Financial services is at a crossroads. A number of important and different factors are likely to shape the future of the sector. Our report offers unique insights into the unprecedented environment in which financial institutions are now operating.
For the financial services sector, the recommendations of the Financial Services Royal Commission (FSRC) have been a catalyst for change, and an opportunity to re-establish community trust. This, however, is just one part of the picture.
A transformational change is occurring within the sector, brought about by a number of interrelated drivers such as competitive pressures, changing customer behaviour, technological changes, governance, culture and regulatory adjustments, and the low interest rate environment. Understanding these factors will help organisations manage the opportunities and challenges facing them.
Competitive factors, regulatory costs and lack of scale have resulted in M&A being an important tool to address some of these pressures. M&A transactions are part of a broader trend towards simplifying financial services businesses, as businesses look to divest some of their operations.
We anticipate that the financial services landscape over the next 10 years will change more rapidly than it has over the past 10 years.
“While the short-term impacts from some of the changes are more foreseeable, it is the long-term impacts that are likely to be the ones which create the greatest need and opportunity for M&A.”
In our report, we bring together financial, commercial, risk and legal perspectives that predict the changes in the market. As well as looking at the sector as a whole, we explore what this means for general insurance, life insurance, banking, wealth management and private equity.
Technology plays a major part of the short and long term future of the financial services sector. With an increasing reliance on agile technology, infrastructure and systems, financial services institutions are facing pressure from digital-savvy customers who expect their bank to provide the same transformative experience they receive from other industries.
However, updating and introducing new technology can expose organisations to serious vulnerabilities which, if mismanaged, can have major social, ethical and financial impacts, and put an organisation's governance and leadership under the spotlight.
Shifting economic conditions, especially from the current and expected prolonged low interest rate environment may create triggers for institutions and competitors to undertake strategic reviews. With ongoing uncertainty as interest rates hit an all-time low, many organisations are preparing for worst case scenarios.
Longer term changes will see the sector look fundamentally different by 2030. It is here that we see the greatest challenges and opportunities – and M&A has a critical role to play in how organisations manage them.
Key economic trends