The Way Forward: Confronting Today’s Challenges in Financial Services

At Microsoft, we recognize the challenges that financial services are facing—from increased generational shifts and changing customer expectations to increased competition and alternatives outside the financial system. In a rapidly changing world, choosing the path forward is not an easy decision.

The emergence of new competitors poses a critical challenge to deciding which road to take: new entrants have fundamentally different ways of thinking—they challenge orthodoxies and rewrite the rules. We have seen this occur in other industries—who could have predicted the hospitality or transportation industries disrupted by a couple of user-friendly apps and well-designed platforms, like Airbnb or Uber? Or that the venerable newspaper industry, that once relied on classifieds for over 70 percent of their revenue, would be decimated by the likes of Craigslist and eBay?

These unexpected events dramatically reshaped entire industries and established an entirely new order. And, when this happens, it isn’t always the strongest who survive, but rather those who are the quickest to adapt and most willing to rethink their existing, profitable lines of business.

Banks especially are facing competitive pressures on four different fronts:

  • An empowered generation. Millennials have a decidedly more entrepreneurial mindset than any previous generation. They want to be in control of their own finances and are far more willing to embrace a self-service model. They are more likely to question prevailing wisdom, reject a one-size-fits-all mentality, and embrace assembling their own solutions.
  • Simple, intuitive experiences. In our fully mobile, app-driven world, customers demand simplicity and are far less complacent when confronted with structural inefficiency. They want services that are on-demand, integrated, and friction-free. They expect consistent, intuitive, and meaningful experiences.
  • Non-banks and challengers. Technology companies such as Facebook, PayPal, and Apple offer products that were once the exclusive domain of financial services. From ad hoc digital wallets to real-time payments, the blurring of industry lines and encroachment into traditional banking territory is the new reality.
  • Rise of fintechs. Fintech startups, born in the cloud and less constrained by regulatory requirements and legacy costs, represent a special challenge to incumbents. They target the most profitable areas in financial services while also delivering better customer experiences. In extreme cases, fintech solutions offer services completely outside of the monetary system, such as bitcoin, that may call into question the very need for banks.

Empowering our customers in financial services to innovate is central to our mission: we understand that transformation can be challenging, but we also believe that it holds incredible promise. Our approach is to leverage technology in novel ways—enabling business agility with the tools that will define the future of banking.

As your trusted technology partner, we offer both industry know-how and enterprise-grade solutions. We can help no matter where you are on your digital transformation roadmap.

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