The 5G Frontiers in Finance v19

Frontiers
in Finance
For decision-makers in financial services

Issue #57
kpmg.com/frontiersinfinance
Foreword
Letter from the editors

Change and innovation are not new to financial services. If anything, these are
the few things that have remained constant in our dynamic sector. However,
what is different today than what we have experienced in the past is the
interconnectedness of our market and society as a whole. No longer is disruption
restricted to just one corner of the market. The same can be said about innovation
and opportunity. An idea, innovation or discovery in one area of our sector often
has implications across financial services and even the world. The implications of
innovation and technological advancement that we are witnessing in specific areas
of financial services — be it cognitive computing in asset management or deep
customer insights gleaned from data lakes in banking — are being felt across the
industry in many interesting ways. In this edition of Frontiers in Finance, we attempt
to showcase a few examples of the breadth of change occurring in our sector.
The rapid development of the fintech sector is increasingly driving change not
only in the operations of our industry itself, but also in government and regulatory
responses to risk and uncertainty. In recent months, a number of governments
have announced regulatory sandbox programs to explore and encourage the
value of fintech, and to help fintech companies manage the regulatory challenges
associated with new technologies. In parallel, it is clear that a large majority of CEOs
are concerned about how to integrate technologies such as artificial intelligence
and cognitive processes into traditional automated business processes: regulatory
technology (regtech) will help reshape the financial industry’s approach to regulatory
compliance.
It is, of course, true that advanced technology and automation will transform rather
than eliminate the expertise and judgment needed to manage financial services
in times of continuing turbulence. Key decision-makers responsible for people
and skills will need clear strategies to tackle the challenges of market disruption,
innovation and digital labor, and we offer them some pointers.
Against these backgrounds, local and sectoral perspectives continue to pose

fascinating challenges. For example, demand for home loans continues to be strong
in Canada, the US, the UK and Australia despite increasing gaps in affordability. Mobile
apps and aggregator websites make it easy for prospective customers to compare
offers across lenders. Hence, retail banks across the globe are having to invest billions
Jim Suglia of dollars in digital technologies and advanced analytics to deliver a winning customer
KPMG in the US experience. A recent KPMG survey offers some valuable insights to guide them.
In insurance, many firms still use outdated, inefficient and labor-intensive claims
models. Price sensitivity and competitive pressures are bringing these models
into question. We consider how current developments in technology can improve
both policy and processes, and reduce claims management and settlement costs.
Furthermore, the disruptive potential these technologies present suggests that the
insurance sector is ripe for radical change, much as the banking sector experienced
several years ago. As a result, across the globe, venture capital investment in
insurance is increasing rapidly, a trend we expect to continue.
Ton Reijns
KPMG in the Netherlands
Jeremy Anderson’s keynote article looks at the questions senior executives in
financial services face today in addressing the innovation and new technologies
being introduced across the industry: which areas to invest in, which have the
greatest potential for return on investment, and when and where to take a calculated
risk. Executives understand their operating models have to evolve and in some
cases utterly transform, but as we all know, the key to winning is understanding
where and how to place your bets.
As implications of new innovation continue to be felt, we focus on the horizon

Maria Trinci and what is coming next to help our clients move forward through their evolving
KPMG Australia business journeys.
© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Contents
04 Management and governance
Chairman’s message
How can we bring innovation alive in 14
financial services and create organizations The transformative power of regtech
that balance today’s customer needs with Regtech solutions adapt to the needs of an
preparation for the future? ever-changing regulatory environment and
the technology delivers against a broader
range of business challenges.
18
Governments’ role in the evolution of
fintech
As fintech startups scale to prominence,
the question is: what role should
government play in supporting and
promoting the fintech sector?
Business and operating models

22
Making automation work: Insurers
adopt digital labor
Creating the right digital labor strategy is
an important enabler and there are clear
factors that drive success in the insurance
sector.
26
Insurers are on the road to strategy-
aligned deal-making
The pressure to transform is immense in
Technology and market trends the insurance industry, and deal activity is
06 seen as key to achieving this objective.
The rise of the humans and the future
of digital labor 28
Decision-makers concerned with the Making a strategic lane change: An
future should ask themselves whether interview with Chris Wei, Aviva
they are pessimistic or optimistic about A few innovative insurers have started to
the impact new technology may have. make drastic shifts to progress their growth
agenda, such as Aviva.
10
Can banks win the fight for home loan 30
customers? The innovation imperative continues
Intense competition for home loan Investor interest in insurtech, the cutting-
customers is causing retail banks to seek edge technologies helping to change the
innovative ways to differentiate their offers face of insurance, is exploding, and poised
with a better customer experience. for more growth in the year ahead.
Innovating for a
digital world
By Jeremy Anderson
Chairman, Global Financial Services
social tensions increase between the haves well-established institutions but also for new
and the have-nots. Rebuilding trust and entrants seeking to build new enterprises.
credibility depends on getting this right. While the development of cloud services
initially focused on simple transactional
A key issue, then, is how to bring innovation processes such as ledger systems, it is
alive in financial services, and create quickly expanding to embrace global, cloud-
organizations that balance today’s customer based operations such as risk systems,
Jeremy Anderson needs with preparation for a future that actuarial modeling and secure systems for
I
could look very different. If we were to take rapid processing of onboarding, know-your-
n the previous edition of Frontiers in at face value the more exaggerated claims customer operations and other regulatory
Finance, we noted the re-awakening of for developments such as cloud-based requirements.
a sense of urgency towards growth and computing, cognitive technologies, robotics
transformation in the financial services and blockchain, we might conclude that the As cloud technology comes of age, it can
industry. In particular, we explored some financial world will soon be transformed into begin to be used for more complex and
of the challenges inherent in embracing the a nirvana of inexpensive, consistent products secure operations, protected by security
digital age; and the implications of bringing and services delivered instantly online via standards that are already now as good
innovation to the heart of core business tablet and smartphone, from financial advice as the best in the industry. It is important
processes in order to both reduce costs and for retirement to complex mortgage loans — to note that this is not just a cost reduction
transform business model dynamics. all in a matter of minutes. ploy. Many of our clients are also finding
real benefits in terms of sustainability,
The ‘digital customer’ is much talked about. But of course immediate and effective consistency and easy upgrade paths for
‘Digital innovation’ is also the focus of implementation of a huge range of new developments. Regulators have also
executive bandwidth. But here we look at transformative technologies is not a realistic been quick to respond to the opportunities.
some of the issues of the third pillar of digital prospect. The adoption rate of technological In the ASEAN region, for example, one
transformation — the ‘digital enterprise’. innovations increases as they become financial regulator sees the potential of cloud
proven, and the difficulty for management technology underpinning a range of fintech
— How can new technologies help us cope (especially for senior managers not developments as an important contributor to
more efficiently and effectively with the personally close to the delivery and reducing costs for consumers and pursuing
burden of regulation that the industry has deployment of new technology) is to its goals for financial inclusion. When
had to absorb over the last 7 years? assess when, and how boldly, to place their regulators appreciate and promote new
bets. Leaders in financial services have to technology in this way, it is a sign that it has
— How to reduce employee costs and determine the fundamental business cases really come of age.
improve productivity through the for these new enabling technologies; and
adoption of digital labor, robotics and when and how to adopt them. Should they On the other side of the equation, there
cognitive tools? be pioneers, fast followers or skeptical are growing competitive threats from
observers, allowing others to take the lead those organizations — from outside the
— How can technology best be in the first wave of introduction? established financial services sector —
harnessed to pursue the goals of who are masters of the platform approach.
financial inclusion and to deliver We can consider some of these Companies such as Amazon are promoting
desirable products and services at opportunities in more detail. cloud-based industry vertical tools
reasonable cost to the consumer? in a manner that is the envy of some
Cloud-based computing established financial services providers.
The last point is a critical issue for the The transformation to cloud-based services They are making available specialist
industry as the gap between the richest is clearly now a mature strategy, and one applications and application programming
and poorest widens in many societies, and that provides major opportunities not only for interfaces for authentication, biometrics
4 | Frontiers in Finance
and integration of pre-existing applications in that major investment is needed to extensive collaboration across existing
in secure ways intended to help the underpin artificial intelligence learning and corporate and sectoral boundaries.
process integration and fast development enable its full potential to be realized. It is
and prototyping of online digital services. still in its early days; skilled professionals will To the extent that financial services firms
More and more senior executives in the not be supplanted — or even significantly have to adopt similar strategies, they will
industry ask me whether the technology supplemented — by cognitive systems have to deal with comparable implications.
giants present a greater threat than the in the near future. But the direction of Softening organizational boundaries carries
fintechs in disrupting business models. innovation is clear. significant risks for security, for protecting
the sources of competitive advantage and
Blockchain However, the longer-tem implications for compliance. On the other side of the
At the other end of the innovation spectrum, for employment and skills are less so. fence, financial regulators face increasing
development of blockchain technology — There is an unresolved debate among difficulties. The philosophy of regulation,
digital ledger services — is still in its early economists over whether digital labor, like almost by definition, depends on there being
days, but progress is moving much more other transformative technologies, will clearly defined and delineated entities to
quickly than was previously forecast. create or destroy jobs. Optimists argue be regulated. As this changes, the practice
Applications are being trialed in areas as that technology always creates net new of regulation will have to change with it,
divergent as derivatives, payment systems, employment as the economic growth it to focus on cross-boundary processes
client onboarding, investment management stimulates outweighs the destructive impact rather than in-company management and
and insurance contracts. Many of those now on older industries. Pessimists argue that systems. It is to the credit of many regulators
engaging with the blockchain ecosystem are this time it is different; and the persistent that they have recognized the potential
surprised by the speed of this progress. structural unemployment in parts of the of technology and innovation to improve
developed world could suggest that digital the industry while bolstering consumer
It was previously assumed that the major technology is already having a detrimental protection and economic robustness. We
benefits of blockchain would emerge impact. These are deep issues that we plan review the increasing use of regulatory
slowly, being dependent on network to pick up in a future edition of Frontiers. sandboxes to encourage controlled
effects, multiple participation and critical experimentation elsewhere in this issue.
mass. Today, new concepts are being Porous boundaries
originated continually, to the point where we As organizations struggle to develop Looking forward, however, if we begin to
are reaching a critical turning point for their more agile operating frameworks see much more widespread cross-sector
adoption as transformational elements in new to confront these multidimensional convergence, with skills and techniques
business processes and business models. challenges, they face a dilemma: should being transplanted from sectors far away
The major constraints now lie in creating they aim to pursue innovation within clear from financial services, regulators may
robust business cases and ensuring the and existing organizational boundaries? have to confront real trade-offs between
extensive implications of the technology are Or is it quicker and more effective to build the pillars of financial stability, consumer
thoroughly understood before deployment. networks and partnerships with small, protection and the drive for innovation
agile specialists — in fintech, insurtech, and new thinking. An agile and effectively
Strategy and implications regtech and the rest — who can boost regulated financial services sector is
Technology alone cannot carry the whole internal innovation potential? In the essential to social and economic stability.
burden of innovation. As we have seen, the second case, we could increasingly see One of the lessons of the global financial
case for cloud technology is already made major established players developing crisis is that if innovation is driven outside the
and accepted. That is readily becoming softer and more permeable boundaries, system by intensive regulation, it can cause
apparent for blockchain. The key issues with ideas and solutions moving more serious damage to consumers and to the
are managerial: how best to move from freely through the organizational wall wider economic system.
proof of concept to end-to-end beneficial as required.
impacts on core value chains or key product Looking ahead
and market sectors. Senior management The automotive industry is facing similar In many ways, perhaps we can again look
and technologists need to work together challenges, and it is fascinating to see to the future with a sense that the best of
to appreciate the real potential benefits, similar strategies and similar processes times may be coming for financial services.
assess the scale of change required and emerge. For example, the development We noted in the last edition a renewed
innovate effectively across complete end- of autonomous self-driving cars depends sense of the opportunity for innovation and
to-end processes. The realities of change on an intimate convergence of automotive growth in our industry. There has never
management — human resources, time, and computing technology, so that a car been a better opportunity for companies
costs, data — will really bite on the adoption will increasingly become a computer to innovate and reinvent themselves at
of these technologies. on wheels; it is no accident that Google previously unimaginable speed. And
is one of the prime movers in this field. yet it could also be seen as the worst of
Developments in digital labor, from robotics But as this technology matures, it carries times — in order to capitalize on these
to full cognitive computing technologies, significant implications far beyond the opportunities, and stay ahead of changing
will help create smooth adoption pathways auto manufacturer — including for insurers customer demands in retail, corporate and
by eliminating costs and improving and financial services organizations that other institutional contexts, leaders face
efficiency. Robotics applications are already will have to respond to major changes unprecedented challenges. Their success in
with us, taking over dull, repetitive tasks in the pattern of vehicle ownership and rising to these challenges will determine how
which otherwise depress the enthusiasm use. The energy sector, too, will face well they negotiate the transition to the new
of talented individuals. Cognitive disruption as electric vehicles increasingly digitally driven, rapidly changing, customer-
technologies face similar implementation displace gasoline and diesel. None of these focused world.
hurdles to those in the blockchain case, developments will be possible without
Frontiers in Finance | 5
Banking and capital markets
The rise of the humans and

