Digital Disruption in Insurance and Banking Sector

Disruption in business is not an entirely new concept, for these has been happening since time immemorial. As new technologies are developed and adopted, new markets are created and new business models emerge. Think of the time when the car - spurred by the advent of automotive technology - replaced the horse more than a century ago. And now as cars become electric, self-driving and shared, we see new markets developing (i.e. telematics market) and a new wave of disruption coming to the automotive industry exerting pressure on the incumbents to revisit their business models.

While disruption is often confused with innovation, the two are not exactly the same. An often quoted definition of disruption is from Clayton Christensen’s book The Innovator’s Dilemma, which defines a disruptive product as one that displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. Thus while innovation which can be a new idea, method or product is just simply creative, disruption is both creative and destructive.

Some great examples of disruptions include WhatsApp in telecoms, M-PESA in banking, SportPesa in gambling and of course Uber in transportation. All these disruptors have managed to penetrate existing markets through the use of innovative technology-based solutions giving established companies a run for their money.

One of the sectors that is highly susceptible to disruption is financial services, as a matter of fact, a 2015 World Economic Forum (WEF) research report predicted that “the most imminent effects AND the greatest impact of disruption will be felt in the financial sector, specifically in the banking industry and the insurance industry respectively. This is already evident as we see new entrants and innovations such as InsurTech and FinTech (short for Insurance Technology and Financial Technology respectively) causing transformative shifts in the sector and presenting both a threat and an opportunity for the established players.

Business leaders in the financial services sector are faced with the challenge of how to interpret or react to this new developments as few are adequately prepared. A consensus exists on the need to react fast and be anticipatory in order to make the necessary changes and seize on any opportunities early enough. What remains unclear however is how to go about it and most importantly which disruptions are most relevant/impactful to help narrow strategic focus for prioritization, resources optimization and ultimately competitive advantage.

Curious to get some clarity and understanding on which innovations are most relevant and find answers to other pertinent questions, I have embarked on a research and writing expedition. Through a series of articles, I seek to satiate my own curiosity and hopeful provide you, my reader with some answers to your own questions as I share my discoveries with you.

NOTE: This is the first article which is a general introduction, I intend to go more specific where possible in subsequent articles addressing the various functions within financial services including payments, insurance, deposits and lending, capital raising, investment management and so forth and highlighting the innovations and trends within each function to enable us make sense of all this new developments and be able to make informed decisions that will guide our company's strategic direction.

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The writer is a technology enthusiast, working in Nairobi Kenya for a leading pan-African insurance technology and service company.

BIG DATA: The Next Frontier

You’ve heard the real estate mantra location, location, location – if Big Data has a mantra then it must go something like volume, variety, velocity. These three Vs are the characteristics that almost every IT expert agrees make up big data; that is data that is coming in in very large volumes, at very high speeds and in very disparate varieties and not forgetting from all manner of sources. 

But then big data isn’t just about the data itself but also the technologies, the processes, the solutions and the market dynamics that come into play whenever such data is encountered. Gartner, a leading IT research group puts this into perspective by defining big data as; “high-volume, high-velocity and high-variety information assets that demand cost-effective, innovative forms of information processing for enhanced insight and decision making.” (gartner.com)

The reason why big data is such a big deal is because of its strategic and economic relevance to not only businesses, but to governments and consumers as well. Big data when properly mined and analyzed by any business can reveal patterns and help influence decisions that can help the business in enhancing productivity and thus giving it a competitive edge. For example a supermarket which through a loyalty card program are able to accumulate enough data on their customers can in turn be able to create accurate customer profiles from that data to gain deeper insight into their pool of customers and then from there come up with marketing and promotion campaigns that are accurately targeted.

Big data however brings in the challenge of data sets that are so large and/or too complex that they render traditional data management and analysis tools inadequate. For example let’s assume that the supermarket which typically has multiple points-of-sale and data entry personnel, also has a website, a twitter handle, a Facebook page, an SMS and WhatsApp line, and is collecting all the information coming in from all these sources and storing it somewhere. To be able to go through all these data and extract any meaningful and actionable insights from it, they will need to acquire the necessary resources that will enable them to do that accurately, efficiently and with speed. 

Typically, big data can be found in two formats; Structured that can fit in neat columns and can easily and quickly be organized and analyzed i.e. name, telephone, address; and Unstructured which is complicated and disparate and hard to make sense of i.e. social media feeds, emails, photos, video and audio files. According to experts, structured data only makes up about 20% of the total data out there, the rest (80%) is unstructured or a hybrid of both. Traditional data management tools were designed to work with structured data and though unstructured data has always been around these technologies did not support its analysis and organizations did not deem it important enough to do anything about especially bearing in mind the cost implications. 

