The Great Convergence - What Financial Institutions Can Do To Get Ahead

Learn how FIs can gain momentum ahead of the great convergence by re-thinking their business model.
Canada Finance and Banking
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Learn how FIs can gain momentum ahead of the great convergence by re-thinking their business model.

In brief

  • We are on the cusp of a few once-in-a-generation changes that are creating a ripple effect spanning many aspects of peoples' lives, with financial services at the centre of the ripple.
  • Jumping on this critical inflection point to reimagine what your institution does, how and why can be a key step towards maintaining relevance in a future that's still taking shape.

Why? What financial services industry observers are now calling "the great convergence" is characterized by four forces driving monumental change.

1. Portable identity or self-sovereign digital identity: From provincial to federal rollouts to vaccine passports and everything in between, self-sovereign identity and personal data management mean individuals — and businesses — will have greater control over their identity. Ecosystem players — such as banks, insurance companies, utilities and government agencies — will now have more clearly defined roles spanning everything from who can issue identity attributes to who attests those attributes and holds control of the identity. Identity holders, such as individuals and businesses, will become more accountable for understanding and managing their own risk. Meanwhile, identity platforms — strategies being pursued by Big Tech — will ultimately transform into powerful relationship anchors for a nexus of services; something financial institutions must consider given the high-level trust they enjoy today.

2. Portable data: Legislation and regulation — including Bill C27, Bill 64 in Québec, open banking regulation and open data regulation — will significantly enhance the portability of customer data of all types. This enhanced portability of customer data will eliminate a critical anchor currently tying customers to their existing service providers. As a result, the consequences of poor customer service experiences will be more punishing than ever before, since it will be far simpler and quick for customers to move to a competitor than it is today. Service organizations need to rethink customer retention and engagement strategies accordingly and develop new value propositions to enhance customer "stickiness."

3. Richer, faster payments: In Canada, ISO 20022 standards open up the possibility of payments and data to operate on a single rail. This could eliminate significant operational inefficiencies by integrating payments and data into a single transaction and creating opportunities to develop innovative propositions for retail and commercial customers.

4. Central bank digital currencies (CBDC): A complete game changer for payments, CBDCs will significantly redefine the need for financial settlement and transfer intermediaries. Whether we're talking about low-value or high-value payments, eliminating the need for trusted, third-party go-betweens will change business models for current industry players, thereby significantly impacting payment-related direct revenues such as fees, commissions and floats. It could also affect indirect revenues associated with cash management service offerings. Companies in the payments business are already starting to redefine their role and value proposition in a CBDC world, moving closer to banking or shadow banking business models.

Taken together, these forces represent a total disruption to the very core of how financial services have traditionally operated by fundamentally redefining the relationship between people, organizations and the market. As the opportunity to continue to monetize their role as intermediaries dramatically shrinks or disappears, financial institutions that sit between consumers and payment providers will need to re-evaluate their purpose to stay relevant, and in doing so begin to build business models specifically for this changed reality. The real question is: how?

Organizations can begin developing a holistic vision for the future by considering the impacts of these changes and looking at business models, value propositions and offerings through the lens of a digital native. It's important to start that proactive dialogue now to understand the current state and design a meaningful future state. Framing that conversation around the why, what and where of this significant disruption is a strong way to start:

1. Gain a deep and specific understanding of what these forces will change in your context. What does digital identity really mean and what role will your organization play when people have more control over their own identity? Disconnects between what was required before and what will be necessary next can hold organizations back. As outdated tools and resources lose relevance — think paper passports in an increasingly digital world — identify where your organization can offer the greatest value for customers and consumers in a Web 3.0 environment.

2. Rethink your business's "why." Begin by fundamentally reassessing the social and economic purpose your organization serves. Will that purpose be as needed or essential in the future? Alignment between an organization's purpose and market need is absolutely critical for ongoing business growth and prosperity, so the very first step every financial institution should do in facing these forces of disruption is to re-examine its customer offerings today to determine whether they will continue to be valuable to their customers tomorrow.

3. Define where your best opportunities lie for developing new value propositions for your customers and your people. Which business streams and revenue models could serve you best in this new world? Chances are, many of the capabilities, skills and resources you already have can be channelled into a refreshed and diversified future version of your organization. From fraud management to data aggregation to open banking: consider which existing resources or practice groups could be put to better and higher use in a digital world. Employ those areas and skillsets as your springboard to new — and relevant — value creation.

What's the bottom line?

Incremental change is one thing, monumental change is quite another. Standing alone, these four forces of change present a series of individual challenges and opportunities for incumbent financial institutions. However, considered together they should create the foundation of a completely new financial services model that will emerge in the years ahead. As a result, getting ahead of the "great convergence" should pay substantial dividends to those financial institutions with the foresight to rethink their current business models before emergent market forces render those models far less attractive or possibly obsolete.


The financial services and payments environment is changing drastically – organizations that seize the great convergence as an opportunity to re-imaging their business model will maintain relevancy in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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