Financial services industry executives are being faced with an increasingly complex landscape. Increased competition from cross-industry players and FinTech operators represents just half of the challenge, with new regulations, the need to update critical systems and the hovering risk of being disrupted out of the market are among the concerns keeping executives up at night.
In Capco’s fifth annual study of the financial services industry, titled the ‘No Sleep Survey 2016: Another Exciting Year Ahead’, the consultancy explores what is keeping executives in the Benelux up at night. The survey explores the headline challenges faced by the financial services industry, as well as sheds light on the key trends forecasted to impact the market in the years to come. 24% of the respondents works in wealth and investment management, 22% in corporate and investment banking, 21% are active in the retail banking segment, while the remaining 33% comes from the wider financial services industry.
Financial services challenges
The survey reveals that since 2011 the degree of organisational challenges have, across the board, been on the rise. Headcount productivity remains the main challenge faced by banks, with recent years showing a steep upwards trend. Increased competition too is of concern, and has been trending upwards since 2011, with in particular competition from advanced digital players regarded as a major threat. Cost control too is key challenge, up considerably on 2011. Challenges to costs and productivity are both related, according to the firm’s analysis, on trends in digitalisation and technology as well as regulatory changes to meet various transparency and capital demands. Top line growth and product innovation are among the top concerns, although they have seen slight declines in focus since 2014.
Competition is the result of a range of incumbent and new players coming to affect the market. 40% of respondents rank existing financial services organisations as the main risk to their business model. The second biggest threat (24%) comes from technology companies that are able to leverage large capital expenditure, strong brands and well integrated services. Interestingly, another recent study, by Capgemini, found that technology giants such as Google and Apple rank ahead of existing large incumbents when it comes to competitive threat. FinTech startups come in third in Capco’s survey, with 20% of respondents marking them as a risk – their innovative solutions pose problems in a range of sectors. Non-financial retail companies, such as groceries, petrol stations and captive banks (for instance with their roots in the automotive industry), come in fourth at 16%.
One of the focus areas faced by banks is technology. Not only does technology improve productivity, but it also represents a means to cut costs while providing a range of value adding services to customers. Last year the ‘replacement of legacy IT systems’ and ‘digitalisation and mobile offerings’ both came in at 21% in terms of major challenges, this year ‘digitalisation and mobile offering’ has squeezed ahead to come in at 24%, with ‘replacement of legacy IT systems’ coming in at 23%. ‘Data protection and security’ concerns are up slightly on last year, jumping from 17% to 20%. The demand for ‘system conformation with new regulations’ dropped slightly from 23% to 18%.
On the back of changing expectations in the market and cross-channel competition, banks are facing increasing pressure to provide excellence in their customer experience. The report from the consultancy finds that, when it comes to client servicing, ‘enhancing the customer experience’ is the largest challenge at 23% of the respondents, followed by demand for ‘multi-channel offering’ at 21%. ‘Competitive pricing’ and ‘customised product offering’ come in third and fourth respectively with 17% and 12% of respondents. According to the authors, competitive pricing was the third focus point for many organisations because of “recent interchange fee regulation which will put pressure on all transaction processing organisations.”
Asked for how technology will be used to enable CEX objectives, 31% of executives point at the creation of ‘personalised customer interfaces’. “There is a clear trend towards personalised interfaces that are adapted to customer segments that go beyond the traditional retail and private divide. Many banks are going further in that, by trying to building communities and empowering clients, for example, with entrepreneurs,” write the authors. Building spending analysis tools for clients comes in second, noted by 30% of the respondents, followed by ‘third party document storage in virtual vaults’.
Looking ahead, executives forecast a shift in focus from regulation and related implementations to technology related topics, such as digitalisation and IT modernisation. Even though the industry still finds itself amidst the aftermath of the crisis, the overall outlook is brightening up. “There is a clear trend towards a more positive outlook… and maybe, just maybe, senior executives will get a little more shut-eye than they have in recent months,” the authors conclude.