Organization have since realized the potential gold mine within unstructured data and are now creating a demand for new capabilities, approaches and the right tools for collecting and analyzing big data. This has seen a series of data management waves over the past five decades that have brought us to the current big data era. A whole industry has now emerged and is now witnessing exponential growth as the demand by businesses looking to leverage on the big data wave grows. The International Data Corporation (IDC) - a US market research firm specializing in IT – back in 2010 predicted that the big data market will hit $ 16.9 Billion by 2015 but by 2014 they had adjusted that figure to 125 billion worldwide. 

Global Mobile Facts and Figures - 2014

• According to ITU, by May 2014, there were nearly 7 Billion mobile subscribers Worldwide which is about 95.5 percent of the world population. 

• 14 countries in the world had surpassed the 100 million mobile subscriptions mark (by Nov 2013) which accounted for 61 percent of the world’s total mobile subscriptions. They are  - highest to lowest - China, India, USA, Indonesia, Brazil, Russia, Japan, Vietnam, Pakistan, Nigeria, Germany, Bangladesh, Philippines and Mexico. China had over 1200 million subscribers and together with India’s  900 million the two make up about 29 percent of the World’s total mobile subscriptions.  (Mobiforge)

• The developed world has over 1.5 billion mobile subscribers with a mobile penetration of 120.8 percent which has reached near saturation point with little room for growth. 

• The developing world has over 5.4 billion mobile subscriptions with a mobile penetration of 90.2 percent which is 78 percent of global subscriptions but still with room for growth

• Asia Pacific with 3.6 billion subscription accounts for more than half the world’s mobile subscriptions, thus 52.1 percent of the global number. (ITU)

• Africa may still have the lowest mobile penetration worldwide at 69.3 percent but Portio Research predicts that by 2016 Africa and Middle East will overtake Europe as the second largest region for mobile subscribers.  As an indication ITU’s figures show that while ‘all regions continue to show double-digit growth rates,  Africa stands out with a growth rate of over 40% – twice as high as the global average. By end 2014, mobile-broadband penetration in Africa will have reached almost 20%, up from less than 2% four years earlier.’

• USA now has 143 million Smartphones (not mobile phones) and 71 million tablets which has enabled mobile internet access and doubled the amount of time spent online by American’s since 2010. The leading platform for U.S Smartphone use are Android (53%) and iPhone (40%) with Blackberry down to 3%. According to iMedia Connection, Mobile ads perform 4-5 times better than online ads in the US and that would explain why marketers in the US spend $8.5 billion in 2013 on mobile advertising  double what they spend in 2012 ($4.4 billion) and why this figure is projected to quadruple to $31.1 billion by 2017. (Heidi Cohen)

• Germany is currently Europe’s largest mobile market and the eleventh largest telecoms market in the world.

• Brazil is the fifth largest telecoms Market in the world and one of the top countries for the use of social networks and popularity of Whatsapp messaging feature. 

• Sweden is a world-leading market in terms of mobile usage, mobile penetration and mobile smartphone penetration. Sweden saw the introduction of the world’s first 4G (fourth-generation) networks in 2009 and today the majority of Swedes are covered by a superfast 4G data network. At Cannes (the World’s major marketing/advertising awards), last year, Swedish companies picked up nine Mobile Lions, second only to the United States (which has a population 33 times larger than Sweden).

• Nigeria, Africa’s most populous nation – is the largest mobile market in Africa and the tenth largest in the world. In 2013, Nigeria surpassed 100 million active mobile subscriptions, which equates to around 65.8 percent of the population joining the 100 million club. 

• Kenya is the world leader in mobile money being home to the world famous M-PESA by the country’s largest mobile operator Safaricom with over 19 million Kenyans using their cell phones as a mobile wallets or bank accounts. 

• Japan’s mobile market is said to be the world’s most sophisticated in terms of mobile Web, marketing and services and the most lucrative mobile app market in the world. According to statistics released by TCA in September 2013, Japan had over 134.8 million mobile subscribers, of whom 107.5 (79.7%) were mobile internet subscribers. Also unlike other markets, Japan’s standard messaging technology is mobile email, not SMS and MMS.

            Sources

1. International Telecommunication Union (ITU) - http://www.itu.int/en/
2.  Mobiforge - http://mobiforge.com/  
3. Portio Research - http://www.portioresearch.com 
4.   iMedia Connection  - http://www.imediaconnection.com/
5. TCA - http://www.tca.or.jp/english/database/index.html 
6. Statista - http://www.statista.com