the future of digital labor
How banks should prepare for what
comes next
By Robert Bolton, KPMG in the UK
We’ve all seen the movies and read the books. We’ve

heard the warnings about the advancement of
technology and the creation of a future dystopian
society in which technology surpasses humanity and
Robert Bolton
humans answer to machines.
I
t’s a future that many believe is The only constant is change
closer than we think, and that some Not long ago, customers relied on
finance executives are already ‘personal bankers’ to help them with their
dealing with today. For decision- day-to-day monetary transactions. These
makers concerned with the future, people walked into a branch where they
the question they must answer is this: did their basic banking business with
Are they pessimistic or optimistic about human tellers who knew their names, or
the impact new technology may have on managers who knew about their families
their industry and on their organization? and fiscal histories.
The answer, it seems, is ‘yes’.
Those days, however, are
Finance executives face a litany of factors fading fast
that spur change in their organizations; With the proliferation of automated teller
navigating through such change — both machines (ATMs), online banking, and
positive and negative — greatly impacts other automated services, customers
how they do business today and how they now do their banking whenever they
will do so in the future. want, from wherever they want, making
Digital labor’s impact on the financial services workforce
5 Cs Currently Future perspective
Compliance Human review and monitoring Artificial intelligence analyzes global

supported by analytics trading, accounting, controls and risk
management in real time
Culture of agility and innovation required

as new entrants offer banks immediate
Connectivity Personal bankers and tellers
agility and speed to market while
fostering personalized relationships
Significant demand on human resources

End-to-end operating model/value
Capability to retrain the workforce; new opportunities
chain built from functions
to become innovators of new products
outwards to the customer
and services
Retraining human roles,

Employees involved in
Cost developing/selling new capabilities
procedural roles
for investment services
Siloed based on the value chain Achieving agility, striving to meet

Capacity of sales, distribution, underwriting, customer expectations across
operations, claims and support every channel
it unnecessary for anyone to set foot in a In this new era, Schwab says, it is only total US employment) facing job
brick-and-mortar branch for anything but a matter of time before computers replacement by digital technologies
the most complicated of transactions. and robotics become capable enough by 2025.2
It’s the price of progress and part of a to replace humans in jobs that are
growing dilemma facing the financial susceptible to automation, such as bank Offsetting these changes, however,
industry: convenience costs jobs. tellers, manufacturing, and as customer experts see a series of potentially
service representatives in call centers. positive outcomes, as financial
As technology improves and machines Financial institutions are now developing institutions and employees work
become smarter, faster and cheaper, chatbots and other smart assets that to reconfigure and redesign their
it’s possible to imagine a future in gather client, economic, social and other workforces. These changes, it is
which other easily automatable parts internal data to formulate customized predicted, will lead to employees
of the organization follow a similar marketing and service recommendations. learning new skills, and the creation
path, with current human employees Banks are even exploring opportunities of more expansive and, potentially,
training their robotic replacements to to leverage artificial intelligence assets more lucrative positions within the
take their jobs. enabled with natural language processing organization. While specific titles
to provide banking services. and assignments will change from
As dire as this sounds, however, the organization to organization, we see
adoption of new technology in the The realities of what this convergence two key drivers that will manifest
workplace can, according to some could mean become clear with: change:
experts, actually be beneficial to overall
job growth and productivity. According — the Bank of England estimating — Cognitive automation drivers
to Klaus Schwab, founder of the World 15 million jobs lost from the UK
Economic Forum, our society is already economy in the next 20 years due to — Leveraged professionals —
well into the start of the Fourth Industrial robotic automation1 lower-qualified professionals who,
Revolution, which is transforming the way through technology, can provide
in which humans and machines relate to — 130 million knowledge workers the same output as a fully qualified
one another. (approximately 47 percent of professional in the same field.
1
Source: http://www.independent.co.uk/news/business/news/15-million-uk-jobs-at-risk-from-robots-warns-bank-of-
england-a6732381.html
2
Source: http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
— Connected workers — providing process by facilitating higher-purpose

all workers in a specific group or conversations designed to work out
business function with access to organizational dilemmas created by the
all of the same materials so that implementation.
Companies everyone has access to the best
information available. To that end, there are several key
that answer questions that companies will need to
these questions — Cognitive processing and robotic
automation drivers
answer before moving forward with this
process, such as:
successfully should
— Working at the speed of — What will our future workforce
be able to steer thought — augmented look like?
their organizations professionals working faster and
with much greater productivity. — How can we successfully integrate
toward a ’preferable digital and human labor?
— Digital workers — complete
future state’ replacement of human workers — How does this change redefine
in which they with robotics and other
technologies that can perform
what ‘career’ means within our
organization?
can proactively tasks more efficiently.
— How will we have to change our
determine how Preparing for the future operating model to remain relevant
existing human There’s no denying that technology will
change how businesses — both inside
and competitive?
resources will and outside of the finance sector — will — How do we grow and retain
operate in the future. The questions that employees in an environment
be retrained and remain to be answered, however, are how where job security is increasingly
will those changes manifest themselves,
repurposed to and what impact will they have on
threatened?
manage and the economic opportunities for future Companies that answer these
generations. questions successfully should be able
oversee the to steer their organizations toward a
While the influx of new, automated
machines that will technology will most likely displace
‘preferable future state’ in which they
can proactively determine how existing
now be doing their workers in the lower and middle tiers of human resources will be retrained and
the organization, the responsibility for repurposed to manage and oversee the
previous jobs. implementing these changes should fall machines that will now be doing their
to change leaders and decision-makers previous jobs. What’s more, and perhaps
at a financial institution’s highest level. even more importantly, companies must
This is especially important now, at look at the training required by their next-
the beginning of this transition, where generation employees.
organizations are experimenting with
the introduction of advanced technology With about 50 percent of all children
across all facets of a company. born today expected to live until 100 or
more, it is likely for future generations
While the role does not yet exist, we to have productive careers that last
would not be surprised to see banks 60 or 70 years. This presents yet
create a new c-suite position for another dilemma for today’s financial
someone like a chief automation companies — and the education
executive who would be tasked with system — as they need to determine
sourcing the technology to modernize what kind of skills and training will be
the organization, and to own the change needed so that today’s children are —
and can remain — employable for six retraining) existing staff to fill newly Contributor
decades or more after they enter the created positions.
workforce.
— Monitor progress — Adopt an Robert Bolton
While it is difficult to define what agile response to ensure all risks are Partner
specific skills will be the most valued managed, including the supply of KPMG in the UK
in a future workforce, the fact is there talented and capable people. T: +44 20 7311 8347
are key human traits that robots and E: robert.bolton@kpmg.co.uk
technology can never replicate, no Follow the leaders Robert is a partner in KPMG’s Global HR
matter how advanced they become. For companies that are taking proactive Center of Excellence where he delivers
Because of this, it is likely that steps to get out in front of the coming world-class HR solutions to the firm’s
companies — and the education technological changes impacting their global clients. He has more than 20 years of
system — will begin to place more industries, the future may not look so experience in management and consulting,
importance on creative thinking, uncertain because they understand developing strategically differentiated
innovation and problem solving in what many have yet to discover — HR functions that can bring value to their
uncertain and unclear situations where that the disruption caused by the business.
set rules and protocols may not always incorporation of advanced robotics and
provide an answer or address a specific artificial intelligence can actually help
problem. to drive the growth of new, better-
paying jobs.
This type of seismic shift in thinking and
training doesn’t happen quickly or easily. As robots and other advanced
In fact, business and finance leaders technologies become a larger and more
who want to see their organizations significant part of the workforce, they
thrive in the newly automated future become cheaper. And, as we use more
would be wise to craft detailed plans of them, worker productivity will actually
that can help them assess and prepare rise, as will wages. These are just two
for the impact digital labor may have on factors as to why a counter-balancing
their workforces. Some key steps these dynamic will take hold, and job creation
change managers can take along this will, in fact, take place.
path include:
In short, it is quite possible that the
— Translating business strategies adoption of these technologies will
into people implications — Think drive a new wave of innovation across
about where you are headed as organizations, leading to the creation
an organization and how cognitive of new products and services that
technologies can help execute that will need talented and trained human
strategy. resources (people) to build, lead, market
and maintain them. By embracing
— Shaping and designing the future these changes early, financial services
workforce — Explore different companies can better determine what
scenarios that might impact the their future workplace will look like and,
organization and develop appropriate more importantly, prepare for the future
responses to the most likely ones; by ensuring they have a trained and
create detailed blueprints of how dedicated workforce ready to help them
human and digital labor can be compete and succeed for generations
optimally integrated across the to come.
organization.
To learn more about digital labor and
— Facilitate change — Create and its potential impact on your business,
follow a strategic plan to help identify download the full report, Rise of the
new job roles, and to begin training (or humans.
Can banks win the fight for

home loan customers?
By Geoff Rush, KPMG Australia
By David Bolton, KPMG in Canada
By Chris Monaghan, KPMG in the UK
Intense competition for home loan customers has

