The Global business pulse research was carried out on a sample of 377 entrepreneurs and managers in the financial services industry with reference to their expectations for 2021, the challenges that they expect to deal with and how they are preparing for the future. Five main trends among all respondents around the world arose. We asked Grant Thornton experts to explain the climate of the market behind the numbers and to provide their suggestions for 2021.
Renato Sesana, partner at Bernoni Grant Thornton, commented: “In Italy, as in other countries concerned by the research, the bank and financial intermediaries' sector is going through a fast evolution. The shift to digital and digital transformation projects are one of the main interest and investment areas for traditional intermediaries, also to deal with the arrival of new operators that, leveraging on the new regulations, can quickly enter the financial industry offering new value-added services and acquiring relevant market shares.
This process requires specific skills, which can be now found mainly in Fintech businesses; while traditional intermediaries have always been used to look for partnerships with other operators within the same industry, in the current new scenario, in an open innovation perspective, partnerships are looked for also with operators in different sectors, such as the technology industry, in order to speed up the digital evolution. Collaboration is a must, which nobody can ignore.”
The research shows that 56% of companies in the bank industry, 54% of those in the insurance industry and 52% of those in the Asset Management industry expect to increase their investment in IT in the next year.
Though the digital transformation in the financial industry is not new, its acceleration is the important trend in 2021.
“Digital has become a crucial factor” comments Sandy Kumar, Global Head of Financial Services and Business Risk Services and Partner of Grant Thornton UK. “There has been a compression of the time expected by clients to implement this transformation, the process has speeded up. Technology investment represent an important area, together with those products that support it, as well as the persons with the right skills to serve clients more efficiently”.
The particular conditions created by the Covid-19 pandemic could lead to an acceleration of this trend, as suggests Emily Lai, Business Risk Advisory Partner at Grant Thornton Singapore: “Companies are speeding up the digitalization, moving their activities online and acting more quickly than before to increase efficiency. I think that many companies will need to reallocate investment and focus on technology in the next months in order to keep pace”.
Relying on skilled personnel is crucial to compete and prosper in an increasingly digital market. However, 65% of banks mentioned this as one of the main hindrances to growth, that is as much important as the current economic uncertainty. The same fear arose also with regard to the industry’s expectations on remuneration.
The majority of businesses in the financial industry expects to increase remunerations in 2021, in line with inflation, while 35% of operators in the bank sector expects to increase them more than inflation, compared to 21% in other industries, proving that a lack of skills could slow down the growth of many companies.
“Everyone is competing to secure the most brilliant minds”, explained Matthew Cooleen Risk Advisory Services Partner of Grant Thornton US. “The FinTech sector is attracting thanks to the combination of a fast growth and a rapid wealth accumulation, which led banks to compete with Fintech and private equity: they must show that they can be competitive and able to fight to attract the best talents”.
However, Emily Lai believes that remuneration is not the only way to attract the best talents: “Today, it is very difficult to hire persons with the right set of skills – the demand for IT skills is very high now, but offer is not so high. Restrictions at borders and stricter policies on the entrance of foreign workers are just worsening this situation”.
Research and development is a further area in which most part of companies in the financial industry expect to invest more. 52% of companies in the bank sector expects to increase expenditure in this area in the next year, which could imply new working patterns, new products and new growth opportunities. Our team can attest that there is an increasing trend to create partnerships, collaborations, and innovation: this is a positive effect of the pandemic.
“Banks, as well as asset management and insurance operators should take the opportunity to create partnerships and collaborations to develop a digital ecosystem and create a better access to technology innovation” stated Emily Lai. “In Singapore, we can start seeing banks collaborating with Fintech companies to offer e-commerce platforms. Traditional banks are opening uo to cryptocurrencies and are looking for new operating patterns to offer new solutions to their clients”.
Sandy Kumar sees a similar situation in the UK: “I think we will soon see some of the major commercial banks align more with major technology companies to improve their operations. They wil prefer do this rather than go on alone, as it happened with agreements between Apple, Google and Amazon for smart home devices.”
“This approach combines an aggressive and a defensive aspect: the defensive one consists in understanding how we can do the same things in a more efficient way, while the aggressive one consists in understanding how we can obtain a wider client base in a more conscious way, including people who support our products. I believe that collaborations are important to reach both objectives.”
Another characteristic that is common to areas of the financial services industry is their preparation to recovery: all of the three sectors, in fact, attested that they are preparing to the changes in clients’ behaviour or in competitive dynamics in several ways (Asset Management 45%, bank sector 28%, insurance 36%). Our experts noticed a new need to deal with most recent changes in the behaviour of clients during the pandemic.
“Competition is growing” agreed Emily Lai. “New innovative procedures can be introduced to attract clients, since there has been a demographic change towards younger generations, such as millenials, who prefer digital channels, but companies must make the digital exerience accessible to all clients, expecially the elderly, making it more convenient, more personalized, easier, and more secure. Security is very important.”
“The way we relate with clients is most important than ever” agreed Sandy Kumar. “Vulnerble or elderly people could not be so used to digital. Providers must evaluate if they are investing enough in the education of their client base and use platforms that allow them to interact with those people and protect them from cybercrimes and frauds.”
The research showed that more than 40% of businesses in the financial services industry increased their revenues by over 5% in the last 12 months, a much higher percentage compared to those companies that registered losses for a similar value. Moreover, most of them stated to be optimistic or very optimistic on the economy in 2021 (as concerns the bank sector, 63% in the EU, 73% in APAC and 74% in Americas). But where dose such optimism derive for? And is it a realistic approach?
“We are emerging from a difficult situation”, admitted Matthew Cooleen, “but 2020 was a positive year for the financial services industry in the US and thanks to renewed tax incentives and expectations are optimistic. Interest margins were not affected as expected and probably banks have proper reserves to deal with possible risks.
In general, except for those in the tourism-hotel industry, businesses showed a good trend during the pandemic and I think there is a general optimism that vaccines could have a positive impact and allow the situation to return to normal. Most of all, I believe that the strength of US infrastructure and economy is really emerging.”
