On a typical morning subway ride, you’ll likely find commuters’ heads down in their smartphones, tapping, swiping and waiting for screens to load. Take a look around. One passenger could be paying her credit card bill, while a cyclist is activating bicycle insurance for the afternoon with on-demand, usage-based coverage.
These types of real-time digital transactions are common, and they’re quickly raising the standards for the customer experience in retail banking and insurance. Consumers expect a lot these days. Interactions with service providers must be extremely convenient and done in seconds. They expect self-service available 24/7. Yet they also expect personalized service and product offerings — not to mention seamless and secure transactions. Most consumers may not realize that behind the scenes, there’s a complex web of activity among multiple partners from disparate business and digital ecosystems that requires private Interconnection to execute their transactions.
Increasingly, fintech and insurtech companies with digitally driven business models are raising standards for a better customer experience to extraordinarily high levels. As they disrupt traditional ways of doing business, they’re starting to earn the market’s trust. And because traditional financial services providers in the banking and insurance sectors have been slow to adapt to deliver on evolving customer expectations, the disruptors are gaining market share. New competitors can quickly erode one-third of traditional bank revenue.[i] Insurers are also feeling the heat from new market entrants. A majority of insurers (86%) believe they must innovate at an increasingly rapid pace to simply retain a competitive edge.[ii]
Consider usage-based auto insurance, for example, where paying per mile was once seen as a novelty. Yet now, new competition has popped up, allowing drivers to pay for motor insurance using factors such as the exact number of hours driven or the actual miles driven, while expanding coverage to any vehicle they use or have access to.
The financial services industry is teeming with examples of innovative digital solutions that make life easier for consumers through enhanced customer experiences, which, in turn, drive loyalty and growth. Here are a few more examples to illustrate this point:
- Artificial intelligence (AI) systems that underwrite policies or expedite claims processing.
- Sophisticated solutions aiding fraud prevention.
- The use of fingerprint or facial recognition to open new bank accounts.
- Wearable payment technology in watches, rings, bracelets, etc.
The growing urgency of digital transformation and interconnection
Real-time interactions are the gold standard for today’s digital-enabled consumer experience. Yet retail banking and insurance firms are struggling to keep up with these high demands because their traditional IT infrastructures hold them back from making progress in incorporating digital technologies and competing against new disruptors. Traditional, siloed IT infrastructures don’t allow financial services companies to integrate products and services into a single, rich customer experience. Centralized IT also constrains performance in delivering digital experiences to customers at scale on a variety of devices.
Legacy IT systems also hamper their efforts to drive customer loyalty and growth because those systems lack access to data and analytics. And new data privacy and protection regulations require businesses to rethink their centralized IT architectures, as compliance demands keeping customer information and data local to where it originated.
Banking and insurance firms must re-architect their IT infrastructures to interconnect with people, locations, clouds, data and things out at the digital edge, where the majority of consumers and mobile devices reside. This requires private Interconnection that bypasses the public internet to directly and securely exchange data and application traffic between financial services businesses, digital ecosystems and customers at distributed exchange points.
Interconnection bandwidth will grow rapidly for banking and insurance on a global scale
The second volume of the annual Global Interconnection Index (the GXI), is a market study published by Equinix that tracks, measures and forecasts global growth in Interconnection Bandwidth. The GXI predicts massive growth in banking and insurance Interconnection Bandwidth over the next five years, at a 65% compound annual growth rate (CAGR) by 2021, reaching 1,046 terabits per second (Tbps). This growth is being driven by the convergence of new fintech entrants, competitive ecosystems, and increasing requirements for data compliance and cybersecurity.
Vertical Industry Breakdown of Global Installed Interconnection Bandwidth
If we look at the breakdown of Interconnection Bandwidth growth by geography through 2021, we can see different Interconnection trends emerging based on the digital maturity of financial services within each region:
- In the United States (U.S.), generally considered an early adopter of digital business, Interconnection Bandwidth usage in the banking and insurance industry is expected to grow at 59% CAGR to 509 Tbps.
- In Europe, where many major financial services metro hubs exist throughout the European Union (EU), banking and insurance Interconnection Bandwidth capacity is expected to add 210+ Tbps by 2021, growing at a 66% CAGR.
- In Asia-Pacific (AP), due to rapid urbanization of its massive population, Interconnection Bandwidth capacity is expected to grow even faster than in developed regions, at 79% CAGR, to 181 Tbps in 2021.
- Latin America (LATAM) is the smallest region and has the lowest starting point, but it has the strongest regional growth rates because of emerging financial markets and growing digital business adoption. LATAM banking and insurance Interconnection Bandwidth capacity will grow to 109 Tbps in 2021, at a 72% CAGR.
Equinix customer success stories in banking and insurance
Equinix is where insurance firms, banks, partners and customers come together and leverage Interconnection Oriented ArchitectureTM (IOATM) best practices, which enable them to harness the power of direct and secure Interconnection.
For example, FreedomPay, a pioneer in digital commerce transaction solutions, implemented an IOA strategy on Platform Equinix® by using Interconnection to create a wider variety of digital payment offerings for global customers and proximity to business partners. Where it once took FreedomPay weeks or months to connect new customers to its point-of-sale (POS) digital payment solutions, FreedomPay can now connect new customers within 24 hours. By leveraging partners more efficiently and gaining faster access to customers, within and outside of Equinix, FreedomPay now provides a higher quality of experience to consumers out at the edge, where there is the greatest opportunity for expansion and revenue growth, and it reduced global networking costs by 60%.
A multinational insurance company that had expanded its global base of clients, subsidiaries and affiliates through multiple acquisitions needed to optimize and scale its network infrastructure to make its IT services more accessible to its users. Ultimately, the insurance provider leveraged Equinix Performance Hub™ to move its network close to employees, clients and partners. The insurer also relied on Equinix Cloud Exchange Fabric™ to access scalable cloud services to connect directly and securely to global networks. Once the insurer deployed with Equinix in North America, the EU and AP, it gained global reach, network density and high-bandwidth, low-latency connections to deliver agile, high-performance interconnection out to its network edge. The insurer gained from 10 to 50 times more bandwidth at a lower cost and reduced its latency to less than 10 milliseconds in top markets worldwide.
For banking and insurance organizations to compete with digital disruptors, their IT architectures and platforms require three critical elements: global location coverage, private Interconnection with rich digital ecosystems, and the capability to integrate, standardize and simplify control. They also need to invest in new digital value chains, business models and technical innovation to:
- Reach global users with direct and secure connectivity.
- Analyze data to better understand their customers’ current and future needs.
- Design new offerings (products and services), and roll them out quickly.
- Design top-quality, real-time digital experiences.
- Collaborate effectively with partners and newly acquired companies.
- Keep sensitive traffic and data private, secure and compliant.
- Aggregate networks for greater simplicity and cost-effectiveness.
- Access cloud and SaaS ecosystems to scale their digital business.
Download the Global Interconnection Index for more information on Interconnection trends by region, vertical market, and vital ecosystem partners.