What will be left of financial services tomorrow?
What do we mean by multi-shock?
Compounding market events, like the global financial crisis, are not new. What is new is the frequency and the time markets take to recover.
Our analysis suggests that financial market recoveries from major disruptions occur faster — often in days or weeks, not months or years. For example, the dot-com crash took almost seven years to fully recover, while the market recovered from the pandemic, the Russia-Ukraine conflict and tariff announcements in weeks, not years. Shocks are becoming so commonplace that 100-year events are stacking on top of each other, and still the market remains resilient.
So, what is there for an executive to do? In these disruptive environments, firms who can anticipate client needs, accelerate innovation, upskill their workforces, and leverage their balance sheet appropriately position themselves to create resilient growth. An executive has to consider where their company’s weak spots are that could prevent them from bouncing back with the market from a shock.
Source: PwC Analysis based on data from S&P Capital IQ.1
In our survey of approximately 500 financial services executives, our respondents note that in the next two years, their industry is equally (and highly) vulnerable to shocks related to economics (72%), technological disruption (71%), market structure and competition (71%), regulatory and policy changes (71%), and geopolitics (70%).2 Despite acknowledging the vulnerabilities these shocks present, about three-quarters of our respondents (73%) note that the majority of their current revenue streams are not considered "future-proof" for the next decade.
To prepare for the shocks of tomorrow, we see three factors that financial services firms could build a strategy around.
Factor 1 Capital on the move: Redistricting of the financial markets
Many financial services firms have not made tracking global investment trends a core consideration of their strategic planning process. However, recent geopolitical events are challenging historical norms and increasing the volatility of global investment dollars. These changes can go down to the regional level, causing shifts in where money is spent and breaking down the barriers that protected legacy service providers. As a result, a fresh look at how your strategy is impacted, both internally and externally, should be a high priority.
Our analysis of OECD net capital flows over the past two years paints a picture of capital movement on the rise in unexpected places. We see net increases in overall inflow for the US, Japan and China, but we see unexpected substantial net outflows for key countries in the EU and Korea. And this is just over the past two years of activity. These shifts may or may not affect your business directly, but they probably do affect your clients. So, following these types of changes will be part of your company’s homework now.
Our survey respondents agree, with 90% noting that the geographic patterns of global capital allocation are shifting faster than most financial services firms can adapt their strategies.
The redistricting of capital flows is already impacting the financial markets globally, regionally and, in some cases, virtually (via the advent of on chain currencies). Our survey also found 78% of respondents expect a significant or moderate impact on their business strategy in the next two years as a result of shifting capital flows.
Impact of shifting capital flows on business strategy
Source: PwC FS Survey, July 9, 2025, base 514.
No individual financial institution can precisely control how capital will be deployed, but not having a perspective is riskier than moving forward blindly. Firms will need a commitment to identify growth opportunities, acquire the data and modeling capabilities to size the market, and confirm necessary products and skill sets needed to invest or exit new markets.
What to do now
- Build a capital flow radar. To begin tracking capital movements, look at six areas in detail — demographics, technology, geopolitics, regulation, fiscal sustainability and market infrastructure. Building capabilities in this area will give you your best shot at an early warning that predicts an opportunity (such as the retailization of private credit) rather than responds to one.
- Power up your data and modeling capabilities. The complexity of this environment requires a rethinking of scenario planning techniques and strategies. Winners in this space will build the capability to identify and collect real-time data, and the skill set to model out where it makes sense to invest/divest.
- Rethink workforce and leadership. Do you have the kind of team who can think deeply and come up with the kinds of quick strategic moves needed to win in the markets of tomorrow? How you lead your teams and the capabilities of those teams will be a crucial area of development for companies looking to take advantage of capital trends.
Factor 2 When everything is converging, how do you compete against everyone, all at once?
All companies, FS or not, are constantly rethinking how to create value. This sometimes means developing new strategies to acquire or retain clients, or, increasingly, this may mean expanding into connected products and services to drive more engagement with existing clients. These choices are not new, and most firms choose one of two paths — build a “hyper niche” scaled platform focusing on a single segment or build a multi-revenue “unified” business (generally through acquisition).
Hyper niche: Market leaders in this segment double down on a single segment to deliver at scale. This is common in a few areas of FS (such as insurance and real estate) where specific industry knowledge can be rewarded at scale. While we have seen some non-FS challengers (Robinhood, ApplePay) exploit an untapped value opportunity to scale quickly, crafting a single segment scaled business that can completely dominate a space generally takes time and the capability to overcome barriers to entry.
Unified firm: Non-niche market leaders are committed to a strategy designed to serve their client base holistically via a diversified set of products and cross-territory footprint. We have seen many market players in banking, asset management, and private equity pursue this model to help diversify their revenue streams and hedge against less inviting market opportunities. This strategy sees faster growth, often through acquisitions, and more diversification of revenue sources, despite being more difficult to manage.
From a practical place, there are a few clear examples of how this struggle has played out.
Banking
In banking, the top 10 US banks have balanced their income streams with substantial capital markets depth, allowing them to maintain revenue even in a down cycle. The next 25, however, are much more dependent on wealth, custody, payments and wealth management services. In turn, those banks are much more exposed to market risk. For global banks, this spread becomes much tighter and subject to fluctuations based on the activity in an individual year.