created a price war that is affecting profitability.To avoid
this race to the bottom, retail banks are seeking innovative
ways to differentiate their offers by providing a better
Geoff Rush
experience for their customers.To do this successfully,
they need a system to understand the ever-changing
needs and increasing expectations of customers and the
ability to bring innovative, value-adding solutions to market
swiftly. Complicating this already difficult challenge is the
need to comply with changing regulatory requirements.
R
David Bolton
esidential property prices in These conditions may have benefited
many countries continue to rise established homeowners and investors,
at a rapid pace — particularly but, along with the higher deposits
in large, urban areas. Between now demanded, they have also made it
2006 and 2016, median house increasingly difficult for the next generation
values across major Australian cities of prospective buyers to enter the market.
increased by more than 10 percent a year During the last 10 years, average incomes
from US$220,000 to US$540,000. In have not kept pace with house price
the same time period, average London inflation, growing at a compound rate of
house prices rose from US$335,000 to just 3 percent in Australia, and less than
US$590,000,1 while Greater Toronto saw 3 percent in Canada, the UK and the US —
Chris Monaghan an average yearly increase of 7.7 percent resulting in debt-to-income ratios well
for two-storey family homes.2 Even in above historical levels.4 It’s little surprise
the US, where the sub-prime market then, that in the UK, sales of properties
collapsed so spectacularly following for first-time buyers have declined more
the global financial crisis, cities like Los than any other group5 — with the ‘baby
Angeles are now experiencing double- boomers’ taking advantage of historically
digit annual price growth.3 low interest rates to become landlords to
1
Nationwide House Prices Since 1952 http://www.nationwide.co.uk/about/house-price-index/download-data#xtab:uk-series
2
Financial System Review, Bank of Canada, December 2016.
3
Source: KPMG Analysis
4
http://www.tradingeconomics.com/united-kingdom/wages
5
http://www.telegraph.co.uk/personal-banking/mortgages/over-40-housing-hoarders-shut-out-millennials-says-lse-report/
the younger ‘generation rent’.6 The UK’s Figure 1: Residential asset price growth: 3-year CAGR 2013–20168
housing shortage only exacerbates the 15
situation: between 2011 and 2014 just
460,000 houses were built — less than half 13.4%
13.0%
the estimated demand of 975,000.7 12.2%
12
With demand outstripping supply in many
cities around the world, and memories 10.1%
of the financial crash fresh in their minds,
8.8%
governments are trying to ease conditions 9 8.4%
for first-time buyers and cool the buy-to-
rent segment (investment property), while
6.4%
encouraging responsible lending.
6
Examples of steps being taken are

stricter limits on loan-to-value ratios for
residential lenders coupled with more 3
stringent checking of a buyer’s financial
situation to reduce the likelihood of a 1.1%
borrower defaulting. Various changes
are also being introduced to reduce the 0
attractiveness of rental properties. UK
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Vancouver has announced a 15 percent

transfer tax on residential properties for
purchasers who are neither permanent
residents nor Canadian citizens.
Escaping the race to the bottom To escape this race to the bottom in personalization, integrity, time and effort,
in loan profitability home loan profitability, retail banks expectations, resolution and empathy —
With continued strong demand for are increasingly trying to differentiate that underpin excellent customer
residential property, competition amongst themselves on service by delivering a experience and the kind of long-term
retail banks in home lending has become superior customer experience (ideally, customer relationships needed to drive
particularly fierce.9 Aggregator websites at a lower cost-to-serve). By reimagining growth and shareholder value.15
are putting further pressure on profit the home loan journey, they are using
margins by enabling customers to easily customer data and advanced analytics A more recent KPMG study of mass
compare product features and pricing to develop more personalized offerings, affluent home loan customers (defined
across different lenders. The UK’s online- employing mobile apps and digital as customers with annual incomes
only Atom Bank is offering mortgages to platforms for e-conveyancing and between US$60,000 — US$200,000),
a range of customers, including first-time settlements. sought answers to a range of questions
buyers and the self-employed,10 while UK about their home lending experience.16
brokers Trussle and Habito’s online only Investing wisely in the home loan The responses indicate that:
remortgaging service provides mortgages customer experience
from over 100 lenders.11,12 Globally, we estimate retail banks will 1. Not all pillars are viewed as equally
spend as much as US$5 billion in each important in delivering a great home
To maintain market share, home loan of the next 2 years on improving the loan experience.
providers are heavily discounting their front customer home loan experience.14 But Respondents to our home loan survey
books below the standard variable rate. This to get the most from this investment, feel that integrity (being trustworthy
behavior appears to be particularly acute they need to understand what customers and engendering trust), simplicity
for deals originated through brokers — who really want, and how this may vary by age (minimizing customer effort and
have the freedom to direct customers to group, gender and relationship status. creating frictionless processes) and
a range of banks. The result? Net margins resolution (turning a poor experience
have plunged as low as 20 to 25 basis points Research conducted by KPMG into a great one) were the most
on the front books of some banks.13 early in 2016 identified six ‘pillars’ — important.
6
Credit Constraints and the Composition of Home Sales. Farewell to First-time Buyers?, Felipe Carozzi, July 2015.
7
http://www.bbc.co.uk/news/uk-34311522
8
Source: KPMG Analysis
9
Note: We use the term ‘retail banks’ here in a broad sense, which includes building societies, credit unions and non-bank home loan providers.
10
https://www.ft.com/content/1e3cd566-bbb1-11e6-8b45-b8b81dd5d080
11
http://www.telegraph.co.uk/business/2016/04/10/digital-only-mortgage-broker-to-take-on-uk-rivals/
12
https://www.ft.com/content/36760d6a-96c6-11e6-a80e-bcd69f323a8b
13
Source: Home Loan Survey of the Mass Affluent, KPMG, December 2016.
14
Source: KPMG information, 2017
15
Source: Banking the Customer Experience Dividend, KPMG Nunwood, 2016.
16
Source: Home Loan Survey of the Mass Affluent, KPMG, December 2016.
The six pillars of customer experience 2. The biggest gap between customer process to significantly reduce
expectations and actual experience decision times and referrals to
are against the customer experience credit experts. Another major
pillars that matter most to this UK retail bank aims to reduce the
segment. entire cycle from submission to
Integrity, simplicity (time and effort) offer from 14 days to just 3 days.
Personalization and resolution all failed to meet Some of these UK players are also
Using individualized attention home loan customers’ expectations, investing in technology that offers
to drive an emotional connection. as figure 2 shows. Applicants expect live video links to mortgage advisors
a fair deal, with transparent terms and and allows customers to perform
conditions. They also expect a fast transactions directly through their
and easy process in which required smartphones.
customer information is captured and
processed correctly the first time (no 3. The quality of home loan experience
rework). In the event that issues are varies by acquisition channel.
encountered, at a minimum, they Of the three channels (applying
Integrity demand a speedy and equitable through one’s existing bank
Being trustworthy and resolution. relationship, applying directly with a
engendering trust. new financial institution or applying
The lengthy mortgage application through a broker), brokers had the
process has long been a burden lowest score across all six pillars.
for consumers, involving reams of This is a major concern given the
paperwork, multiple touchpoints increasing reliance home loan
and third parties. One UK high providers are placing on broker
street lender is applying machine networks in countries like Australia,
Expectations learning to the credit approval Canada, the UK and the US.
Managing, meeting and exceeding
customer expectations. Figure 2: Comparison of expectations, with actual customer experience,
when taking out a loan
+ 5 +3% -19% -19%
Resolution
Importance
Turning a poor experience

into a great one.
3.6 3.7 4.0 3.7 4.6 3.9 4.6 3.7 4.1 3.7 4.5 3.6
– 1
Empathy Personalization Integrity Simplicity Expectations Resolution
Time and effort
Minimizing customer effort and Expectations Actual customer experience
creating frictionless processes.
Walt Disney thinks like a customer — and so can banks
Customers at Walt Disney World Resort send over their favorite Disney characters
are given digitally enabled wristbands to entertain them during their wait. As part
(Magicbands) that let them buy food and of the process of reimagining customers’
Empathy merchandise and give them faster access home loan experience, banks should
Achieving an understanding of the to all the Disney experiences. And should consider these kinds of data-rich tools
customer’s circumstances they encounter long queues, Disney can to enable them to anticipate and react to
to drive deep rapport. identify the wristband holders and even customers’ needs.
Contributors
How banks can create a unique customer home loan experience:
— identify which elements of the — make sure that every customer Geoff Rush
experience matter most to touchpoint — including third Partner
customers parties — is geared to a consistently KPMG Australia
positive experience T: +61 3 9838 4958
— establish an internal process for
E: grush@kpmg.com.au
quickly coming up with ideas and — build appropriate controls to comply
Geoff is a Financial Services Partner in
getting them tested and into the with regulations.
KPMG Australia’s Management Consulting
market
practice based in Melbourne. Geoff works
with leading retail banks around the world
Additionally, customers who applied (which includes a pre-research and a to reimagine their customers’ experiences
for their home loan through a broker research phase), applying for a home and implement changes that improve
are highly motivated by price and loan and owning a home. The team can engagement and drive top and bottom line
have a much greater propensity then generate ideas on how the bank performance.
to either renegotiate their loan or (or its strategic partners) can best fulfill
switch lenders within 2 years of these needs and satisfy all six customer David Bolton
completing the deal. For example, experience pillars. Examples could Partner
figures from Canada show that include innovations like facial recognition KPMG in Canada
when it comes to renewals and technology to identify the customer T: +1 416 777 3877
refinancing, borrowers returned to (currently under trial by a company called E: dbolton@kpmg.ca
their bank 67 percent of the time #ashching), or offering preferred rates with David is an Advisory Services Partner
in contrast to just 33 percent for removal companies as a value-adding with KPMG in Canada’s Financial Services
their mortgage broker.17 Any bank service (part of USAA’s proposition to its practice and a member of KPMG’s Global
choosing to work with intermediaries home loan customers in the US). Fintech network. He has over 30 years
should, therefore, consider how of process improvement and operations
they can partner with brokers more A bank may find it easy to generate transformation experience across major
closely, to ensure there are no weak numerous innovative ideas for delivering North American and global financial
links in the customer experience. greater value to customers looking to institutions.
move home or acquire a new property.
Striding ahead in the fight for But it also needs a systematic process Chris Monaghan
home loan customers for narrowing this list down, along with Partner
Banks typically view the customer home the capabilities to rapidly develop and KPMG in the UK
loan journey as a series of steps beginning test ideas — to decide which to choose T: +44 20 7694 5008
with a loan request and ending with and which to disregard. E: chris.monaghan@kpmg.co.uk
drawdown of the loan and settlement. Chris is a Banking Partner with
By reimagining this experience as a value Creating a great customer experience is KPMG in the UK. He focuses on HSBC
chain centered around an individual/ not a one-off exercise. The ultimate goal is and retail transformation. In addition
couple/family moving home, they can start a repeatable system for identifying unmet to his 5 years with KPMG, Chris has
to get under the skin of the customer.18 customer needs, producing exciting, previous experience at RBS and Lloyds
Internally, cross-functional customer distinctive ways to better satisfy these Banking Group.
experience teams should begin by needs, and creating an agile environment
understanding what triggers the thought that encourages experimentation and
processes of prospective customers, and quickly brings feasible solutions to market.
how they can ensure that the bank is front Banks that master this discipline are the
of mind from the earliest stage. ones that should ultimately win the battle
for home loan customers. But the demand
The next step in the reimagination process for responsible lending means that any
is to articulate the customer’s various efforts to deliver an outstanding customer
needs at each stage of the extended experience must conform to ever-
value chain; e.g. dreaming of a home changing regulatory requirements.
17
The Annual State of the Residential Mortgage Market, Mortgage Professionals Canada, December 2016.
18
We prefer the expression ‘moving home’ over ‘obtaining a home loan’ or ‘applying for a home loan’ to describe the
end-to-end customer experience as it encourages design teams to think more broadly and extend the value chain both
upstream and downstream.
Financial services
The transformative
power of regtech
By John Ivanoski, KPMG in the US
By Deborah Bailey, KPMG in the US
By Mike Walters, KPMG in the UK
By Jyoti Vazirani, KPMG China
Change is in the air. Following years in which the

