By: PWC Africa
- Accelerated digitisation and real productivity gains required to survive restructuring wave
- Low interest rates redefine product and portfolio mixes
- Capital constraints in regulated institutions drive financing to non-bank lenders
- Post-recovery government actions drive environmental, social and governance (ESG) principles to the mainstream
The primary role of a traditional bank providing financing and capital is set to be challenged further in a post COVID-19 world by non-banks, according to PwC’s report, ‘Securing your tomorrow, today – the future of financial services,’ which predicts that alternative providers of capital are set to become an even more important part of the global financial system.
National lockdowns and other measures taken by governments around the globe to flatten the infection curves have caused significant damage to many industries, all of which are served by financial institutions. Compared to all previous crises – including the global financial crisis, the oil-price shocks of the 1970s or even the great depression of the 1930s – COVID-19 will likely have the most substantial impact on the global economy, with a one-year reduction in worldwide GDP of more than 6%.
Costa Natsas, Financial Services Leader for PwC Africa says:
“The COVID-19 pandemic has led to unprecedented challenges for the financial services industry, creating massive new disruptions and dramatically accelerating others that were already underway. Despite these challenges, the future of the industry looks promising. Significant upheaval also creates new opportunities for innovation. The challenge for leadership teams is to look forward, understand the scope of changes underway and be bold in responding to them.”
In this report we focus on 7 macro trends that financial services firms need to consider to properly plan for the future. FS leadership teams will need to consider and understand these trends, as well as the challenges in order to properly plan for their future.
Macro trends that matter and their impact in a post–COVID-19 world
- Low interest rates will continue wreaking havoc on margins and business models.
- The COVID-19 recession and asset impairments will reduce risk-bearing capacity for regulated industries to support the real economy as it enters the recovery stage over the next year.
- Alternative providers of capital are set to become an even more important part of the global financial system.
- COVID-19 will not delay – and may accelerate – the implementation of current and planned regulatory measures in many countries and regions.
- Continued de-globalisation will further align the size of financial institutions to the GDP of their home countries while continued offshoring will increase operational risk across the industry.
- Firms face unrelenting pressure to boost productivity through the digitisation of the business and the workforce.
- The client-driven shift to a platform- and ecosystem-based financial services industry will create a new wave of disruption and disintermediation.
A new way to think about the future of your business: Repair, Rethink, Reconfigure, Report.
“The post–COVID-19 world brings many challenges and uncertainties, but these can also yield business opportunities for financial institutions. Changes in the geopolitical setting, the structure of the global financial system and a difficult credit environment provide banks, insurers and asset managers with opportunities to support clients in navigating these challenges, adjusting portfolios and developing new investment opportunities,” says Francois Prinsloo, Banking and Capital Markets Leader for PwC Africa.
The report focuses on four key areas for recovery in financial services:
- Repair the damage: The damage from COVID-19 to the real economy – and, by extension, the financial system – is only now beginning to manifest itself in various ways. This damage will require deliberate actions to repair financial institution balance sheets and reputations.
- Rethink the organisation: Many of the questions about organisational structures and talent that existed before COVID-19 – the efficacy of remote working and the productivity of agile teams – have been answered. These and related tools and approaches are now being deployed, and succeeding, on a massive global scale.
- Reconfigure the business and operating platform: Along with the repair and rethink activities, many financial services institutions will need to reconfigure the business and operating platform, in some cases making profound changes in order to succeed in the future. To be sure, the post-global financial crisis changes were also profound, as the industry grappled with increased regulatory costs by selling businesses, reducing workforces, increasing offshoring and taking many other important actions. The COVID-19 crisis is only accelerating trends well underway in each sector and underscores how much work remains to be done.
- Report the results: As various stakeholders demand more transparency and accountability from financial institutions, the focus will increasingly turn to complete and accurate reporting in a range of areas, including financial performance, ESG, regulatory compliance and the like. In addition, it will be critical not to miss perhaps the most important attribute of any successful financial institution in the future: being able to articulate its unique culture, story and value to society.