The financial services industry is going modular, with technology making it easier for customers to buy from multiple providers, opening up a multi-billion dollar opportunity for new entrants, according to report from management consultancy Oliver Wyman.
Unveiled at the World Economic Forum in Davos, where fintech is a hot topic of discussion, the report estimates that the move to modular financial services could see $1 trillion of revenues and costs shift in banking and insurance, an industry with $5.7 trillion of revenues today.
Although most of the churn will be within the establishment, new customer platforms could capture up to $150 billion - more than two per cent of banking and insurance revenue today, predicts Oliver Wyman.
Customers could be another big winner, with a wider range of product providers increasing competition and driving down costs to the tune of between $150 billion and $300 billion. Innovative business models based on new technology will win their share, with the potential to capture a further $250 billion of existing revenues.
The report notes that the large, integrated providers still have huge advantages, including existing customer relationships, secure at-scale operations and meeting the requirements of regulatory compliance.
However, costly, inflexible legacy infrastructure will be unsustainable and competition will force a significant tech overhaul, costing billions of dollars for each firm, perhaps requiring dividends to be suspended for a year or more.
Ted Moynihan, managing partner, financial services, Oliver Wyman, says: "Even if we do not expect a completely modular financial services sector, the way customers buy financial services and how firms deliver them is going to be transformed."