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 C11, 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.