focus in the financial services industry has been
on cost containment and managing the impact
of new regulations, firms are now turning their
John Ivanoski
attention back to strategic growth. Acquisitions
and new product development initiatives are once
again priorities, while a renewed focus on customer
service delivery and client acquisition are set to fuel
renewed growth strategies. Yet, as the environment
continues its rapid pace of change, effective
Deborah Bailey management of ongoing regulatory impacts and
reducing compliance costs remain top-of-mind. In
many cases, organizations are looking to regulatory
technology (regtech) to help meet these disparate
business goals.
W
hile software “In recent years, we have seen the
Mike Walters
solutions have cost of regulatory compliance increase
long been used to steeply,” says John Ivanoski, Global
address regulatory Lead of Regtech at KPMG International.
requirements, rising “Current estimates put compliance
compliance costs due to the new spend at more than US$70 billion in
regulations implemented over the past the US alone — and that number will
8 years have driven the industry to only increase. The industry has to
seek newer, more powerful solutions. respond.”
Jyoti Vazirani
Financial services
Enter regtech. Whereas previous meaningful analyses of critical compliance

technologies delivered according to risk areas, and creating an end-to-end
specified requirements, agility is at the view of compliance, reporting and data.
heart of regtech solutions. This means
that not only are regtech solutions able to However, once enabled, the benefits Current estimates
adapt to the needs of an ever-changing of using a cognitive system in business
regulatory environment, the technologies, processes reach far beyond regulatory put compliance
once integrated into a business’
processes, are able to deliver against a
compliance and reporting. With the
cognitive technologies used to process
spend at more
broader range of business challenges. For both the structured and unstructured than US$70 billion
example, the robotics process automation data (such as the contents of proprietary
(RPA) that provides the capability to deliver systems and shared information from in the US alone —
real-time compliance and automated
reporting can also provide the agility
online sources, customers and the
Internet of Things), financial services firms
and that number
needed to help respond to competitive are better enabled to ‘unlock’ the vast will only increase.
pressures in the marketplace, deliver a potential inherent in their data stores. For
better customer experience and achieve example, firms can perform more detailed The industry has to
greater consumer protection. and effective customer and counterparty
credit analyses and underwriting of small
respond.
As a result, regtech is uniquely business loans.
positioned to assist companies to
not only control costs and manage Provided that data security and cyber attack — John Ivanoski
regulatory requirements, but also to countermeasures are kept as priorities,
address other critical areas that can help there is also considerable potential in this
improve customer service, develop new area to use this data and the patterns
offerings and achieve greater competitive it holds to achieve greater competitive
differentiation. advantage. “The quality of the information
used as a foundation for business decisions
Making the most of business data is a critical concern for today’s CEOs,” says
One area where regtech is well John Ivanoski. “With a cognitive system
positioned to help accelerate growth to find and confirm meaningful patterns in
goals is in drawing meaningful, actionable an ocean of data, CEOs can be confident
information from masses of data. The in the validity of actionable information and
financial services industry has long looked respond more swiftly to market changes
for more efficient and effective ways to and opportunities.” Businesses are already
achieve full value from ‘big data’, such as taking note. Current research shows that 85
customer information, risk and financial percent of CEOs recognize the importance
data, operational information, and more. of integrating automated business
However, despite the considerable value processes with artificial intelligence (AI) and
that can be gleaned from these sources, cognitive processes.
the safe and practical use, storage and
management of this data has long been a Regtech supporting innovation
challenge. Additional risks from possible Many discussions of the importance of
cyber attacks, non-compliance with regtech focus on its ability to answer
regulatory obligations, and the impact of immediate business needs, drive
human bias in data management have operational efficiencies and reduce
further hindered such efforts. costs in regulatory compliance and risk
management. Regtech firms, regulators
Regtech solutions take another approach: and financial services firms alike are
instead of a ‘big data’ mind-set, regtech focused on finding ways to use new and
promotes ‘smart data’. By using new evolving technologies to solve regulatory
technologies such as cognitive computing challenges; and areas such as regulatory
and machine learning, regtech solutions compliance transformation, automation
can more effectively structure and find of complex reporting, risk monitoring
meaningful patterns in the volumes of and analytics, and automation of risk
accessible data. Significant impacts management are obvious points of focus.
in this area include the ability to gain However, the implications and benefits
better insights into regulatory practices, of the technologies harnessed by regtech
automating complex reporting, conducting goes far beyond regulatory applications.
Financial services
While many financial services firms judgment to assess the outputs of

are already investing in substantial machine reporting.
legacy system transformations, regtech
solutions implemented in key areas can — Reducing reliance on third-party
The costs have a further transformative impact on service providers. Automation of
an organization’s technological readiness. customer service and back-office
associated The same solutions that deliver key automation to address customer
with the regulatory impacts can also be used
to support back-office transformation,
needs can, in turn, further address
risk by reducing reliance on low-cost
implementation deliver improved customer service outsourced service providers. This
experience, advance new product means that, in addition to delivering a
and use of such development, and more. Thus, the costs more consistent, on-brand customer
technologies associated with the implementation and
use of such technologies should not be
experience, firms can manage and
reduce security risks and other
should not be applied only against time/cost savings vulnerabilities stemming from use of
and risk reduction from regulatory third-party service firms.
applied only compliance, but also to the other benefits
against time/ achieved through technological advances
across the business.
— Transforming labor strategies. Use
of digital labor solutions to onshore
cost savings and functions allows for significant
A few key impact areas might include: transformation in enterprise labor
risk reduction strategies, which can not only
from regulatory — Enhancing the customer
experience. As customer
potentially reduce sourcing cost
but also mitigate sourcing risk. For
compliance, experience is an increasingly critical example, global firms impacted by
component to attracting and retaining the UK’s Brexit vote might leverage
but also to the customers, as well as in deepening digital labor solutions to provide
other benefits the customer relationship, regtech
solutions are offering additional
relief to more restrictive passporting
rights, while US firms might use
achieved through capabilities to help on this front. these solutions to enable rapid
Technology such as natural language implementation of components of
technological and robotics processing, used in the new administration’s proposed
automating core business processes, corporate income tax reform.
advances across can be used to deliver real-time
the business. customer service interactions; while
automated fraud prevention and Taking next steps
detection, consumer protection laws, As with the integration of any
anti-money laundering and know technology, care and foresight is
your customer (KYC) can reduce required to understand the optimal path
customer wait times. forward. When exploring which regtech
solutions or service providers provide
— Reducing head count spend. a best fit for business needs, financial
Through automation of key functions, services firms should consider the
financial services firms can not following:
only improve compliance through
the reduction in human error and 1.
Assess current state. Review
bias in fundamental processes, but the legacy, current and emerging
also reduce compliance-related technologies already at use within the
head count spend. Firms can then firm, and understand any limitations.
reallocate compliance resources Give special attention to critical
or use fewer, more highly skilled interdependencies across the three
resources to analyze and use critical lines of defense.
Financial services
2.
Understand your options. Firms have firms must not only review risk factors Contributors
the option to build, buy or partner such as data- and cyber-security
with an external regtech or fintech measures and algorithmic biases,
provider in order to meet specified but also assess risks associated with John Ivanoski
needs. Existing partnerships can be the change process itself. Firms Partner and Global Head of Financial
beneficial, but be sure not to limit should embed risk and compliance Services Regtech
options early on. Also be aware of frameworks up front in the design KPMG International
the rapidly changing pace of the phase of regtech initiatives, and revisit T: +1 212 954 2484
market — new options are emerging their effectiveness throughout the E: jivanoski@kpmg.com
all the time. program life cycle. John is a partner in KPMG’s Financial
Risk Management practice, Global Head
3.
Look for immediate wins. Many The benefits that regtech can bring are of Financial Services Regtech and Global
regtech solutions can be quickly clear: not only can these technologies Lead Partner for Morgan Stanley. John has
implemented into current systems. help streamline, simplify and optimize over 25 years’ experience providing audit
This provides the power to swiftly the business processes required to and advisory services to global financial
target specific challenges, whether in meet regulatory standards and reduce services organizations.
an end-to-end process or at identified associated costs, but they can also
points in the value chain. provide critical support for business Deborah Bailey
growth, improve customer service Managing Director and US Lead of
4.
Assess and address additional delivery and help accelerate speed to Financial Services Regtech
risk factors. Any process market. As a result, financial services KPMG in the US
transformation — especially one that organizations that embrace these T: +1 212 954 8097
involves technology — can open the technologies now may be uniquely E: dpbailey@kpmg.com
door to unintended risks or exacerbate positioned to gain competitive Deborah is a Managing Director in KPMG’s
existing points of weakness. As such, advantage in the years to come. Financial Services Regulatory Practice
and leads Financial Services Regtech
for the US. Deborah has more than
35 years’ experience as a regulator in the
supervision of large, complex banking
organizations including the US operations
of foreign banks.
Mike Walters
Partner and European Lead of Financial
Services Regtech
KPMG in the UK
T: +44 20 7694 4987
E: mike.walters@kpmg.co.uk
Firms have the option to build, buy or Mike is a partner and European Lead
partner with an external regtech or fintech of KPMG’s Financial Services Regtech
practice. He has over 25 years’ experience
provider in order to meet specified needs. delivering financial risk management work,
including as a partner in another Big 4
Existing partnerships can be beneficial, but firm, as a secondee to the enforcement
be sure not to limit options early on. Also departments of regulators and as the
Group Head of Compliance at Barclays.
be aware of the rapidly changing pace of
Jyoti Vazirani
the market — new options are emerging all Partner and China/Hong Kong Lead of
the time. Financial Services Regtech
KPMG China
T: +852 2685 7331
E: jyoti.vazirani@kpmg.com
Jyoti is Head of Financial Risk
Management and Lead of Financial
Services Regtech for KPMG China/Hong
Kong. She has over 20 years’ experience
working with global financial services
organizations in the US, Europe and Asia.
Financial services
Governments’
role in the
evolution of
fintech
By Ian Pollari, KPMG International
Governments globally are recognizing the emergence

of financial technology (fintech) as a means to deliver
social and economics outcome more effectively and
efficiently.
Ian Pollari
T
o some, governments seem Divergent approaches with a
to be allowing fintech startups common goal
free rein while saddling Looking at developments worldwide,
traditional financial services it is clear that there is no consensus
with ever-increasing regulatory on how or where government support
burdens. To others, government should play into the evolution of the
support is necessary for the healthy fintech sector and, in turn, its role more
development of the fintech sector, broadly within the financial services industry
which can potentially revolutionize and national economy. For example, the
financial services products, services UK government has focused on supporting
and delivery mechanisms worldwide, the fintech sector through financial
as well as deliver social and economic incentives such as grants and tax incentives,
outcomes more effectively and including a recently announced £2 billion
efficiently. government investment in businesses
conducting technology research and
How can governments strike the right development. In Singapore, the Monetary
balance — and how can fintech and Authority of Singapore (MAS) established a
financial services industry players alike dedicated fintech office with funding from
shape this ongoing conversation? across government entities to drive the
Financial services
development and promotion of Singapore as By supporting and promoting fintech,

