Financial services ‘must transform to build value’

The financial services industry must digitise existing core businesses to radically reduce operating costs and maintain current market share, profits, and valuations, according to a newly-published report.

However, merely digitising for increased efficiency will be insufficient for new shareholder value creation concludes Oliver Wyman’s State of the Financial Services Industry 2017 report, Transforming for Future Value.

The management consultancy giant’s 20th annual report, launched as the latest meeting of politicians and finance leaders in Davos organised by the World Economic Forum (WEF) gets underway, concludes that financial services incumbents will need to make clear, strategic choices about where and how they can compete in evolving ecosystems.

“Very few firms have articulated a digital equity plan which establishes how their investments will generate future shareholder value in a digital, modular financial services environment,” said Oliver Wyman’s managing partner for financial services, Ted Moynihan.

“As a result, while the largest global banks and insurers are seeing shareholder value grow by an average of 10% per year, major fintech firms both new and old are delivering value growth at more than twice that rate – comparable to growth rates of leading tech industry giants.”

The latest poses a range of potential examples for chief executive officers’ (CEOs) and firms’ approaches to digitisation – summarised as Stay the Course, Digitise and Defend, and Go on the Offence to Grow).

In addition, the report explores three emerging ecosystem archetypes – demand aggregators, platform providers and component suppliers – looking specifically at the capabilities and broader organisational implications of each archetype, and management actions that will guide an incumbent’s journey to sustainable advantage and new shareholder value.

“Last year, our 2016 State of Financial Services report, Modular Financial Services, focused on the changing structure of the industry as digital tools made it easier for firms to compete as specialized providers in a richer, more modular financial services ecosystem,” said report co-author and Oliver Wyman partner, John Lester.

“This year, we dive deep into the implications for the large financial services incumbents that play such a crucial day-to-day role in supporting the world’s economies.”

Colleague and report co-author Rick Chavez added: “We believe the central issue for incumbents confronting that future is sustainable value, or how can incumbents bring more value to customers’ daily lives in a digital word? How can incumbents translate that into increased value for shareholders? Our goal in the report is to chart out a few different paths that incumbents can take in answering those questions.”

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