As financial services firms emerge from the initial disruption of the pandemic, many will be asking whether they are resilient and relevant enough to thrive in the new reality.
“We feel like we’ve put the reactive stuff behind us,” a bank client told me on a video conference last week. There was a pause. “What do we do now?” he asked with a grimace. He is not alone.
The pandemic has radically changed the environment in which financial services operate. Its catalytic impact has been obvious. It accelerated digitization by at least 5 years. It sparked new business models and technologies. It ushered in an unexpected era of remote working and decentralized workplaces. It sharpened minds around the Environmental, Social and Governance (ESG) agenda. It changed the relationship between financial services firms and their customers. In the space of months, it did all of this and more.
Take a step back, however, and what starts to become clear is that the greatest impact of the pandemic has been on the definition of resilience and relevancy in the financial services space. It is the rapid evolution of those two concepts that have underpinned financial services organizations’ responses to the pandemic. And it is those two concepts that will drive the strategy going forward.
Regulators, customers and executives all want to know that financial services organizations (and their wider ecosystems) are able to withstand a much broader basket of risks than simply financial ones.
Resilience and relevance have always been the cornerstones of the financial services industry. From the very earliest days, customers wanted resilience (I want to be confident that you will keep my gold safe) and they wanted relevance (Give me access to my gold when I want it and help me further my business and commerce efforts). Over the centuries, the definition of ‘resilience’ and ‘relevance’ continued to evolve as social expectations and market realities changed.
Now the definition has changed once again. Hitherto, most conversations about resilience in the financial services sector gravitated around financial resilience. Since the pandemic, this focus has rapidly broadened to include a wide range of operational and market resilience considerations. Regulators, customers and executives all want to know that financial services organizations (and their wider ecosystems) are able to withstand a much broader basket of risks than simply financial ones.
The definition of relevance has also rapidly changed. In the past, market presence was tantamount to relevance; if you built a robust financial services infrastructure, customers would eventually come. Yet that is no longer true in today’s environment. Customers have a wide range of alternatives and options when it comes to their money and their finances. Market presence and brand name are no longer enough to secure loyalty.
The key to defining your future strategy as a financial institution, therefore, rests in your ability to remain resilient and relevant on an ongoing basis, adapting your strategy and activities as the definition of the two changes.
Interestingly, there are a handful of ‘intersection’ points where resilience and relevance coalesce. These are the areas where, perhaps, most financial services executives should be focusing first.
Consider, for example, the impact that people, values and culture have on both resilience and relevance. Customers want service providers that share their values (relevance). Employees want to work for companies that stand for more than just making shareholder profits (relevance and resilience). And, according to a recent survey of Financial Services CEOs by KPMG International, purpose also leads to more confident decision-making in a crisis (resilience).1
Or consider how digital drives both relevance and resilience. Digital enabled the rapid shift to the new reality workforce, delivering unprecedented resilience when the sector needed it most. Digital also enables the creation of new and innovative business models, products and channels which enhance relevance for customers and stakeholders.
Intersection points can also be found in the management of costs (lower costs enhance resilience and lead to new operating models which enhance relevance), customer focus (leads to more relevant products and services as well as a more resilient customer base), or even risk management (which has an obvious impact on resilience but, when approached holistically, can also enhance relevance).
Organizations and executives will need to be very honest about what they can practically achieve with the resources at their disposal.
My advice to that financial services executive – and to most leaders I talk with recently – is to start by looking at your organization’s present and future through the lens of resilience and relevancy. Consider the intersection points and how the definition of the two concepts are changing. Take the time to understand your stakeholder and customer needs related to resilience and relevance. Think about whether your organization is meeting those needs.
This publication should help. In this edition of Frontiers in Finance, I asked our financial services professionals around the world to think broadly and critically about resilience and relevance. And I challenged them to consider how it will influence the financial services agenda going forward. The articles in this publication strive to provide executives with some ideas about how to proceed into the future.
Unfortunately, not every financial services firm will be able to make the jump. Indeed, many will undoubtedly start to recognize they lack sufficient skills, resources, technologies or capabilities to achieve the types of changes they require in order to remain resilient and relevant into the future. Organizations and executives will need to be very honest about what they can practically achieve with the resources at their disposal.
Over the coming year, expect to see massive changes in the market as players start to grapple with – and eventually overcome – these challenges. Some of the largest and most innovative will double down on their efforts to build their own market-leading capabilities that drive resilience and relevance.
The vast majority of financial institutions, however, will likely choose to either leverage new technologies, tap into managed service models or enter into new alliance relationships in order to bridge existing gaps and secure the capabilities they require to remain resilient and relevant in the new reality.
I suspect we will also see a significant number of organizations succumb to the pressure. Expect to see an uptick in merger and acquisition activity around the world as some organizations realize the gap is too wide (or the effort too exacting) for them to win in their chosen markets
This year, I will be retiring from KPMG. And, as I look back on my 40-plus years working with a broad range of clients, colleagues and partners, I recognize the role that personal resilience and relevance has played in my career and the careers of those around me.
Ultimately, the most successful leaders have been those who always took the time to look a few steps ahead. They have been guided by what I refer to as the 5 C’s: Collaboration, Communication, Consistency of thought and action, Compassion and, most importantly, Courage- the resilience to do the right thing at the right time, in the right way and for the right reasons.
They were the ones that remained resilient in times of crisis. And they were the ones that remained most relevant throughout their careers.
If I take just one lesson from my time with KPMG, it’s that leadership lives at the intersection of resilience and relevance.
1 KPMG 2020 CEO Outlook, KPMG International