a fintech hub, and has recently announced governments are broadly looking to
the easing of regulations surrounding venture achieve four core goals:
capital investment in early-stage startups.
1. Increase financial inclusion and access. In developed
Not only do different governments have Fintech provides new opportunities
divergent views on the proper role of to expand the reach of financial markets where
legislation and regulation with regard
to fintech innovation, but considerable
services to the un/under-banked and
the un/under-insured, with potentially
access is less of
points of divergence can even be seen substantially positive impacts for the an issue, fintech
between some countries’ federal public good. In developing markets,
regulations and those applied at the fintech can provide the mechanism by solutions can
state, province or territory level. This is
particularly evident in the US, where the
which millions or even billions of people
can gain safe access to basic financial
provide financial
complexity, lack of regulatory uniformity services, especially in remote areas. services institutions
across states and varying state legislation In developed markets where access is
can pose significant roadblocks for less of an issue, fintech solutions can with a greater
fintech companies. States like California
and New York are strong fintech hubs
provide financial services institutions
with a greater wealth of data that can,
wealth of data that
due to loan programs, tax credits, grants for example, allow a bank to underwrite can, for example,
and more, while many other states lag credit to an individual who lacks a
behind. sufficient traditional credit profile. allow a bank to
Variations in countries’ approaches 2. Improve efficiency. Governments must
underwrite credit to
to policy and regulation will always ensure that the country’s financial an individual who
exist; however, the current diversity system is efficient and sufficiently
in approach may speak more to robust, which makes enabling lacks a sufficient
uncertainty surrounding the impacts
and implications of new technologies
technologies and solutions such as
real-time payments, open application
traditional credit
than it does to differences in political programming interfaces and blockchain profile.
ideology. Regardless, it is clear that especially appealing.
governments internationally believe that
fintech is key to the future of the financial In addition, efficiency gains will
services industry, and that their support increasingly require greater levels of
is necessary to guide the sector’s public and private sector collaboration.
development for the good of consumers, For example, regulators working
businesses and the global economy. with industry participants and fintech
companies to pilot KYC (know your
Government motivations in customer) utilities in their effort to
supporting fintech remove a major inefficiency in current
At its most basic level, the role of the practices.
industry remains the same, regardless
of the presence of new technologies: 3. Stimulate competition. Healthy
to provide access to necessary financial competition is always a motivating
services to individuals, businesses factor, and it is clear that new fintech
and other organizations. Yet, while players in the market are already a
the core goals remain the same, the driving force for competitive change.
mechanisms by which these goals may One area where governments’
be achieved are undergoing significant impacts can be seen is through the
transformation. Governments are now authorization and bank licensing
asking the same questions that are on processes for new entities.
the minds of many financial services For example, regulators and policy
executives: What are the risks and makers in the UK and Germany have
benefits of these technologies, and how been assisting fintech startups to obtain
can we embrace and encourage change banking licenses, supporting the rise
without courting disaster? of a number of so-called ‘challenger’
Financial services
banks, many of which are mobile-only developments. Core government

entities. Other directives, such as engagement activities include
the EU’s second payment services setting up digital innovation hubs and
directive (PSD2), also fit under this broad forming advisory committees. Some
Much of umbrella. government representatives are also
government 4. Ensure stability. Finally, governments
taking less formal approaches, including
attending meet-ups and visiting fintech
activity worldwide wish to ensure the stability of the accelerators to expose themselves first-
financial services system as a whole by hand to these industry developments.
is understandably managing any emerging bubbles and
focused on potential systems risk areas. In relation
to fintech and the disruption it poses to
2. Educate. Understanding the complex
issues surrounding the fintech sector
modifying the industry, this goal can initially seem and the technologies that drive it
counterintuitive; however, fintech’s is critical to being able to create
existing regulatory potential to foresee larger, systemic effective regulations and good fiscal
frameworks risk areas through cognitive systems
and artificial intelligence (AI) outweighs
policy. Building on the ‘engagement’
activities above, governments are also
and enacting the effect of short-term industry actively working to better educate
disruption. Core areas of government themselves on the complexities of
new legislation interest in this regard include using this rapidly changing industry. Such
where there are technology to gain a clearer line of sight
on emerging risk areas surrounding
actions can include talking to other
government entities within the
acknowledged gaps conduct, credit, residential mortgages, country, as well as internationally;
and more, as well as providing access conducting research; and speaking to
or shortcomings. to tools and techniques that will allow industry experts.
better management of that risk or
more efficient means to comply with 3. Experiment. Given the potential
regulatory obligations (a subset of impacts and consequences of certain
fintech referred to as regtech). changes, safe experimentation is
important to maintaining stability
Turning goals into action during a period of rapid change. This
In working to achieve these goals, much is why governments are frequently
of government activity worldwide is seen doing things like setting up
understandably focused on modifying sandboxes and running hackathons. In
existing regulatory frameworks and some places, like Australia, sandboxes
enacting new legislation where there are are only made available to startups,
acknowledged gaps or shortcomings. This whereas in countries like Canada and
can range from providing class exemptions Singapore, sandboxes are open to
and introducing new regulations such as all industry players. Such actions can
PSD2, to providing guidance around areas thus also work as a litmus test for the
such as data management, blockchain and government’s perceived role in the
robo-advice. development of the fintech sector in
the local market.
Yet changes to policy and regulation only
come following periods of learning and Governments may also consider
consultation. To support this activity, how they can experiment and affect
government actions can be broadly changes to policy in a more accelerated
described by the ‘three Es’: time frame than traditionally the case,
helping to test and learn themselves.
1. Engage. Engagement with both the
fintech startup community and the Outside of regulation, government
broader financial services community is actions designed to attract capital —
essential to develop an understanding such as attractive taxation policies
of current trends, use and risks of and providing access to government
emerging technologies, and other grants — can also have a significant
Financial services
impact on fintech’s development. For of the industry as a whole, some would Contributors
example, Singapore recently announced argue that this support can go too far,
a number of new incentives specifically providing fintech startups with an unfair
designed to attract venture capital (VC) competitive advantage. Ian Pollari
investment into their local technology Global Co-leader, KPMG Fintech practice
ecosystem, including fintech VC support. A careful balance must be struck, KPMG International
with regulations providing necessary T: +61 2 9335 8408
In addition, policies surrounding the mobility protections and encouraging startup E: ipollari@kpmg.com.au
of talent and attracting skills through innovation without hindering the Ian is the Head of KPMG’s Banking Sector in
work visas can also help or hinder local development of traditional institutions’ Australia and the Global Co-lead for KPMG’s
entrepreneurial activity. As an example, products, services and platforms. This Fintech practice. Ian has over 16 years’
passporting, visas and the availability of is why the input and feedback of all experience servicing clients in the financial
talent to support technology and financial industry players is critical during this services industry and brings knowledge and
services companies in the UK and the time of change. Active engagement with insights into the experiences of local and
US have been areas of growing concern government, whether through formal international banks, payment providers and
since Brexit in the UK and the new Trump feedback mechanisms such as advisory fintech startups in areas such as strategy
administration came into office in the US. committees or more ad hoc opportunities development, market entry and digital
and conversations, can help shape the innovation.
Finally, governments themselves are large future of the industry for the benefit of all
procurers of technology capabilities and stakeholders.
there are opportunities for them to engage
with fintech companies to help government Unlike VC investors, government’s
in areas such as data and analytics, digital involvement in fintech or any industry
identity, payments and transactional shouldn’t be in ‘picking winners’
banking. More progressive governments will or backing particular ideas. Rather,
be opening up data, in a safe and controlled government should work to promote both
manner, for startups to innovate and create startups and established entities within
new forms of value. the sector, help to invest in education
and research, enable appropriate
Shaping the conversation infrastructure and explore opportunities
Government influence is an important for engaging fintech companies
factor in the financial services industry. themselves. The insight, guidance and
However, while legislative and regulatory feedback of industry specialists is key to
change is needed not only to support achieving these goals.
and promote fintech but for the health
A careful balance must be struck, with

regulations providing necessary protections
and encouraging startup innovation without
hindering the development of traditional
institutions’ products, services and
platforms.
Insurance
Making
automation
work
Insurers adopt
digital labor
By Lisa Heneghan, KPMG International
By Gary Plotkin, KPMG in the US
Even with significant investment towards automation,

most insurers are still facing challenges moving from
pilot to profit on their investments. Many are struggling
to come up with a strategic, enterprise-wide approach
Lisa Heneghan
to automation.
O
ur experience working transformation strategies and achieve
with leading insurers their long-term objectives. Activity (and
suggests that creating the investment) has been feverish.
right digital labor strategy
is an important enabler to Some insurers have been incubating
transforming the enterprise. And our their own concepts for digital labor in
work suggests there are clear factors their digital garages and venture capital
Gary Plotkin
that drive success in formulating and units. Others have been talking with
executing a digital labor strategy in the new insurtech startups and creating
insurance sector. partnerships to explore and exploit new
technologies. Many are simply hoping
As insurers rapidly become more that their business process outsourcing
digitally enabled, many are starting to providers will continue to innovate and
think much more strategically about introduce new digital labor concepts as
how they use ‘digital labor’ to drive their they are commercialized.
Digital labor has the ability to unlock

unprecedented levels of productivity, agility,
confidence and competitive advantage.
Insurance
What is digital labor?

When we talk about ‘digital labor’, we are broadly referring to the automation of labor
by leveraging digital technologies to augment, or automate the tasks undertaken by
knowledge workers in your business. This extends from simple robotic automation through
to machine learning and cognitive automation. The spectrum of potential ‘digital labor’ use
cases can be very broad — ranging from automating simple swivel-chair activities such
as cutting and pasting content from one system to another, right up through cognitive
solutions (software that can think and reason) performing activities (e.g. business, medical,
legal) previously performed exclusively by humans — and often performing these activities
far better than their human predecessors.
Classes of digital labor 03
A
Natural
Adaptive
02 alteration
language
processing
Large-scale ‘Big data’

processing analytics
01
Processing of
Machine Artificial
unstructured
learning intelligence (AI)
data and base
knowledge
Rules Work Screen

engines flow scraping
Basic robotic process Enhanced process

1 2 automation 3 Cognitive automation
automation (RPA)
— Macro-based applets — Built-in knowledge repository — Artificial intelligence (AI)

— Screen scraping data collection — Learning capabilities (e.g. — Teaching versus programming
— Work flow ‘learning assist’ by watching — Natural language recognition
and recording) and processing
— Vision-type building blocks
— Ability to work with — Self-optimization/self-learning
— Process mapping
unstructured data
— Business process management — Digestion of super data sets
— Pattern recognition
(BPM) — Predictive analytics
— Reading source data manuals
— Hypothesis generation
(e.g. natural language
processing (NLP)) — Evidence-based learning
Source: KPMG in the US, 2016
Taking the first steps Recent research also suggests that basically using robots (or, more accurately,
Progress has also been encouraging. insurance CEOs expect digital labor to start algorithms) to speed up processes that
Almost every insurer we work with to make an impact on their operating models had often already been automated. RPA
already has some type of robotics pilot almost immediately. In fact, almost a third reduces errors, improves processing
project or automation initiative under of insurance CEOs say it is extremely likely time and encourages digitization by
way in one or, more often, multiple that 5 percent or more of their technology 30–40 percent and, therefore, is a
parts of the organization. Many have workforce will be replaced through great first step towards the adoption
already automated some of their more automation within the next 3 years.1 of digital labor. But insurers will need
routine processes, particularly in the to become more sophisticated about
finance function. Most are now trialing However, most efforts to introduce their use of digital labor if they hope
more sophisticated robotics techniques digital labor within the insurance sector to drive real transformation and
deeper in the organization. have largely been focused on RPA; competitive advantage.
1
Source: KPMG CEO Outlook Survey, 2016
Insurance
achievements and some unexpected

