Financial Services CEOs going for bold

Operating in an era of continuous disruption, Financial Services CEOs remain confident that their organizations have what it takes to keep growing despite the uncertainty. The leaders are thinking boldly about the future.

Financial Services CEOs are under no illusion that life will soon revert to 'normal'. According to a recent survey of Financial Services CEOs conducted by KPMG International, only a third expect to return to the 'normal course of business' before the end of 2021. Most - 43 percent - say they expect a bit more normalcy sometime in 2022.

More telling, perhaps, is that 22 percent of the CEO's surveyed said that their business has changed forever; there is no 'return to normal' in their plans.

In part, this expectation of a world forever changed relates to the COVID-19 crisis. Uncertainty abounds on when employees will return to the office (or if they will want to); whether new consumer preferences will remain once the crisis has passed; and whether new variants and outbreaks will force another cycle of lockdowns and economic gyration, for example.

Even as vaccines start to turn the tide on the crisis, many CEOs believe the reverberations of the pandemic will continue to echo across markets, institutions and society for years to come.

Banking executives, for example, are having to reassess their provisioning levels to reflect the massive amount of credit they have been providing since the start of the pandemic. They are feeling pressure from new digital challengers and are sensing growing threats from the big tech firms. The continued low interest rate environment in most markets remains a dampener on profitability.

Insurers also remain deeply concerned about the low interest rate environment (given their historical preference for bonds and fixed income vehicles over equities) which continues to hamper their rates of return. Some insurers are rethinking their exposures - particularly those involved in hard-hit segments like business travel, health and life insurance. All insurers (both B2C and B2B) are reassessing their customer channels, workflows and processes to reflect new customer preferences.

Asset managers, on the other hand, are facing a somewhat more positive scenario. Equity market activity and valuations are sky-high, providing asset managers with healthy fees and swelling books of assets under management (AUM). Workforce models in the sector should allow for a faster return to the office and virtualization initiatives have generally been successful in bridging the communication gap between managers and investors. However, the growing pressure to use their assets as a force for good on the ESG agenda is forcing assets managers to rethink their value propositions going forward.

Financial Services CEO's recognize they are now operating in an era of continuous disruption. And they are confident they have what it takes to grow in the face of uncertainty. However, as our survey reveals only a few are taking the bold steps to truly create a new foundation for growth in the new reality that is emerging.

If you don't believe your business has 'forever changed', you may want to ask yourself if you are one of the bold.

Yet - despite all of this (and much more) continued uncertainty - financial services executives are highly confident they have what it takes to grow through the disruption. In our survey, 86 percent of financial services CEOs voiced confidence in the 3-year growth prospects of their organization, up 9 percentage points from last year at the start of the pandemic. More than a third think they will see growth of more than 5 percent per annum (just 1 percent of respondents were as bullish last year).

Interestingly, banking CEOs indicated growing concerns. While 75 percent of banking CEOs voiced confidence in their growth prospects, this is down 5 percentage points from the same time last year. In part, this comes down to the provisioning pressures and long-term low interest rate environments we noted earlier. But it also seems to reflect the understanding that competition from digital competitors is heating up; the traditional barriers to entry that often protected the sector are quickly falling away.

There is good reason for optimism. According to our survey, many Financial Services CEOs are taking big steps to ensure their organizations are prepared to survive and thrive in an ever-changing and dynamic new environment.

Capital is pouring into technology investments. Consider this: 57 percent of Financial Services CEOs say they plan to spend more on customer-centric technologies than they did last year - when, arguably, they were pumping unprecedented investment into rapidly digitizing and virtualizing the customer experience in the early phases of the COVID-19 crisis. Almost half say they will invest more into digital communications tools this year than they did last year. Perhaps not surprisingly, more than two-thirds indicated they would be stepping up their investment into data security measures and technologies.

Appetite for M&A is also up, particularly amongst asset managers. Perhaps best epitomized by JPMorgan Chase's CEO, Jamie Dimon, when he announced late last year that his 'line was open' to competitors looking to sell, asset managers have been hunting for opportunities to grow their AUM and capture scale. Not surprisingly, 83 percent of asset management CEOs in our survey said they were keen to conduct M&As.

Insurers and, to a lesser degree, bankers are also seeking M&A. However, our conversations and our data suggest bank and insurance executives are looking for transformative acquisitions rather than simply ones that will grow their existing footprint. Indeed, the top driver for M&A amongst bank CEOs was the desire to on-board new digital technologies that could bolster the customer experience or value proposition. The third top driver was the desire to accelerate business model disruption.

Financial Services organizations also seem to be taking unprecedented steps to build trust with their customers, employees and stakeholders. Almost universally, the CEOs in our survey reported they were now putting more focus on the 'S' of the ESG agenda. Purpose has become a cornerstone of their value propositions and their interaction with customers. Almost nine-in-ten say they are taking steps to lock in the climate gains they made during the lockdown. Financial regulation and supervision are also pushing in the same direction.

Are Financial Services CEOs being bold enough given their degree of confidence and the uncertainties still reverberating around the markets?

KPMG firms' work with financial institutions around the world suggests some are. They are the ones that see transformation not as a strategy in itself, but rather as mandatory to a revitalized and reimagined business. They have a vision for where they want to 'play' in the future. And they are rebuilding their organization and their transformation journeys in order to get there faster. They are the ones that reported their businesses had changed forever.

Our conversations with Financial Services CEOs suggest these leaders share certain commonalities that are helping them shape their activities going forward.

• They keep and value an open mind. They are not just open to new ways of doing things, they are open to doing new things. New partnerships, new channels, new business models, new operating models and new value propositions are all on the table.
• They are fuelled by a sense of urgency. The leaders know they have no time to waste and are exploring a range of bold opportunities to accelerate their time to transformation. They are putting particular urgency behind the development of new business and operating models.
• They put the customer at the center. More than just being customer-centric and driving personalization, the leaders are thinking about how they can best utilize their assets (human, technological and physical) to improve cross-selling and customer lifetime value.
• They have a relentless focus on value. The leaders know parts of their business are rapidly becoming commoditized by FinTech players and low-cost competitors. They are focusing on where they can add the most value to their customers in the future and building their business models accordingly.
• They stay on top of trends and build resilience. They understand that the current environment is uncertain and ever-changing. So they are working with a range of partners to help ensure they remain at the leading edge of the trends - and the competition.

Financial Services CEO's recognize they are now operating in an era of continuous disruption. And they are confident they have what it takes to grow in the face of uncertainty. However, as our survey reveals only a few are taking the bold steps to truly create a new foundation for growth in the new reality that is emerging.

If you don't believe your business has 'forever changed', you may want to ask yourself if you are one of the bold.