Financial sector focuses on digitalisation over Brexit preparations

05 August 2019 5 min. read

The financial service sector in the UK continues to face tough market conditions, with Brexit uncertainty and regulatory change on the horizon. Despite the Brexit preparations of large corporations taking top billing in the press, however, new analysis shows that IT and technology led transformation remains top of the agenda for finance firms, along with product line expansion.

As one of the major contributors to the UK economy, the financial services sector it is surely a cause for concern that sentiment in the industry has been on a downward trend for the last 18 months. Overall business volumes falling flat leading to the three months to June, following six months of decline – has done little to improve the mood in the City, while costs have risen and profitability growth has slowed.

Amid these gloomy scenes, new analysis from PwC and the CBI, in its report ‘Financial Services Survey’, has considered the implications of current market trends on the industry going forward. The sector faces a number of challenges, in part a result of new technologies. This includes the transformation of backend and frontend services to include a range of digital options.

Key business priorities for the next 6 months

While these provide increased productivity and other benefits, they come with a range of costs, from implementation and safety to upgrades and compliance. At the same time, as seen with government and retail initiatives, not all consumers are on board with digital meanwhile, which has created a service mismatch for some segments. New technology has also given rise to new competition and business models – including the rise of FinTechs.

When it comes to the top priorities for the segment for the following six months, ‘IT and technology led transformation’ held the highest rank, at around 5.5 on a 7-point scale (7 indicating the greatest importance). ‘Expanding into new market segments and expanding into new sectors came in second’, at around 5.4, while ‘responding to regulatory changes’ came in at number three with a 5 on the scale.

Financial services managerial focus

Surprisingly, Brexit preparations ranked relatively lowly, at seventh overall, with a score of 3.8. This is in keeping with the idea FTSE 100 companies still remain dangerously underprepared for Brexit, not long before the latest deadline is due to hit for the UK’s withdrawal from the EU. A survey earlier in 2019 found that 77% of consultants believe the UK’s leading companies have not taken appropriate action, amid the continuing uncertainty that clouds the outlook of the UK economy.

Varied priorities

The analysis from PwC shows that different subsectors of the market have different priorities. Life insurance and building societies have placed the highest priority on ‘IT or technology led transformation’, while insurance brokers rate ‘acquiring new innovative businesses or products’ the most highly. Banks are the most focused on ‘responding to regulatory changes’ and ‘preparing for Brexit’, while financial houses are the least focused on Brexit and much more concerned about ‘IT or technology’. General insurance meanwhile considers ‘targeting new market segments and expanding into new sectors as its top priority’.

Main strategic driver for recent deal

When it comes to the type of senior management involved in business priorities, the CEO/MD largely focused on ‘preparing for Brexit’, ‘targeting new market segments and expanding into new sectors’ and ‘acquiring new innovative businesses or products’. CFOs are more involved in ‘responding to regulatory changes’, with similar levels of activity from CROs. CIOs and COOs are engaged in ‘using digital and AI to enhance the customer experience’, while COOs are the most heavily involved in ‘IT or technology led transformation’.

Acquisitions can play a wider part in dealing with changes. The firm’s analysis of recent deal rationale found strong focus on the acquisition of talent, as cited by 34% of respondents, followed by expansion into different product offerings, as cited by 26% of respondents. Interestingly disruption related activity was low – 1.8% - with similarly low figures for cost efficiencies and synergies and market expansion, at 2.6% and 1.9% respectively. A third of deals were, however, for reasons not specified on the questioner.