Industry 4.0 Trends and Impact on Financial Services, Malawi

There are many factors that cause changes in economies, among the many is industry. In history dating back to the 18th century the world has experienced three major disruptive industrial revolutions. This goes without saying that most economies are in the genesis of the fourth industrial revolution; dubbed “Revolution 4.0 or Industry 4.0” by some tech enthusiasts.
According to a technology news website Techradar.com “Industry 4.0 is the label given to the gradual combination of traditional manufacturing and industrial practices with the increasingly technological world around us.” In simpler terms it is digitization of the industries that will see companies using technology, internet and cyber systems to collect and analyze data to provide various dimensions of insight.

Being aware of the cosmopolitan nature of the world economy; what does this trend of innovation mean for Malawi? In particular to the Financial Services Industry which plays an important intermediary role in the economy.

Over the past 7 years also the financial services industry has had to cope or compete with digitization more intensively than most industries. At the same time today’s complexity of financial services would be impossible without digitization, such that its effective use gives a competitive advantage. It is now more than ever that financial services firms in Malawi i.e. Banks, must understand the mega trends that are being shaped by this disruptive era in order to thrive.

First of those trends is a power shift from banks to consumers. This has been primarily driven by ever changing customer expectations as a result of a wide selection of choice from which customers can access financial services. According to a customer satisfaction research with ATM banking in Malawi by Charles Mwatsika ‘ATMs were introduced in the late 1990s and only a few banks could afford installing ATM technology’. At the time, this improved customer service for banks and subsequently it suggests customer expectation was met. Since then, customer expectation has exponentially changed with the spread of ATMs on the market. This means banks must raise their performance by consistently offering customer experience that is better than the previous.

Secondly, banks will be wise to consider growth of intelligent technology. Increasingly, firms are requiring to process and analyze larger amounts of data within the customer ecosystem in order to predict customer behavior and inform management decisions around customer centric product design. On the local landscape this is increasingly becoming difficult due to usage of traditional systems. Intelligent technology allows firms to do that at a click of a button. Safe to say banks that are going to integrate this intelligence into the core of their overall business strategy will get valid insight into what drives consumer behavior and how to anticipate it.

Thirdly, changing business models. In as much as bank business models change over time due to a complex bouquet of internal and external factors. For a longer time banks in Malawi were the only entities that were focused on handling customer deposits, investing through loans or financial markets, followed by microfinance institutions. Today the traditional business model of banking based on ‘monopolization’ in a way, is being out competed by niche product financial technology (Fintech) companies focused on delivering incremental/hybrid value to customers. It is therefore essential for banks, regulators to proactively think about what the banking business model of tomorrow looks like and how it would disrupt the whole industry.

In conclusion, in this era that digitization and disruptive innovation are key drivers to change: it is critical that financial services firms particularly banks must act early, take stock of their capabilities (strengths and weaknesses) and redefine their strategic aspirations. Take into account these major industry trends and create different scenarios that will impact the ways of doing business in the future. Furthermore, banks must find ways to ensure the customer is at the core of this process, by allowing customer needs as informed by intelligent technologies to influence design and build of products and services. Agile development methods will play critical role in this process.