Banking & capital markets

Banking and Capital Markets (BCM) organisations are facing the immediate challenges of economic and political uncertainty and the longer term impact of new technology, more exacting regulation and shifting customer expectations.

Some long-established business models are struggling to sustain competitive relevance in the wake of these developments. In turn, new entrants are changing the competitive playing field and blurring industry boundaries. But today’s market shake-up also opens up significant opportunities for reinvigorating growth and re-engaging with customers, employees and society as a whole.

What comes through clearly from our survey findings is how quickly and effectively the market leaders are turning disruption into an opportunity. They’re capitalising on the full value of technology and the creativity of their people to tap into new value chains and transform operational speed and cost. They’re seeking out new sources of data and gathering the broad array of talent needed to enhance customer experiences and outcomes. Individually and through industry bodies, they’re also playing a prominent role in supporting public policy priorities in areas ranging from promoting sustainability to advising clients, suppliers and other stakeholders on cyber risk management.

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Ajay Banga, President and Chief Executive Officer, MasterCard, US
Concerns over economic, policy, social and business threats

Sustaining returns in the face of uncertainty and change

Only 31% of BCM CEOs believe that global growth will improve over the next 12 months, compared to 43% in last year’s survey. A quarter believe that growth will decline (15% last year). The faltering economic confidence is heightened by concerns over social and political instability. More than three-quarters of BCM CEOs see geopolitical uncertainty as a threat to growth and nearly 70% expressed fears over social instability.

The combination of higher capital charges, liquidity demands and compliance costs is already forcing many BCM organisations to abandon what had once been profitable mainstays of their business. Any faltering in global growth is likely to hold back both demand for banking services and further interest rate rises. It could also temper corporations’ appetite for M&A.

As some traditional revenue streams come under threat, it’s important to identify which parts of the business will still be viable in three to five years’ time. Carrying this out in a systematic way, allocating revenue and costs sensibly and viewing all of this from a customer-centric position is no easy task. Success will allow management to refocus resources and exit from any operations that are likely to hold back returns. The cost of capital and new cost benchmarks are clearly important considerations. But it’s also important to take account of the brand implications, talent, location and technological capabilities.

Regulation continues to be costly and complex – 87% of BCM CEOs see over-regulation as a threat to growth. The pace of regulatory change has required a lot of reactive responses and inefficient fixes and patches. It’s therefore important to sift through the huge number of regulatory projects and de-clutter them. A combination of technology, outsourcing and centralised centres of excellence will be at the heart of the leaner and more streamlined approach to compliance that emerges. 

Innovation and transformation

Technology is transforming customer expectations, lowering barriers to market entry and opening up growing competition from FinTech entrants. BCM CEOs believe that technology is the trend that’s most likely to transform the expectations of customers, regulators and other key stakeholders over the next five years (93% ranking it in the top three) – more than the technology sector itself (92%).

New technology can help businesses to foster a more informed and engaged relationship with customers. The ability to analyse more data, more quickly and with more predictive capabilities than ever can also ensure a faster, more targeted and more forward-looking response to customer demands and capital market developments.

But technology has also created new benchmarks for the cost, customer understanding and speed of response, which are putting severe strains on the often slow and unwieldy systems within many established businesses. The disruptive impact is highlighted by the fact that 81% of BCM leaders see the speed of technological change as a threat to growth. More than 70% of BCM CEOs also see shifts in consumer spending and behaviour as a concern. As many established organisations struggle to meet these demands, FinTech is moving in to fill the gaps, using advanced digital profiling to target customers and low-cost digital distribution to undercut traditional competitors.

The need to keep pace demands a flatter and more flexible organisation, which can interpret digital intelligence as it comes in and rapidly mobilise around market openings. It also requires more people who combine banking and digital skills. Few as yet possess these hybrid capabilities. Competition to attract them isn’t just coming from traditional peers, but also FinTech start-ups and technology groups looking to develop their presence within the financial services market. Little wonder then that 72% of BCM CEOs see the limited availability of key skills as a threat to growth.

Cost constraints and the limited availability of key skills may hamper your ability to attract, develop and retain the talent you need. So it’s important to explore all available options. This includes investment in automation and robotics to take care of routine transactions, trading and research, which would not only reduce costs, but also allow key personnel to devote more time to developing customised solutions and focusing on higher value accounts. We’re also likely to see more virtual collaboration, use of contingent labour and sharing of resources with competitors. 

Meeting changing expectations
Technological priorities

Combatting cyber threats

With technology comes a new and escalating raft of cyber and broader financial crime risks – nearly three-quarters of BCM CEOs see cyber threats as a barrier to growth.

BCM organisations have always been in the frontline of the fight against cybercrime, though they are only as strong as the weakest link in an ever more extended business chain. It’s therefore vital that cyber risk is recognised as a strategic risk that demands board-level insight and leadership, rather than simply seeing it as a matter for IT or compliance.

Key questions BCM boards should be asking as they look to strengthen protection include:

Who are our adversaries, what are their targets and what would be the impact of an attack?

We can’t lock down everything, so what are the most important assets (‘crown jewels’) to protect?

Are we integrating threat intelligence and assessments into proactive cyber-defence programmes?

Do we assess vulnerabilities against known tactics and tools used by perpetrators who might target them?

Beyond the confines of your own systems, it’s important to identify and tackle the weaknesses within your wider supply and service chain. This requires a more collaborative approach in which you not only work more closely with clients and suppliers to share expertise, threat intelligence and protective systems, but also governments and technology companies within a multi-agency approach.

As technology transforms our company, the risk of intrusion and cybersecurity worries us the most. Now, we’ve spent serious amounts of money on this, but the reality is you’re never done. As much as we used to think about protecting our physical assets, it’s the same today with our non-physical assets. They’re in the hands of different people, and it’s sometimes harder to figure out.”

Brian Moynihan, Chief Executive Officer, Bank of America Corporation, US

Transformation

Stakeholders are demanding more from banks, not just in the value they deliver to them individually, but also in their contribution to society as a whole.

For many BCM CEOs in our survey, these developments are not just spurring a review of business strategy, but a more fundamental rethink of their vision, objectives and how they measure success. Thirty per cent of industry leaders say that their organisation has changed its purpose in the past three years to take account of its broader impact on society and a further 12% are considering this.

But as our survey highlights, it can be difficult to balance the potentially conflicting demands of different stakeholders without raising costs and eroding profitability (see Figure 4). Technology and innovation will be critical in delivering the outcomes stakeholders want at a cost customers and investors are willing to bear. As you look at how to target resources, it’s also important to gain a deeper understanding of customer, regulator and wider stakeholder expectations and how to align these with the priorities of your business.

An emerging trend and one we predict will get stronger is the BCM sector’s role in sustainability, especially following the recent Paris Accord. We believe that the sector’s ongoing exposure to economies and companies that are not environmentally focused will receive increasing focus, not only from within BCM institutions, but also from stakeholders and external commentators. BCM organisations’ decisions over whether or not to finance carbon producers on the one side and their investment in new technologies on the other will increasingly be in the spotlight.

Barriers to meeting expectations

"You’re going to have to have a company that is ready for the next five years, where the only constant is rapid change. For that, you need people who can adjust to that change and comprehend the ecosystem."

Ajay Banga, President and Chief Executive Officer, MasterCard, US


Explore the data

Which connecting technologies do CEOs think generate the greatest return in terms of engagement with wider stakeholders? (All respondents: 1,409) (Banking & capital markets CEOs: 176)



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Kevin Burrowes
Global banking and capital markets leader
Tel: +44 (0)20 7213 1395
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