Have Financial Services Incumbents already lost the race against Tech Giants for Banking and Insurance dominance?
Google Cloud now processes loan application
This article focuses on how Google Cloud is disrupting the Banking value chain and what can be predicted for the insurance value chain.
The changing nature of the competitive environment makes digital transformation even more urgent!
The Financial Services Industry is one of the first Global Industry. Its Globalization started in the mid 80’s — early 90’s, powered by the early adoption of new technology.
Incumbents, over the years have deeply customize systems which were core to building a competitive advantage. Built around in house processes, these systems have incrementally become more efficient and have generated significant productivity gains.
The more those core systems were customized and intertwined, the more we became prisoners of what is now called “legacy systems”. One of the best latest examples is Australian regional Bank “Suncorp Bank” having tried to walk away from Hogan to a new Oracle platform. The 2 years project was stopped after 4 years. Suncorp announced to the market this week a $90M impairment. https://www.itnews.com.au/news/hogan-to-endure-at-suncorp-after-oracle-core-flop-548026
Google Cloud now processes loan application
Google recently announced the launch of an AI-powered product for banks to process Loans for Small Businesses.
It is not the first time Google is leveraging its technology dominance to penetrate the FS Industry. This industry is one of the 6 verticals that Google is heavily investing in as growth corridor.
It is first an opportunity for Google to showcase their Cloud capability in a B2B context.
Loan Processing is also a key component in the Banking value chain. From a customer perspective it is a “Moment of Truth” where one can judge the performance of its banking provider, outside of the simple day to day transaction and savings products. There is a high emotional charge associated with the acceptance or denial of a loan. It is the gate for funding a project or an asset and customer patience is often tested with Loan Processing.
Google chose to launch that AI-powered product during Covid19 when banking institutions’ staff are reduced and Business Loans application surge.
Google suite of tools will enable an automated end-to-end application process and will fast track the decision. This capability is composed of 3 tools:
1) A Loan Processing Portal a web-based application that lets lending agents and/or loan applicants create, submit, and view the status of their PPP loan application.
2) A Document AI PPP Parser API, which uses AI to extract structured information from PPP loan documents submitted by applicants.
3) Loan Analytics, which helps lenders quickly anonymize sensitive information, store information securely and perform data analytics on historical loan data.
What about the Insurance value chain?
Although this example applies to Banking it is fascinating to note that Google has chosen a high value “Moment of Truth” in the banking value to demonstrate their capability. It is traditional strategy of disruption to target a highly valuable component of a value chain to destabilize incumbents.
The same could happen in the Insurance industry and Google has already started with Google Nest and their Connected Home offering. Those devices are capturing key data that can provide an underwriting advantage. Traditional incumbents are understanding risks based on data “external” to a house (location risk exposure, construction materials, etc…). Those external data can be provided by vendors such as CoreLogic. Incumbents happened to be locked-out from data generated from within a property (temperature, humidity, habits…) which are indicators of either inherent or behavioral risks.
Like Tesla did by announcing the launch of their own insurance products using the onboarded telematics, Google or Amazon could soon launch their home insurance offering leveraging off their understanding of “household” risks.
Opportunity space
This threat presents an immense opportunity to rethink our manual processes and accelerate automation. Quicker and Better customer engagement and interactions will limit churn.
Incumbents have to stop thinking product and think customers solutions.
New technology present opportunities to rethink multiple layers of our service offering and the customer journeys.
Hyper specialization is also an opportunity, although incumbent can’t compete (yet) from a technology perspective, deep know-how in the prevention / protection industry combined with a supply-chain to fulfil a large range of claims will remain the key success factors in the insurance “moments of truth”.
Time is the key factor. Pivoting an analogue-product-centric model toward a digital-customer-obsessed one takes time.
Cost and capital required to transform are incredibly intense, this will be challenged even more due to Covid19 pressure. Big tech disruptors sit on amount of cash we can barely conceive.
To be successful incumbents will likely heavily rely on technology procured from their emerging competitors (Google, AWS, Microsoft, etc…). Understanding the long-term risks associated with the reliance on their tech stack will be key.
