Three Disruptive Threats to Financial Services and Insurance Businesses in Canada

The Canadian financial services industry is facing a perfect storm in the form of three disruptive threats:

  • Rapid technological innovation
  • Changing consumer demand
  • Industry inertia

Consumer demands are changing due to technological innovation

Technology is quickly transforming the way businesses operate, and consumers’ expectations are changing along with it. Increasingly, tech-savvy consumers are making more demands of product and service providers in all areas of their lives. And the rapid rise in use of mobile devices like tablets and smartphones has accelerated the trend, and is increasing consumers’ desire for speed and ease of online service. In just the last two years, the number of people accessing the Internet via a mobile phone increased by over 60% (GlobalWebIndex).

These general consumer trends are starting to manifest themselves in the financial services and insurance context. Consumers are more fee-conscious, demand more product choice from wider variety of suppliers, and want instant and anytime online service. Consumers have been conditioned to expect lower prices for products and services they purchase online. Capgemini’s research shows that the percentage of people using online and mobile banking worldwide continues to grow, as seen in the following graph:


The Canadian Bankers Association’s survey clearly shows that Canadians are going online for their banking as well:

  • The Internet is now the main means of banking for 47% of Canadians, popular across all age groups.
  • 34% expect to be conducting their banking using mobile devices in the near future.
  • 91% say innovations have made banking more convenient, enabling them to bank virtually whenever and wherever it suits them.

Financial industry inertia

These growing consumer demands for more control, flexibility, lower costs, and faster and better service are at odds with how the major Canadian financial services players operate.

For most large banking and insurance companies, size is the biggest enemy of technological innovation. To limit risk and maintain internal control, they usually want closed networks, but this makes them less able to respond to change as quickly as smaller innovators. Combine this with increasing burdens of complex compliance and regulation in the industry, and Canadian financial product manufacturers aren’t as able to put the focus where it needs to be – on product innovation.

Financial distributors aren’t having a much easier time of it, either. Demographically, fewer new advisors are entering the marketplace, but according to the Gartner Group, the independent advisor market is growing – by 2015, 44% of retail distribution will be done through independent advisors. Most existing advisors don’t seem to be well prepared for this growth. While advisors are well above average in tech-savvy as individuals, most have been slower to change their existing process, to adopt newer, more efficient business technologies. Many still rely on face-to-face client meetings, using paper forms, and lengthy and cumbersome fulfillment processes. In addition, younger generations (who will be the recipients of the transfer of wealth from their Baby Boomer parents) are not as likely to value face-to-face meetings.

Unfortunately, the financial establishment has failed to act in any meaningful way to adjust to the new (online) world order. They’ve all developed multiple channels to serve online consumers – websites, tools, apps, etc. – many of which are excellent. But they continue to operate the business within the same old structure, the same supply chain, and the same model for client interaction.

It’s a model that is unfriendly to independent advisors challenged by multiple product manufacturer websites and processes, and one that doesn’t allow for lower-cost product development. And in a long-term low interest rate environment, Canadian financial institutions have chipped away at consumers’ investments through product and service fees – while realizing record-breaking profits. It has eroded consumer loyalty, and created an ideal environment for new entrants to threaten traditional financial product and service providers.

As part of an underdeveloped Canadian retail landscape, Canadian financial institutions understand that something has to change, that they need to embrace new ways of doing business, but have been relatively slow to respond. The door has been opened for new, low-cost innovators to make their mark.

Download free white paper

To learn more about the changing financial landscape in Canada and the solutions that already exist, download the free white paper “The Game is About to Change” by Rick Hyde, Ticoon President and CEO.