Last month, in partnership with Deloitte, the World Economic Forum, with a mission to improve the state of the world published an insightful report on how disruptive innovations are reshaping financial services.
A worthwhile read in its entirety, the report set out to engage with both the industry leaders and innovators to understand what are the changes that are really happening, how they impact the various financial services and perhaps more importantly, is this disruption for the betterment of the world economy. Being in a unique position of working with both existing providers as well as some of the new innovators especially in the alternative lending space, Mambu was able to contribute to understanding the trends and speculate on the possible implications.
In all, the report agreed with what we’re seeing as the major trends from the pressure of alternative lending on the overall industry:
- Alternative lenders could successfully move upstream to replace traditional institutions in intermediating prime loans while traditional lenders, restricted by legacy, lose market share
- Traditional institutions and alternative platforms may continue to cater to different classes of investors and borrowers, especially with growing partnerships between smaller traditional institutions and alternative platforms
- Traditional institutions could also transform their processes and technologies, potentially absorbing alternative platforms, to adopt the key features of alternative lending business models
These three paths are already clearly playing out in the market in front of us and in fact, are really the only three ways the industry could develop. However what nobody knows, and the report is unsurprisingly unable to conclude, is to what degree each of these futures will play out and in which markets – both geographically as well as by products and segments. It’s a combination of these changes from the bottom, as well as the larger macro-economic trends that will fundamentally change the financial services ecosystem in the next decade.
In many ways the financial services landscape feels similar to the initial internet excitement in the late nineties. The story was that ‘this changes’ everything, and looking backwards that was absolutely right. Yet those changes took longer to play out and in many ways still feel in their infancy. Google went public four years after the crash, Facebook was founded around that time and went public only a few years ago. The concept of mobile was a non-factor until eight years after the initial internet hype and now is the primary driver for changes. The ‘direct’ economy of AirBnB, Uber and even P2P lending platforms was essentially irrelevant until only a few years ago, well over a decade after the initial ‘hype’ around the internet calmed down.
The world of financial services is more constrained and more simple that these other industries. It is also more conservative, more regulated and tied deeper to major economic and political trends. The WEC report certainly sheds light on the changes that are happening and the different ways they play out but also goes to show just how little idea we have about what this landscape will really look like. The only thing that’s becoming about the future is that it will be technology driven, more transparent, offer more choice and be more inclusive. That’s something worth supporting.