Five big digital labor questions for insurers failures; both offer useful lessons for
Development phase insurers. Based on our experience, we
have identified five success factors
1.
Do you have clear executive sponsorship for the initiative? that are shared by many leading digital
2.
Have you considered the impact on your organizational structure and culture? insurers.
3.
Do you have a well-defined plan and strategy for labor automation across your 1. They see the big picture. They take
enterprise? the time to fully understand how
Have you developed a strong approach to the governance?
4. digital labor will apply across the
organization; looking at their end-to-
Do you have basic consensus on security and risk mitigation?
5.
end processes first, they identify
Commercialization phase the interdependencies and then
they maximize the synergies. They
1.
Are your investments aligned to the organization’s appetite and expectations? think about more than just a single
2.
Do you understand the key drivers and characteristics of each class of digital technology or solution set, focusing
labor you are using? instead on developing the big picture
and assessing the opportunities
Do you have a formalized approach for identifying and prioritizing automation
3. and impacts that emerge. They
initiatives? prioritize the investments that will
4.
Have you assessed opportunities for accelerating the path to value? deliver maximum value across the
organization, rather than coddling pet
Do you know when to declare success or failure and move on to the next initiative?
5. projects or hot technologies. And,
as a result, they approach initiatives
and implementations with a much
Cognitive competition into full-scale production in a way that clearer view of how their strategy will
Here, too, competition is heating up. is meaningful to the business. Value- deliver value. Interestingly, some of
Enabled by newer technologies such as generating ideas and capabilities from the most impactful initiatives are those
machine learning and natural language one part of the organization are not being being led by CFOs who tend to both
processing, some of the leading insurers are shared with other parts of the enterprise. hold the purse strings and see the
starting to develop new cognitive capabilities And duplication is rampant. As a result, ‘bigger picture’.
that could usher in a new era of productivity few insurers have any real road map to
and customer-centricity. They are letting help guide their digital labor strategy. 2. They apply a change management
their bots watch their actuaries as they approach. Leading insurers recognize
make their decisions; they are feeding them Many also face significant capability that the introduction of digital labor
warehouses of historical data and decision challenges. Internally, few have the will represent a massive change
records; and then they are starting to let resources, skills or talent to drive forward for the organization. And they
them make key decisions in areas such as an enterprise-wide digital labor strategy, are therefore putting significant
specialty commercial policy renewals and let alone the underlying supporting IT investment into understanding and
personal line claims approvals. architecture. And while the external responding to the impacts of digital
vendor environment is certainly evolving, labor on the existing organization.
Interestingly, the leaders are the ones that knitting together the right combination From updating and reinforcing a
recognize that — rather than delivering of solutions to enable the business is still new ‘digital first’ culture through
value through cost savings and head count highly complex. Few insurers want to to helping traditional employees
reductions — the real value of digital labor play the technology developer/integrator to embrace new ways of working
actually comes from its ability to unlock role. Most would much rather focus on and recognizing development
unprecedented levels of productivity, improving their core business. opportunities linked to this. Leading
organizational agility, confidence and insurers are leveraging their best
competitive advantage. And that will allow It is perhaps not surprising, therefore, that change management capabilities
some insurers (particularly larger, traditional almost every (91 percent) insurance CEO to ensure that their digital labor
ones) to operate and compete on a more surveyed by KPMG International said investments are being fully utilized.
level footing with their nimbler startup rivals they were concerned about the challenge
not only in terms of cost, but also in terms of of integrating automation with AI and 3. They think globally and act locally.
customer responsiveness and experience. cognitive computing.2 Leading insurers recognize that key
capabilities and processes related
Now where? Creating a winning environment to digital labor must be centralized
The problem, however, is that few We have worked with a number of in order to maximize their value and
insurers know exactly how to move traditional insurers to develop and execute extend their reach. They understand
forward from here. The vast majority their enterprise-wide digital labor strategy. and respond to their local markets,
are struggling to take their pilot projects And we witnessed some significant but also see the larger opportunity
2
Source: CEO survey, 2016
Insurance
in leveraging global scale and and monitor the outcomes of their Contributors
commercializing local ideas. Many are digital labor initiatives to uncover
already creating Centers of Excellence new opportunities and learn new
within key functions and geographies. lessons that can be applied across Lisa Heneghan
The more advanced are then the organization. They do not allow Global Head of CIO Advisory
developing global/group Centers of projects to drift and are willing to cut KPMG International
Excellence to add consistency, improve initiatives that are not delivering on T: +44 20 7311 3953
oversight and identify synergies. At expectations or no longer match the E: lisa.heneghan@kpmg.co.uk
the same time, they are also providing strategic vision of the organization. Lisa is a partner in KPMG’s Management
the business with the right amount of Consulting Business in the UK and leads
flexibility to create and drive their own A better way? the CIO Advisory Group. Lisa has more than
solutions within the context of the Of course, there is another approach to 20 years of experience across technology
broader enterprise strategy. building your digital labor force: you could having worked for major technology
always outsource it. Indeed, we’ve been providers prior to her consulting career.
4. They create the right governance. working with a number of insurers (both As such, Lisa has experience across all
Rather than restricting the smaller firms lacking the time or resources elements of technology from software,
development of digital labor, the and larger players keen to focus on their through servers, storage and networks. Lisa
leaders are encouraging the business core business) to deliver a managed has worked with a broad range of industries
by creating the right governance services approach to the development and but, in recent years, has spent most of her
structures and guidance. At times, they execution of their digital labor strategy. As time in Financial Services.
are acting as the group aggregator, with any form of outsourcing, it is critical
maintaining and communicating to understand the art of the possible and Gary Plotkin
a detailed inventory of the related identify how you want to leverage digital Principal
projects and investments at play labor to best effect. You can then map KPMG in the US
across the organization. In other cases, this to a sourcing strategy, identify the T: +1 617 988 1181
they are working to ensure the right right vendors, integrate their solutions and E: gplotkin@kpmg.com
ownership and controls are in place prepare for wider adoption of digital labor. A member of the Technology Advisory
to reduce organizational risk, improve Given the immaturity of the technology Services practice for Financial Services
coordination and enhance compliance. space, many insurers are relying on their focusing on insurance clients, Gary has
The leaders are the ones that know sourcing partner to protect them from 24 years’ experience specializing in business
what is happening in the organization the shifting vendor landscape and the and IT transformation work. He has a
and encourage the right behaviors to speed at which new capabilities are strong background across the full life cycle
manage their risk. being introduced. of strategy and project delivery, including
software development, implementation and
5. They measure and monitor the Our experience suggests that — transformation initiatives.
benefits. They know what they want regardless of the level of outside support
to achieve from their investments — you require — the adoption of digital
both in the short and the long term — labor will be key to driving value from
and they set reasonable objectives digital transformation investments.
that go beyond the traditional short- Those insurers that take a well-planned
term return expectations to include a and strategic approach to their digital
broader basket of strategic measures. labor strategy will be the winners in this
Then, they continuously measure new environment.
Case study: Putting automation to work in the claims payment process

Recognizing the connection between The organization began by identifying almost 50 percent of the cost of claims
improved internal processes and the key data factors underpinning processing, improved consistency
customer satisfaction, the executive the process and, after collecting within the process and creating better
team of one large multilateral global and processing the structured and global cohesion. More importantly, the
insurer wanted to explore how they unstructured data, developed a initiative has helped deliver dramatic
might leverage predictive analytics proof of concept that used new improvements in customer experience
and automation to help streamline machine learning algorithms to at a critical ‘moment of truth’, enabling
their claims payment process. The achieve their goal. better interactions driven by the right
leadership had a lofty goal: to reduce people asking the right questions at the
the total time to pay from 30 days to The initiative has been a tremendous right time.
just 15 minutes. success, delivering potential savings of
Insurance
Insurers are on the

road to strategy-
aligned deal-making
Ram Menon, KPMG in the US
The insurance industry is rapidly evolving. Disruption is

everywhere. The pressure to transform is immense.
N
ot surprisingly, deal activity in recognizes that the traditional reactive
the sector is expected to rise. approaches to M&A opportunities are no
Ram Menon
In fact, in a recent survey of longer sufficient in today’s environment.
decision-makers at more than
200 insurance organizations A strategy-aligned approach is
around the world, we found that 84 percent emerging
of firms think they will undertake one to By taking a strategy-aligned M&A
three acquisitions over the coming year, approach, insurers are hoping to enhance
while 94 percent plan at least one divestiture. strategic clarity about which markets,
geographies, products and channels they
Insurers also believe that deal-making will should ‘play in’ going forward. And that
be key to achieving their transformation helps them decide which processes,
objectives. Indeed, the same survey found technology infrastructure, talent and
that the desire to transform the business culture will best support transformation of
and operating model is the number one the operating model for future growth.
motivator for deal-making: 33 percent
of firms said they intend to undertake However, non-traditional approaches
mergers and acquisitions (M&A) to require non-traditional capabilities. And
redefine their business and operating that means that insurers will need to
model, while 40 percent intend to enter improve their holistic data and analytics-
partnerships and alliances. enabled deal-evaluation capabilities,
particularly regarding due diligence,
But, at the same time, industry players integration and separation activities, in
are also becoming more strategic about order to extract maximum value from their
inorganic growth initiatives; everyone proposed acquisitions.
Insurance
Insurance decision-makers certainly alliances with larger firms — those with

