2020 will be remembered for many things but deal flow in global banking won’t be one of them. Though banking industry fundamentals remained sound, the operating environment – triggered by the global economic slowdown and COVID-19 – hardened. Accordingly, global deal activity declined 26 percent and 41 percent, respectively, in volume and value compared to 2019. The US, India, China, Italy and the UK remain the most active markets as domestic banking deals continue to dominate, making up nearly three-quarters of total activity.
In 2020, COVID-19 paused the market while buyers and sellers assessed the pandemic’s impact on strategy and pricing. We saw a shake out of the peer-to-peer (P2P) industry. P2P platforms – reliant on retail providers for liquidity – struggled and in many instances were forced to sell. In the consumer finance (POS) sector, we saw significant interest in providing flexible consumer credit options at the retail POS. At the end of the year it also appeared that a number of mid-tier banks would also come to market amid structural and economic pressures weighing on the sector.
Digital transformation is also quickly reshaping the commercial finance space, especially for supply chain finance and the flow of commercial data. Commercial finance services offered by banks are now fuelled by technological capabilities that prioritize customer/client expectations and address the needs of small and large corporate clients. We expect a continuation of both consumer and commercial finance trends in 2021.
As we head into 2021, the focus will shift to non-performing loans (NPL) as government stimulus measures wear off and the economic impact of COVID-19, and any additional Brexit effects, impact on consumer and corporate borrowers. It is unclear how NPLs with attached government guarantees will recover and to what extent a secondary market will emerge.
Finally, the need for a seamless digital customer journey has risen and new entrants continue to slice off profitable parts of business and customer relationships. Banks that can manage this digital revolution to the benefit of their extensive customer bases and who can generate broader fee revenues will thrive.
Price-to-earning (PE) Interest, NPLs and Market infrastructure — with profits moving away from investment banks to industry platforms -the value of those platforms, and related connectivity and data providers, continues to rise.