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Why is technology transforming financial services now? Where was it 20 years ago, when computers and the Internet already existed? The short answer is the millennials, a generation of young people loyal to their smart phones and technology platforms and caring little for other brands, such as those of banks. With this generation of people now in the workforce, the choices that this group of 84 million make can provide the momentum to carry change. The millennials, born between 1980 and 2000, are expected to hold $7 trillion in liquid assets by 2020.

Recent findings in the Millennial Disruption Index (MDI) paint a startling portrait of preferences so different from older generations and so aligned with corporate digital heavyweights that financial services may change further dramatically. For example, according to the MDI study, one in three millennials will switch banks in the next 90 days. Additionally, over 50 percent of the 10,000+ respondents consider all banks to share the same value proposition. In other words, millennials don't see any difference among financial institutions. With over 70 percent of respondents saying, “They would be more excited about a new offering in financial services from Google, Amazon, Apple, Paypal, or Square than from their own nationwide bank,” it is clear that change is before us. Such findings open the door for brands like Google to enter the market and build a stable business with the millennials before bringing in older generations.

Traditional banks are feeling the threats of new entrants. Apple, Google, and Amazon are now all actively participating in the financial services industry. Whether through payments, cloud infrastructure, or investments into other fintech companies, firms considered technology leaders are focusing on financial services. The technology giants have even created their own lobbying group to avoid getting mired in regulatory red tape encasing banks. (See “An Excerpt about the Silicon Valley Lobbying Entity.”)

AN EXCERPT ABOUT THE SILICON VALLEY LOBBYING ENTITY

Leading Silicon Valley players are so intent on entering financial services that they have launched a collaborative advocacy group to push Washington to create rules that are friendly to new technologies for financial services. The group, known as Financial Innovation Now, comprises founding members Google, Apple, Amazon, PayPal, and Intuit.

“These five companies are coming together because innovation is coming to financial services,” Brian Peters, the group's executive director, told BuzzFeed News. “And they believe that technological transformation will make these services more accessible, more affordable, and more secure.”

Whether through products like Google Wallet, Amazon Payments, and Apple Pay, acquisitions like PayPal's purchase of mobile payment startup Venmo, or investments like Google's in peer‐to‐peer lending outfit Lending Club, the group's founding companies all have a stake in the evolving industry and its regulation.

“The goal here is to serve as the voice of technology and innovators,” Peters said. “Because honestly the banking policy conversations in Washington have not had that voice historically.”

Source: Buzzfeed, Nov. 3, 2015.

How can this affect you? For years, financial services companies focused their investments on meeting regulatory changes or incremental improvements – automation, workflow, and so on. The essential business model went untouched. What's changing now is that new startups are bringing a Silicon Valley approach, and they are entering financial services with bold new business ideas.

The same message resonates for most investors: institutional or retail, global macro or small‐cap, trading in the dark pools or lit exchanges. The sudden demand for new technology concerns all aspects of the financial ecosystem. At least some of the demand is based on the idea that operating models need to become leaner to offer services at lower price points, utilize a labor force based all over the world, and compete with new players. While slimming their offerings makes banks less prominent, it may enable them to face the challenge of new well‐heeled Silicon Valley entrants as they get into the business of financial services.

How do you protect your company in an environment of disruptive change? How do you anticipate shocks to the markets precipitated by new dynamics at play? How do you ensure you know your customer when more and more of your company's process are moving to new platforms? These are some of the questions we explore in the following chapters.

How is the current environment different from the one, say, just 10 years ago? Today, many companies have adopted the Digital One company strategy with the idea to integrate social media, mobile technology, cheap computing power, fast analytics, and cloud data storage.