understand that strategy-aligned values ranging from US$250 million to Trends shaping current and
M&A will require a different mind-set US$1 billion. future deal-making
and a renewed focus on execution:
As insurers formulate their M&A
39 percent of firms said aligning their To stay abreast of emerging trends strategies, we believe the following
deal evaluation process to corporate in technological innovation, several trends will shape deal activity:
strategy objectives is the key factor for insurance companies have already
M&A success. established (or are considering — The hunt for innovation will
establishing) in-house corporate venture increasingly shape insurers’
But it is also clear that there is more work capital (CVC) investment capabilities, rationale for doing deals.
to be done. Many organizations surveyed largely as a way to invest in innovative Companies with a strong digital
admitted that their corporate development technology capabilities. model and startups with advanced
and M&A teams’ objectives were not fully technology will attract a multitude of
aligned to their overall corporate strategy. Among firms with established CVC willing suitors as legacy companies
Many respondents also admitted that their models, the majority stated that their seek to transform their business
M&A priorities continue to be ‘reactive’ investment activities are focused on models through acquisitions.
to market opportunities, as opposed to non-insurance technologies. While — Greater alignment of corporate
targeting deals strategically aligned to more than a quarter of insurers with CVC strategy and M&A objectives
overall corporate strategy. models boast more than US$1 billion will provide an edge to buyers
in allocations, 90 percent say the as competition for deals rises.
No better time for an M&A median value of their CVC investments Strategy-aligned approach to M&A
‘playbook’ ranged between US$10 million and planning and execution will result
What can insurance leaders do to improve US$50 million. in better deal outcomes over the
the transformative value they receive long term compared to a ‘reactive’
from their M&A deals? One of the first Seven steps to a strategy-aligned approach of simply pursuing deal
steps insurers may want to consider is the deal environment opportunities as they arise.
development of an enterprise-wide M&A
‘playbook’ to enhance and deepen their 1.
Identify and prioritize the primary — Portfolio rationalization and strategic
evaluation of the strategic fit a potential synergies of a deal, including the repositioning of businesses by
larger insurers is expected to drive
acquisition target offers. To improve unique synergies that only your
global M&A activity. Divestiture of
deal outcomes over the long term, the company can create
non-core business segments in
playbook would need to cover all aspects
strategically non-core geographies
of M&A activity, including due diligence, 2.
Identify targets with unique strategic is expected to be a key driver for
deal evaluation and post-deal integration/ fit and value creation potential increased deal activity.
separation processes.
3.
Conduct due diligence that is focused — Cross-border activity will increase as
Others are taking a more strategic on the strategically relevant parts of insurers worldwide seek to diversify
approach by focusing their efforts on the business their geographic risks and earnings
partnerships and alliances. In fact, profits: with stagnation in global
respondents in our survey told us that 4.
Value targets based on how they economic growth and changing
partnerships are the clear choice for fit uniquely with your business (rather geopolitical risks across the mature
transforming the business model: than just rely on average ‘multiples’) and emerging markets, insurers will
87 percent of organizations expect look beyond their domestic borders
to partner for gaining access to new 5.
Select an appropriate deal type and to buy or sell assets abroad.
operating capabilities, and 76 percent structure to realize your competitive
are looking to partnerships to help strategy
improve access to new technology Contributors
infrastructure. 6.
Plan for an integration approach that
will foster the unique synergies that Ram Menon
Asia-Pacific is expected to see the most you will create and achieve maximal KPMG in the US
partnerships and alliances forged, with value capture T: +1 212 954 3448
China and India ranking as the top two E: rammenon@kpmg.com
destinations in the region. The majority 7.
Set in place post-transaction Ram leads KPMG’s Global Insurance Deal
of the respondents also said they intend performance assessments that track Advisory practice as well as leading the
to forge strategic partnerships and value creation on an ongoing basis. US Deal Advisory practice. A Partner with
KPMG’s US member firm, he has extensive
experience leading cross-border mergers,
acquisitions and divestures, and works with
many Fortune 500 companies.
Insurance
Making a strategic
lane change
An interview with Chris Wei, Aviva
By Chris Wei, Global Chairman, Aviva Digital and Executive Chairman, Aviva Asia
By Gary Reader, Global Head of Insurance, KPMG International
A few of the most innovative insurers have already

started to make dramatic shifts to progress their growth
agenda. Aviva plc has been rapidly evolving its mergers
and acquisitions (M&A) strategy to take advantage of
the new opportunities in the marketplace. Recently,
Chris Wei
Gary Reader, Global Head of Insurance for KPMG
International, sat down with Chris Wei, Global Chairman
of Aviva Digital and Executive Chairman of Aviva Asia, to
learn more about their strategic approach.
Gary Reader
Gary Reader (GR): Aviva has been very that go beyond simply leveraging bank
clear about its intentions to transform networks to also help drive our vision
into a digital and customer-focused around digital execution for financial
organization. How is that emphasis services. I don’t think the traditional big
influencing your M&A activities? M&A distribution deals are going to drive
our success in the future, but rather smart
Chris Wei (CW): Our stance is changing investments and partnerships that deliver
dramatically. For one, the traditional brilliant customer experiences.
bank/insurance relationship has been
fundamentally de-emphasized. What GR: Will partnerships be a bigger focus
we are looking for today are relationships for Aviva moving forward?
Insurance
CW: I think when partners share aligned engage customers or users. What is Contributors
interests, it can be hugely successful. their customer proposition and are
Our partnership with Amazon in the UK, customers buying into it? Ultimately, it
for example, allowed us to be the first UK often comes down to experience and Gary Reader
insurer on the Alexa platform and helped us instinct. If you think it’s too expensive, Global Head of Insurance
improve service delivery to our customers. you need to walk away. KPMG International
At the same time, Amazon’s cloud and T: +44 20 7694 4040
infrastructure services have been very GR: Aviva Ventures has also been E: gary.reader@kpmg.co.uk
important to our growth in the UK, so there very active in the investment space, Appointed KPMG’s Global Head of Insurance
is a clear alignment of interests. particularly for technology startups. Is in 2014, Gary’s career with KPMG has
the value proposition different with the spanned over 30 years. Gary is responsible
GR: Nobody has an unlimited venture arm? for supporting all efforts to maximize
investment budget. How do you presence in the European and Global
prioritize and select your areas of focus CW: The ventures unit is really set up to insurance marketplaces, identifying and
for M&A and partnership activity? focus on startups and the like, but it reports closing advisory opportunities. His personal
into our group M&A director so it is very delivery experience lies in the area of financial
CW: We have a few macro topics that much aligned to our overall strategy. But management services, and having set up the
we focus on — data and analytics and it’s a different mind-set versus traditional financial management practice in the UK, he
artificial intelligence, for example. More M&A. Ventures often invests into really has led a number of financial transformation
broadly, we are focused on creating early stage companies, sometimes more projects for our firms’ insurance clients.
a brilliant and frictionless customer as a way to access a technology or piece
experience. If the target is aligned to one of intellectual property than anything
of our priority areas of focus, can help us else. And, we recognize that some of
improve the customer experience and the investments simply aren’t going to
has a business model that is relevant for succeed. But where we do, the value is
our business, it may be worth exploring. tremendous.
But we also recognize that we need to
bring something to the table as well. The GR: In your opinion, how important
really good companies are not struggling has the creation of alignment between
to find financing; what they want is Aviva’s M&A objectives and the
access to data, to customers and to corporations’ overall strategy been?
deep industry experience.
CW: I think it’s extremely important. Our
GR: How has this shift towards very public strategy is ‘digital first’ and
partnerships and non-financial benefits that translates throughout — into how
influenced the traditional due diligence we drive change and transformation;
process for Aviva? into how we align our investments and
ventures; and into how we structure our
CW: It’s certainly tough. If you value new partnerships. The good news is
some of these opportunities, particularly that our board and group executive team
the startups, from a pro forma are 100 percent behind the strategy and
perspective, you are likely going to be recognize the urgency. I think we’re very
very, very wrong. It’s almost a waste aligned as an organization and the value
of time. You can’t get too hung up on of that alignment is being demonstrated
financials. We often look at other key in our results.
metrics that influence the way they
The ventures unit is really set up to focus on

startups and the like, but it reports into our
group M&A director so it is very much aligned
to our overall strategy.
Insurance
The innovation
imperative continues
Martin Blake, KPMG Australia
Tek Yew Chia, KPMG in Singapore
Murray Raisbeck, KPMG in the UK
In today’s technology-enabled world, the insurance

industry is standing on the cusp of a major renaissance.
Innovative technologies and business models are
changing the way people think about insurance —
Martin Blake
giving rise to new products, services and opportunities
to enhance customer value.
I
nvestor interest in insurtech, the Companies that are unwilling or unable to
cutting-edge technologies helping embrace innovation as a means to respond
to change the face of insurance, is to the demands of their customers will
exploding, and is poised for more quickly become irrelevant.
growth in the year ahead.
Tek Yew Chia The rapid rise of insurtech
For companies in the insurance industry, investment
innovation is no longer a choice; it is an Insurance companies have recognized
imperative. Consumers themselves are the importance of innovation for the last
demanding better options. They recognize several years. A reflection of the growing
the new value they are receiving as a significance being placed on industry
result of innovations in banking and other transformation has been the rapid rise
sectors, and they want their insurance in venture capital (VC) investment in
providers to give them the same level of insurtech globally, much of which has
Murray Raisbeck
value and customization. involved corporate investors.
Insurance
In 2015, VC investment in insurtech Approaching insurtech VC investment in insurtech

was US$590 million — a considerable investments and opportunities
>$1 billion
sum compared to 2014’s US$404 Recognizing the value offered by
million. In 2016, however, investment insurtech companies and being able
in insurtech skyrocketed, doubling to take advantage of the opportunities
the previous year’s investment total they present are two very different
to break the US$1 billion mark by a issues. Each traditional insurance $590 million
significant margin. company needs to independently
determine how best to approach
As insurtech companies mature and insurtech given their unique $404 million
show success, investments in insurtech circumstances and situation. As a
will likely continue to grow, leading starting point, companies should
technologies to evolve even more consider the following activities:
rapidly. This will only put more pressure
on insurance companies to either 1. Define current problems
embrace innovation or find ways to take Too often, companies get caught up 2014 2015 2016
advantage of what other companies in an exciting new technology without
Source: Pulse of Fintech Q4 ’16: Global Analysis
are doing. looking at how that technology can of Investment in Fintech. KPMG International
help them. Before deciding which
Recognizing the opportunities innovations to invest in, insurance
presented by insurtech companies should define the
In the banking sector, fintech innovation problems they want to resolve —
over the past few years has led whether that’s reducing claims wait
somewhat to a dissolution of the times, decreasing operating costs
banking value chain. Any number of or providing more tailored insurance
technology startups have shorn off products. Identifying customer
a part of the banking operations (e.g. pain points and challenges can be a
payments, lending) and developed good place to start as resolution of
niche, tailored service offerings these problems can have a positive
for either businesses or individual resonating impact on an organization’s
consumers. entire operations.
The insurance industry is now facing 2. Identify insurtech opportunities

a similar dissolution, with insurtech Once the problems needing to
companies looking to unpack different be addressed have been defined,
areas of the insurance value chain in insurance companies can then
order to create business opportunities. approach identifying and working with
Many traditional insurers recognize insurtech companies in a number of
they need to up their game in order ways. For companies with a well-
to respond to these challenges defined problem, finding a company
without losing market share. For with a technology able to address
these companies, one of the strongest that need may be the most effective
opportunities presented by insurtech
is the ability to disrupt and enhance
solution — for example, by running
an innovation challenge with a
Before deciding
the insurance business model; for partner like Matchi to identify relevant which innovations to
example, by opening new channels insurtech solutions.
for insurance products, by speeding invest in, insurance
up the claims processes or by providing For companies with a more complex
mechanisms to tailor insurance or series of problems to address,
companies should
products based on data analytics. developing an in-house innovation lab define the problems
Insurers willing to work with insurtech (i.e. digital garage) can be a good way
companies on these types of initiatives to help foster innovative solutions. In they want to
rather than seeing them simply as this model, a traditional insurer would
competition will be in the best position foster the growth of a group of insurtech
resolve.
to respond to the rapid evolution of companies while having them work
the industry. on solving their specific business
Insurance
challenges. A number of these labs regulatory and capital intensive parts

