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Future Readiness Indicator
Future-Readiness in Finance: Three Charts Paving the Way for Innovation and Stability
What seems mysterious can be quite simple. During the early months of 2023, headlines are being dominated by bank collapses, from Silicon Valley to Switzerland. Silicon Valley Bank (SVB), for one, had been financing close to half of all US venture-backed technology companies. But when interest rates rose sharply and businesses slowed down, many of SVB’s startup clients were withdrawing cash. Suddenly, SVB faced a bank run.
That’s why being future-ready isn’t just about chasing the next shiny object. It’s also about remembering the business fundamentals. Innovation and stability are not tradeoffs. You have to do both.
At IMD’s Center for Future Readiness, we keep track of which companies are the most future-ready. We do this through objective, rule-based measures that are calculated as a composite score. Below is our 2023 ranking of the financial-services companies.
Click on the company’s name to see details of the score and drag slider to adjust year.
Select your favorites companies for historic comparison in the following line chart. Use the slider to adjust years.
Obviously, those who are future-ready have their activities more aligned with external trends. It’s because of such alignments that they are able to achieve greater success, regardless of the business cycle.
So what’s the most important trends in 2023, and how have the top-ranking companies aligned with them?
Disappearing Boundary: The Embedded Revolution
Embedded finance is a fancy term that describes blending financial services into non-financial services, with banking, credit, and insurance all thrown in. One popular example is buy now pay later (BNPL), which lets you buy things at a local store and then pay for them over time.
This BNPL market is growing, and some project it will exceed US$3 trillion by 2030. That may be why Block decided to pay some US$29 billion to acquire Afterpay.
But the key to winning in embedded finance is an easy-to-use, all-in-one experience. Think about one-click shopping on Amazon but now for everything you do, every day.
Naturally, such “frictionless” experiences would need deep collaboration between banks, tech providers, and product distributors. Things like loyalty apps, digital wallets, and other online shopping platforms will talk to one another. And making all this work are application programming interfaces (APIs). These are a kind of behind-the-scenes tool that help different programs and organizations communicate.
Without missing a beat, Mastercard and Visa have been working on their API interfaces for decades. But this work is not just about tech solutions. Companies need to understand that whatever you come up with yourself will never be enough. It’s also about letting outside parties, competitors or not, use what you have and improve on it to make something valuable for end users.
This is a tough sell for a lot of old-school organizations, but companies like JP Morgan in the US and DBS in Asia are nailing it. In contrast, European counterparts, known for their historical conservatism, may find this way of doing business all too foreign and unnatural.
Making Everything More Personal: Open Banking
One bright spot for European banks, however, is open banking. This concept has already been mandated by government. Think of it as an open standard so that financial data are shared between banks and other services like apps.
In the past, big banks controlled all your financial data. With open banking, however, consumers can access their information on different platforms. You don’t even need to log into your bank account in the first place.
Popular financial apps like Robinhood, Chime, Mint, and Personal Capital all rely on the concept of open banking. These apps help users organize and manage their money in one place, with personalized suggestions.
Again, APIs are what make all this possible. Once a third-party service is authorized to use your data, it can use it to offer tailored solutions. Open banking thus encourages creativity and competition, pushing banks to step up their game.
What’s interesting is that open banking in Europe was essentially pushed by regulators, not entrepreneurial banking execs who decided to make it happen. But future-ready financial companies saw the bigger picture. Instead of viewing open banking as just another compliance headache, they transformed their work on APIs into genuine business opportunities. Some even turned to banking software providers to create new tools. As always, governments can only do so much. It’s up to the banking executives to seize their chances.
The Key to Future-Ready Success: Fast Decision Making and a Clear Vision
To win in such a shifting landscape would require, at minimum, a strong vision for the future. Any players aiming to stay relevant would need to invest significantly in new technologies. And the best are creating top-notch digital tools, advancing artificial intelligence, and more.
At IMD, we’ve built an AI tool that analyzes a decade of data from 60 news sources. We score companies’ personalities using natural language processing by measuring two key aspects, as shown in the following chart. The Y-axis reflects the speed at which companies make decisions, and the X-axis illustrates how well these companies articulate their vision.
What we see is indisputable. Top payment companies (e.g., Mastercard) are faster (in comparison to the industry average) in their decision-making. If something doesn’t work, you need to shut it down quickly and try a new approach. Learn from failed experiments, pivot, and keep pushing forward. Concurrently, you must maintain a strong vision about why you are doing what you do. The same can be said about banks as well.
So, what’s the takeaway? Don’t be afraid to make tough decisions and remember that persistence pays off. To be future-ready, you must excel today while building tomorrow.