31 March 2015

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John Persico - www.Modeloff.com

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Why Financial Services outsourcing is the future

17 February 2012  |  8534 views  |  0

The world of Financial Services is at a serious crossroads.  Whilst many in the Finance profession sniggered at the recent motivations and methods of the worldwide “Occupy Wall Street” movement – a deeper, more subtle Financial Services industry transformation may already be underway that might well validate their sentiments over the coming decade.  At this crossroad, we are beginning to witness a systemic change in the way Financial Services organise knowledge, people and other resources in delivering value to their changing clientele. With thousands of major banking and financial services institutions shedding and restructuring employees – two seemingly simple but profound economic questions arise:  where will all the finance professionals eventually go? How do they adapt and continue to add value within a global economy?

Two important trends – technological tools and capability on demand – at the heart of the Financial Services transformation that has gained momentum over the past decade.

Consumers and workers themselves have been armoured with game changing technology and social mechanisms to find (e.g. Google), share (e.g. Facebook), communicate (e.g. Youtube), quickly learn (e.g. Twitter), connect (e.g. Linkedin), interact (e.g. Yammer) and manage (e.g. Dropbox) their knowledge and physical resources within their organisations. It’s well known that many leading Financial Services firms still prohibit these technological tools within the modern workplace.

Consumers also have online access to deep and maturing pools of skilled labour on demand through global freelancer marketplaces (e.g. Odesk, Elance, Freelancer, People-per-hour).  Consumers can use labour marketplaces to create value by outsourcing basic tasks to a 24/7 global “Engine Room” whilst eliminating non-value-adding professional processes, transaction costs and bureaucratic activities.  Modern consumers are unsurprisingly looking to access transparent, independent, authentic, value-adding and reliable procedurally straightforward financial services.

From a Darwinist perspective, it might be that many providers of Financial Services firms are adapting too slowly.  They continue to invest heavily in capital intensive buildings and systems, hierarchical organisational structures and misguided beliefs that strong relationships will forever trump a superior alternative value-added service proposition. Investing heavily in staff training and development, in some cases appears non-sensical when real staff real attrition rates are exceeding 20% per annum in some companies.  Larger Financial Services organisations – including Banks, Professional Services, Business Brokers and other Financial intermediaries – are increasingly looking to eliminate low value-adding transactional and compliance tasks to Knowledge Processing Outsourcing (KPO) and Finance and Accounting Outsourcing (FAO) centres – although the practice is still somewhat embryonic because it is argued that knowledge tasks are just too big and complex to outsource.  The crossroads is imminent – and swift action will be necessary.

The harsh reality is that consumers of Financial Services are desperately seeking new ways to access the talent, knowledge and experience of the Financial Services firms’ most precious resource - their talented people. Consumers are craving more transparent, less cumbersome and flexible ways to hire Financial Services people to solve and manage their complex financial and professional problems.  They are capitalising on the negative publicity created from what Joseph RR Templine has coined the “WebMD Effect” – moving away from the accepted word of bankers and other professionals and look to self-diagnose their own financial situation. Empowering consumers to think and act independently has been a catalyst for new opportunities in customer lifecycle management – albeit customer acquisition, retention or monetisation. 

Within the personal finance industry, emerging companies are plentiful. Wealthfront, LearnVest, Check24 and Wonga have helped recalibrate the expectations of “personalised finance on demand” by tailoring their business models, engagement methods and success strategies to specific target socio-demographic, psychographic and cultural niches.  Peer-to-peer lending (e.g. Zopa, Prosper, LendingHub) have grown enormously and have a default rate of 0.64%, attributed to the fact that people using such facilities feel accountable to each other.  Within the professional services industry, online marketplaces are emerging as a mechanism to better co-ordinate and allocate Financial Services people resources.  New freelancer marketplaces like Vumero have emerged with a clear vision to help consumers to connect and outsource simple and complex tasks to world-class Finance and Business professionals.  Project managers and management performance tools are helping to build larger workteams capable of performing more complex Financial Services projects (e.g. addressing conflict-of-interest, confidentiality, insurance, cultural alignment).  Each are offering innovative business models to exploit “knowledge arbitrage” and allow professionals greater work-life flexibility, accountability and the opportunity to work on interesting projects.  Consumers benefit from reduced cost and configuring a nimbler, smarter professional teams and incentives aligned to their objectives.

Financial Services firms of the future will need to adapt – their business models, processes, people and everything in between.  There is a huge opportunity to embrace global innovation, continuous improvement and technological change. The alternative could be dire.

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