banks are experimenting with some form of digital currency. A retail digital currency would offer advantages to regulators and consumers because it is auditable and makes money flows traceable, which could help to combat financial crime and limit tax avoidance,” continues Elliot.
And cryptocurrencies and blockchain technology will become increasingly relevant as people spend more time working, shopping and socialising in the digital realm.
“The convergence of two powerful trends – non-fungible tokens (NFTs) and the metaverse – will create significant opportunities for businesses and individuals that understand what these new technologies mean and how they can leverage them,” suggests Chris Becker, Blockchain Lead at Investec.
While still some way off from mainstream adoption, emerging applications of NFTs promise to change the way we protect and monetise content rights.
“Any person or business that creates digital content can monetise their intellectual property or goods via license usage rights, perpetual royalties or through the transfer of ownership. Giving digital assets an economic value will spawn new business models that accept cryptocurrencies as payment.”
Becker believes this will create entirely new markets and support a thriving economy within the metaverse, an emerging 'digital universe' enabled by virtual reality, augmented reality and video.
“NFTs will allow us to accumulate wealth and assets in the digital world that we can then externalise into the physical world,” says Becker.
The convergence of two powerful trends – non-fungible tokens (NFT) and the metaverse – will create significant opportunities for businesses and individuals that understand what these new technologies mean and how they can leverage them.
South Africa's potential as a global tech hub
The world's transition to platform-based commerce and cloud technologies has exponentially increased the demand for digital skills.
That presents an opportunity to introduce initiatives that will develop digital skills that will create job opportunities. Building the capacity and capabilities to meet this demand is vital in a country like South Africa, where unemployment currently sits at 34.4%, which includes 9% of university graduates.
However, the country is currently behind the curve in terms of digital skills. Unless we implement focused initiatives that accelerate digital learning, the country risks losing out on a massive opportunity and ultimately falling further behind in terms of its competitiveness in the global arena.
“The private sector has a critical role to play here by helping to re-skill suitably equipped university graduates to become software engineers,” explains Malcolm Laing, Chairman of Investec Global Services (India) Pvt Ltd.
Laing also highlights the existence of global employment opportunities for South Africans, particularly in the EU.
“By ensuring people are adequately trained, highly employable South Africans can enter the global marketplace to meet the rising demand for scarce skills and potentially earn foreign currency,” continues Laing.
Amazon’s announcement in April that it would be building a new headquarters for its African operations in Cape Town also highlights another opportunity: South Africa’s potential to become home to data centres for big tech companies.
“Our time zone, large talent pool, advanced technological capabilities, and English language proficiency, coupled with our relatively low labour costs compared to other European markets, can also support a thriving business process and services outsourcing sector.”
And a strong outsourcing market will contribute significantly to economic growth in South Africa. In a 2020 article, McKinsey highlighted that fact “the Business Process Outsourcing sector in South Africa has not yet realised its full potential.”
Cybersecurity as a business differentiator
Protecting customer data and mitigating cybercrime will become non-negotiables for businesses serving consumers through digital media.
“As people build out their digital footprints online, opportunities will emerge for companies to create and offer services that protect our digital identities and data, and ensure our privacy,” explains Herman Young, Global Chief Information Security Officer at Investec.
Understanding the complexities of GDPR and POPIA regulations and how companies should weave these requirements into intuitive and client-centric digital experiences will create opportunities for providers that specialise in cybersecurity and help companies meet the demands posed by the dynamic digital regulatory environment.
Companies that are able to internalise these imperatives into the way they think about their digital products will increasingly have a competitive advantage over those for whom security and privacy are afterthoughts.
Moreover, companies that fail to adequately protect customer data will find themselves marginalised in favour of those that do.
Additional services envisioned by Young include virtual security and digital afterlife services that help surviving family members manage a deceased person's digital estate.
“When we can seamlessly transition between the virtual and physical worlds, security issues will arise. And as people accumulate more digital assets and wealth, and our virtual and physical worlds converge, we will need services that allow family members to access things like crypto investments, projects and encrypted services.”