P&C insurance
In P&C insurance, personal carriers have used their strength of scale to maintain their market share and they’ve continued to leverage that scale to maintain rate adequacy on a state-by-state level. Commercial carriers, on the other hand, have undergone increased competition from niche-focused competitors who can provide specific types of coverage better than the top players. For global insurers, P&C looks much more like US commercial’s market share, with many more competitors taking market share.
Our survey data also suggests the trend toward diversification will continue, barring any macro disruption. Nearly all (99%) of our survey respondents report plans to expand into other FS sectors in the next three years, with priorities varying by sector.
With the speed at which markets are recovering today coupled with the pressure to grow, we expect more companies to pursue the unified firm strategy.
What to do now
- Know who and how to fight. Identify your likely future competitors — some of whom may have deep pockets, be rich in customer data and skilled in regulatory compliance — and then you can build your strategy to determine if you too should enter new markets.
- Pick your partners. Whether it’s traditional banks co-originating loans with private funds, or insurers teaming up with car and health companies to price risk better, alliances can help even tightly regulated institutions profit in “no-walls” financial services.
- Learn from M&A. Just because you can enter a new business doesn’t mean that you should. Take a page from the traditional M&A playbook and assess your skills and culture for a “fit” before moving forward, even if it means your culture has to align with a converging market.
Factor 3 Nothing left to automate: What does FS look like when tech eliminates manual ways of working?
Technology has been a major focus of FS spend for decades. Unfortunately, most of that spend has been on maintaining and making small improvements to aging tech platforms. As per a Gartner forecast, IT spend for Financial Services companies will continue to increase 6.5%-10.7% annually through 20284. This shows that there’s still work to do balancing the demands of managing existing platforms while trying to allocate more investment toward growth initiatives.
Making this shift toward strategic technology investments may be challenging, but it is necessary. While nearly all of the executives in our survey (99%) say traditional business models are vulnerable to technological disruption, our experience suggests that business as usual spend remains the order of the day.
As companies remain focused on managing their legacy technology while modernizing their infrastructure, disruptive technology remains a risk to all institutions. Here are three we’re watching.
Future of money: Market leaders know that the GENIUS Act doesn’t just provide a path for bringing stablecoins to the market, it provides a path to faster movement of capital. Tokenizing cash and financial products allows traditional FS transactions to settle almost instantaneously. The move to stablecoin has the potential to fundamentally change the way businesses and consumers transact, creating risk to traditional business models (e.g., settlement speed, sweep account movement, bank liquidity, transaction fee income) and changing the way we think about currency. Leaders are already preparing for rapid change, making investments and preparing for a digital assets-powered future.
Insurance tech: For the insurance sector, it’s a race to get the tech stack fixed and unlock potential. Historically, tech had been divided by line of business and by value chain, with each individual department having its own separate tech solutions to their problems. Over the past decade, insurance companies have made building data lakes and integrating systems a priority for a variety of reasons (improving the consumer experience, underwriting process, etc.). But now, insurers see the finish line: creating new business models, streamlining their operating model and exploring new products and services concepts. Insurers are also more open to partnering with tech vendors (instead of building from scratch), making deals (investments or M&A) with insurtech, and forming partnerships and ecosystems outside of the industry.
AI: We get it. Everyone’s talking about AI and a few are seeing measurable results. That will change. As companies move to handle risk, privacy and investment thesis, our survey shows AI is the largest investment priority for 2026 (see graphic below). Our AI Agent survey further confirms that companies, regardless of industry, are focused on back-office improvements with their Top 3 usage areas being customer service, sales and marketing, and IT and cybersecurity. We believe this narrow back-office focus, while important to modernizing operations, is underestimating the potential to disrupt yourself with AI.
Which technology investments are your top priorities for 2026?
Distributed ledger technology (e.g., blockchain based solutions outside of digital assets, etc.)
Q: Which technology investments are your top priorities for 2026?
Source: PwC FS Survey, July 9, 2025, base 514.
It is clear that technology will drive transformative change. While 90% of our respondents agree, “Financial services firms need to become technology companies that happen to offer financial products, rather than financial companies that use technology,” some respondents are hesitant. Forty percent say they’re reducing investments in a major technology initiative in response to changing market conditions, with 47% citing integration issues or disappointing ROI as the main cause.
The industry knows that their business is being disrupted. Regardless of your business model (hyper niche or unified firm), your technology will increasingly create a strategic advantage or anchor your growth plans in the past. Digital challengers are using technology to circumvent or, in some cases, support the transformation of incumbents. Leading firms will focus on pivoting spend away maintenance toward tech driven growth investments.
What to do now
- Target innovation as half of total IT spend. Legacy tech debt consumes too much of most budgets at the expense of driving innovation and growth initiatives. We believe leading companies will set aggressive targets where 50% of technology spend drives growth and innovation by 2030.
- Follow tech movements worldwide. Access to critical technologies is increasingly being treated as a lever of economic policy, with governments moving to tax individual technologies on a country-by-country basis. Winners will position their company, not just on products and services, but navigating shifting global focus and alliances.
Building resiliency in all areas
So, what can your company do in a tech-driven world in the face of shifting capital flows and convergent business lines? While no business model can prepare you for every shock, you can build a flexible, well capitalized business that allows you to create opportunity out of chaos.
At its roots, resilient companies will require stable operating models nimble enough to face change head on, management teams taking advantage of short-term market disruption, efficient technology infrastructure (for AI and to monetize data) and the right partners to execute consistently over time. In the financial services sector of tomorrow, agility will be the key to success.
The future of financial services
What will be left of financial services tomorrow?
Contact us