already exist in the insurance sector, of insurance that would make their
including Met Life’s LumenLab in organization independently sustainable.
Singapore — which focuses on That’s why many successful insurtech
As part of their driving insight-driven solutions, and startups have developed a strong
Allianz’s Data Lab — which focuses symbiotic relationship with traditional
innovation on harnessing digital innovations and market incumbents. These companies
approach, advanced analytics. Aviva also hosts a
digital garage to support collaboration
partner with established insurers that
have the distribution networks, capital and
insurers need and innovation between commercial regulatory expertise, but lack the technical
teams and creative designers. For know-how to develop specific solutions.
to examine their this model to be effective, the role Insurers can approach insurtech the same
ability to integrate and relationship of innovation relative
to the strategy of the group, core
way — by looking for the right partners
who can help them address problems and
technologies functions of the organization and any gaps so that they can be more effective.
transformation programs would need to
obtained from be well established. Focus on the future
As insurance companies look to
insurtech 3. Address integration challenges understand and take advantage
companies within Regardless of how traditional insurers of insurtech, insurance-focused
go about identifying or developing technologies will continue to evolve.
their operations. innovative technologies, they need to Focusing only on what’s hot right now
also remember that technology is only may mean insurance companies lose
as good as their ability to implement it sight of what opportunities might be
effectively. As part of their innovation right around the corner. Keeping abreast
approach, insurers need to examine their of evolving trends in insurtech is critical
ability to integrate technologies obtained to the long-term ability of insurance
from insurtech companies within their companies to compete. Looking ahead
operations. This might include evaluating over the next 12 to 24 months, some
the innovation culture of the organization trends to watch include:
in addition to any technology barriers
that would affect changes from being
implemented. Companies can then use
this information to design a better road Technology enablement
map for change so that innovations are Managing legacy systems is
not created in a vacuum without the a big barrier to innovation for
ability to properly execute them. companies in the insurance
space — and insurtech companies know
4. Bring together the right partners it. As a result, there will likely be a focus
The big buzzword in insurtech right on technologies that can make legacy
now is partnering. While insurtech systems integrate more easily, such as
startups need access to distribution in by opening up application programming
order to scale their businesses, most interfaces so that companies can fully
don’t have the time, patience or money take advantage of the outcomes of any
to get involved in the more tiresome, partnership endeavors.
Insurance
Cross-industry applicability year will be the ability to vastly improve Contributors

Insurers should keep up-to-date customer experience through data and
on technology innovations in analytics. Most insurance companies
fields like retail, banking and have an immense amount of data at Martin Blake
automotive as they may have applicability their fingertips. Being able to use this Chairman, New South Wales
to the insurance space. As these other data to provide tailored services to KPMG Australia
sectors converge with insurance, they customers or to help them manage their T: +61 2 9335 8316
will provide new opportunities and risk more effectively could become a key E: mblake@kpmg.com.au
threats to insurers. For example, banks competitive advantage in the future. The Martin has over 20 years’ experience in
and vehicle manufacturers may use insurers that can get customers to trust managing large transformation programs
convergence to capture more of the that sharing their data will result in better and developing business strategies for
insurance value chain, or insurers could products, services and experiences for corporations in Australia and Asia. His
work out how to partner with them to them will get the most value out of D&A. areas of expertise include business and
open up new markets. With industry growth strategies, merger integration
boundaries blurring, more opportunities and separation, target operating model
are coming into play. What’s next? development, process and organization
Insurers today need to do more than design to support large scale transformation
Proactive technologies understand the importance of innovation programs. In addition to his Chairman role,
Over the next year, there and the opportunities presented by Martin was recently appointed Head of
will likely be an increase in insurtech companies — they also need to Insurance for KPMG Australia.
technologies that can help be able to leverage and integrate insurtech
insurance companies provide more solutions within their own enterprises if Tek Yew Chia
proactive services to their customers. A they are going to grow and be sustainable. Partner
number of companies already offer these While insurance companies face significant KPMG in Singapore
types of solutions, including Helium — challenges, those able to make the most T: +65 5213 3726
which provides environmental sensors out of working with insurtech companies — E: tekyewchia@kpmg.com.sg
that notify users when conditions change, whether through acquisitions, direct Tek Yew Chia is the Head of KPMG in
and Kinetic — which has designed investments, innovation labs or services Singapore’s Financial Services Advisory
wearable devices aimed at reducing agreements — will be well positioned to be practice where he leads engagements with
workplace injuries. industry leaders in the years to come. clients in areas such as digital transformation
and customer growth strategies. His recent
Improved customer experience includes working with a leading
experience insurer on co-innovation digital programs.
One of the biggest areas of
opportunity for insurance companies Murray Raisbeck
when it comes to insurtech over the next Global Co-Fintech Lead and Partner
KPMG in the UK
T: +44 20 7311 5910
E: murray.raisbeck@kpmg.co.uk
Murray is a partner within KPMG in the
UK’s Insurance practice. He works with
global financial services clients in the
insurance, asset management and wealth
The insurers that can get customers to trust management industries. Murray was
that sharing their data will result in better recently appointed KPMG’s Global Co-
Fintech Lead and leads on Innovation and
products, services and experiences for them Insurtech for KPMG in the Insurance sector.
will get the most value out of D&A.
Publications
Publications
KPMG member firms provide a wide-ranging offering of studies, analysis
and insights on the financial services industry. For more information,
please go to kpmg.com/financialservices
Securing the chain The Pulse of Fintech: Q1, 2017

May 2017 April 2017
Securing To date, much of the blockchain frenzy has ‘The Pulse of Fintech’ is a quarterly report
the chain centered on its vast transformative potential created by KPMG Enterprise and KPMG
across entire industries. Organizations have Fintech. The series analyzes the latest global
focused squarely on ‘how’ they can use trends in venture capital investment data on
blockchain for business. Yet, as they move the fintech sector.
toward implementation, security and risk
KPMG International
kpmg.com/blockchain360
management can no longer take a backseat.
In this paper, we explore two incidents
within blockchains.
Becoming the digitally-enabled bank of The New Deal: Driving insurance

the future transformation with strategy-aligned M&A
Setting April 2017 The New March 2017
course in a The fundamental definition of how Deal Disruption is shaking the fundamentals of the
disrupted customers experience and interact with
A shift to strategy-driven
M&A for insurance
insurance industry. To take advantage of the
marketplace a bank is being challenged and redefined. new opportunities, insurers are re-evaluating
The digitally-enabled bank
of the future
Banks must learn to understand the digital their portfolio of business and rationalizing
disrupters and enablers. their global footprint to strategically
KPMG International
kpmg.com
KPMG International
kpmg.com
determine where they will play and how they
will win in the future.
Realizing digital — Learning from leaders Transformative change — How

January 2017 innovation and technology are shaping
Developed with Aite Group, this report an industry
identifies how the leaders in the market are October 2016
winning competitive advantage from their The KPMG/MFA/AIMA global hedge fund
digital investments. It provides insights survey investigated how managers are
from one-on-one interviews with leading planning to use technology in the next 5 years.
managers and offers practical tips and Are they planning to build, buy or outsource
actionable advice for delivering wealth technology? How are they addressing their
management in the digital era. cybersecurity needs?
Fintech100: Leading Global Fintech Set the pace or risk falling behind
Innovators September 2016–March 2017
October 2016 This online article series leverages data
The combination of technology and financial from more than 100 Insurance CEOs to
services is resulting in the disruption of bring in their views on the major themes
the finance industry. In this report, the impacting their business and the industry
2016
FINTECH100 leading 50 established fintechs and the next at large including growth, strategy, cyber
50 emerging stars from across the globe are security, automation, innovation, customer
Leading Global
Fintech Innovators
identified. and D&A.

1 | Fintech Innovators 2016
1
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Frontiers in Finance is a forward-looking collection of market insights, thought-
provoking perspectives and sector-specific issues that impact key decision-
makers of financial services organizations around the world. All articles are
written by industry-leading and experienced professionals from across our Global
Financial Services practice. member firms and
KPMG’s Global Financial Services practice has more than 34,000 partners and
professionals across our global network of 155 member firms, providing audit, tax
and advisory services to the retail banking, corporate and investment banking,
investment management and insurance sectors. Each one of our professionals
34,000 global financial
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We welcome the opportunity to discuss how KPMG member firms can help you
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Global leaders
Jeremy Anderson James P. Liddy Simon Gleave

Chairman, Global Financial Regional Coordinating Partner Joint Regional Coordinating Partner
Services Financial Services Financial Services
KPMG in the UK Americas region ASPAC region
T: +44 20 7311 5800 KPMG in the US KPMG China
E: jeremy.anderson@kpmg.co.uk T: +1 212 909 5583 T: +86 10 8508 7007
E: jliddy@kpmg.com E: simon.gleave@kpmg.com
Gary Reader Tom Brown

Global Head of Insurance Global Head of
KPMG International Asset Management
T: +44 20 7694 4040 KPMG International
E: gary.reader@kpmg.co.uk T: +44 20 7694 2011
E: tom.brown@kpmg.co.uk
kpmg.com/socialmedia
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Frontiers

For decision-makers in financial services

Letter from the editors

Against these backgrounds, local and sectoral perspectives continue to pose

As implications of new innovation continue to be felt, we focus on the horizon

Business and operating models

The rise of the humans and

By Robert Bolton, KPMG in the UK

We’ve all seen the movies and read the books. We’ve

Digital labor’s impact on the financial services workforce

5 Cs Currently Future perspective

Compliance Human review and monitoring Artificial intelligence analyzes global

Culture of agility and innovation required

Significant demand on human resources

Retraining human roles,

Siloed based on the value chain Achieving agility, striving to meet

— Connected workers — providing process by facilitating higher-purpose

Can banks win the fight for

Intense competition for home loan customers has

Examples of steps being taken are

their full rental income before costs, while

Vancouver has announced a 15 percent

Turning a poor experience

Walt Disney thinks like a customer — and so can banks

Change is in the air. Following years in which the

Enter regtech. Whereas previous meaningful analyses of critical compliance

While many financial services firms judgment to assess the outputs of

Governments globally are recognizing the emergence

development and promotion of Singapore as By supporting and promoting fintech,

banks, many of which are mobile-only developments. Core government

A careful balance must be struck, with

Even with significant investment towards automation,

Digital labor has the ability to unlock

What is digital labor?

Classes of digital labor 03

Large-scale ‘Big data’

Rules Work Screen

Basic robotic process Enhanced process

— Macro-based applets — Built-in knowledge repository — Artificial intelligence (AI)

Source: KPMG in the US, 2016

achievements and some unexpected

Case study: Putting automation to work in the claims payment process

Insurers are on the

The insurance industry is rapidly evolving. Disruption is

Insurance decision-makers certainly alliances with larger firms — those with

A few of the most innovative insurers have already

The ventures unit is really set up to focus on

In today’s technology-enabled world, the insurance

In 2015, VC investment in insurtech Approaching insurtech VC investment in insurtech

The insurance industry is now facing 2. Identify insurtech opportunities

challenges. A number of these labs regulatory and capital intensive parts

Cross-industry applicability year will be the ability to vastly improve Contributors

will get the most value out of D&A.

Securing the chain The Pulse of Fintech: Q1, 2017

Becoming the digitally-enabled bank of The New Deal: Driving insurance

Realizing digital — Learning from leaders Transformative change — How

identified. and D&A.

Frontiers Frontiers Frontiers

Back issues are available to download from kpmg.com/frontiersinfinance

Jeremy Anderson James P. Liddy Simon Gleave

Gary Reader Tom Brown

S-ar putea să vă placă și

The insurance industry is now facing 2. Identify insurtech opportunities