NEW YORK, May 23, 2022 /PRNewswire/ -- A tectonic
shift is occurring in the financial services industry, as
technology companies jostle with incumbent firms for position in a
market that is expanding rapidly into new services, according to
global management consulting firm Oliver Wyman. Established firms
traditionally organized around managing risk are still growing, but
most of the industry's value creation is being driven by financial
infrastructure, data, and technology (FIT) companies.
In its 24th annual State of the Financial Services
Industry Report, titled The Tectonic Shift Between Risk, Data,
and Technology, Oliver Wyman states that the primary driver of
this value shift is the slowing growth of more capital-intensive
risk intermediation services, which have been growing at about 3% a
year over the last decade, compared with capital-light services
linked to connected data services and value technology services,
which have been growing at about 8% a year.
As a result of this ongoing shift, nearly one-third of the
world's largest 50 financial institutions are now FITs firms, up
from only two a decade ago.
"The financial services industry has had a good decade — no
major crisis, a huge amount of innovation, and playing an important
societal role in COVID and on climate," said Ted Moynihan, Partner and Global Head of
Financial Services at Oliver Wyman. "The decade has also seen a
dramatic change in the financial services landscape, to a wider
industry with more firms acting in co-opetition with each other,
and overall a shift in relative value from incumbents to new
players. With rising interest rates and volatile markets, we
anticipate quite different conditions in the next few years, with
the benefits going to those firms that can anticipate and pivot to
the new sources of value growth."
The Oliver Wyman State of Financial Services 2022 report shows
that without more action, this shift in relative value is poised to
continue. Most incumbents are struggling to find a decisive way to
reorganize around, and invest effectively in, the changing sources
of value and growth in the industry.
As big tech business models converge, mobile wallets and moves
into embedded finance will become more prominent, according to the
report, as the emergence of digital assets and digital
identification amplify and accelerate the value shift.
That said, current market and economic conditions may provide an
opportunity for incumbent firms to regain share. Rising interest
rates should deliver an earnings boost to some banks and insurers,
and investors are challenging some big tech and FITs firms'
business models. If incumbents can pivot more decisively toward new
sources of value and invest earnings carefully, there are
significant opportunities.
In addition, the 2022 State of Financial Services report finds
that while the top incumbent firms in the industry have increased
their market value by 70% over the past decade, delivering
$1.3 trillion in new value, a
combination of large financial infrastructure, data, and fintech
firms have delivered 400% value growth and nearly $2.3 trillion of value. Essentially, more total
value is being created outside the incumbent industry, from firms
that purport to be in similar ecosystems with the incumbents. And
$9 trillion in new value has been
created by the big tech industry - even with the significant
adjustments in 2022 - which is increasingly moving into financial
services through payments initially but is expanding to provide
many other financial services.
Additional Key Findings:
- Since the global financial crisis, the financial system is much
better positioned to play the economic shock absorption and policy
transmission role for which it is at least partially underwritten
by governments — as seen in the responses to COVID-19, in the war
in Ukraine, and on climate.
- Big tech companies remain keen to grow in financial services
without expanding too far into the core risk intermediation value
pools in financial services. Oliver Wyman expects another wave of
partnerships as they focus on further embedding a company at the
center of the lives of the customer, and bringing commerce,
advertising, and other services to the customer through greater
accumulation of connected data and delivery of valuable
technology.
- Oliver Wyman expects significant consolidation in the FITs
landscape, not least as rising interest rates and volatile markets
result in a shakedown of firms without enough earnings
stability.
- Despite recent volatility in stablecoins, decentralized finance
and digital assets are likely to drive profound changes to the
structure of financial services due to the underlying benefits from
more efficient infrastructure and the scope for greater inclusions.
The timing and extent of change from digital assets will depend a
lot on the path of regulation.
- Disintermediation is not the only risk; an ever-increasing
misalignment of the oversight and cost of risk management with the
value growth from connected data and value technology in the
industry inevitably poses risks. Other industries, such as autos,
healthcare, energy, and telecom, mirror the same challenges of
managing a mature asset-intensive suite of traditional products and
services while trying to re-focus on value growth.
- Structures that allow private capital to invest in the myriad
opportunities facing incumbents stand to benefit, and
public-to-private may even be part of the future of some of these
firms.
To view the Oliver Wyman State of the Financial Services
Industry 2022 Report, click here.
Key Exhibits:
- Total Financial Services Shareholder Value, Based on Market
Capitalization, USD TN, Jan 2000-Jan
2022
- Financial Services Valuation Change ($TRN), Top 20 Firms, 2010
vs. 2020
- Top 50 Global FS Focused (Excludes Big Tech), By Market
Capitalization, USD BN, Jan 2000-2010-2022
- Compounded Annual Growth Rate of Banking Balance Sheets,
2010-2022
- Growth in US Bank Accounts vs Payment Provider Accounts
- Revenue and Revenue Growth From Leading Listed FITs Firms
- Reframing the Financial Services Industry
- Listed Financial Services by Sub-sector, Companies with Market
Capitalization >$25 BN
- Segmentation of Digital Asset Native Start-ups
- Future Digital Assets and Decentralization Paradigms
- Digital Assets Start-up Market
- Emerging Presence of Big Tech in Financial Services
- The Financial Services Firm of the Future: A Highly Simplified
View
- Range of Options for Big Techs Integrating More Financial
Products
- Oliver Wyman FITs 100 Index vs. Peer Indices
- Largest FITs Deals in 2021
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With
offices in more than 70 cities across 30 countries, Oliver Wyman
combines deep industry knowledge with specialized expertise in
strategy, operations, risk management, and organization
transformation. The firm has more than 5,500 professionals around
the world who work with clients to optimize their business, improve
their operations and risk profile, and accelerate their
organizational performance to seize the most attractive
opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE:
MMC]. For more information, visit www.oliverwyman.com. Follow
Oliver Wyman on Twitter @OliverWyman.
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SOURCE Oliver Wyman