Financial services is one of six "digitally contestable markets" that are likely to be disrupted by competitors that operate beyond traditional industry boundaries. That's according to new research from Accenture that was released in conjunction with the World Economic Forum in Davos, Switzerland. The report suggests that effective growth strategies increasingly will require companies to look outside of their established industries for underserved customers or untapped revenue opportunities -- a prediction that has significant implication for the banking industry, which already is facing serious challenges from a new breed of tech-enabled non-traditional competitors.
Mobile carrier T-Mobile's recent launch of its Mobile Money personal money manager service -- targeting unbanked and underserved consumers with a smartphone money management application designed for use with a re-loadable T-Mobile Visa Prepaid Card that offers reduced fee or $0 cost services for registered T-Mobile wireless customers -- shows that this isn't just a prediction. It's a real trend that is gathering momentum now.
[Recent consumer research from Accenture finds banks should adopt a digitally driven business model, specialize and simplify their operations: Banks Don't have Much Time To Embrace Digital Model]
The report, "Remaking Customer Markets: Unlocking Growth with Digital," includes a survey of 500 C- level executives in 10 countries. This research found that while 64% of respondents said their companies will continue to focus on growth within their current industry, 60% plan to pursue growth in, or in collaboration with, other industries in the next five years. Much of that activity will take place within the six digitally contestable markets, "in which established and new players from multiple sectors are using digital technology to reshape traditional industries and create higher rates of growth: Healthcare, education, financial services, manufacturing, retail and transportation," according to the Accenture report.
For example, Accenture reports that the UK's core financial services sector is projected to grow at 2.0% per year between 2012 and 2018, "but the wider digitally contested 'paying' market will experience annual growth of 2.9%, thanks to digitally enabled trends such as crowd funding, peer-to-peer lending services and virtual wallet applications."
According to the report, in 2018 the aggregate value of three digitally contestable markets -- paying, shopping and staying healthy -- will account for US$5.9 trillion to the U.S. economy, €747 billion to the German economy and GBP£519 billion to the UK economy.
In general, collaboration, rather than acquisition, appears to be the preferred mode for companies planning to participate in digitally contestable markets in the next five years. According to Accenture, of those companies seeking growth beyond their current sector, 63% reportedly will create strategic alliances and 46% will enter into joint ventures. Only 39% of respondents said their firms plan to expand into non-traditional industry sectors through M&As.
However, while it appears that executives who participated in the study recognize the challenges to their own industries, only 38% of them said these shifts would be the primary driver of their company's strategy. Sixty percent of respondents said their strategy will be influenced most by broader economic conditions.
"Although companies recognize the potential of digital transformation, many are not yet aligning their growth strategies accordingly. Revenue growth will increasingly depend on their ability to embrace digital business models to redefine their own sectors, transform the way they operate and create entirely new products and services," said Mike Sutcliff, group chief executive, Accenture Digital, in a statement.
There are three key capabilities that must be mastered by companies that hope to be able to expand and compete in digitally contestable markets, according to Accenture: use digital to anticipate customers' needs; be prepared to take on different roles with partners ("For example," the report relates, "a Spanish telecoms provider entered new markets by working with a leading bank to support e-wallet and peer-to-peer payment apps and with an Italian insurance company to provide 'pay-as-I-drive' car insurance services); and use digital to speed up decision making and product development.