Banking on disruption: how the BCM sector can turn change into a competitive advantageFollow @PwC
The banking and capital markets (BCM) sector is being rocked by some of the biggest disruptive challenges that exist today. Its growth is under threat from over-regulation, rapid technological change, shifting customer behaviour and the arrival of ambitious market entrants that are contesting its hegemony. No surprise, then, that our 20th CEO Survey revealed that BCM was one of the three sectors most affected by disruption and change – surpassed by only insurance, and entertainment and the media.
Of course, disruption and change are not necessarily bad news. I know that BCM leaders are conscious that today’s marketplace presents as many opportunities for their organisations as it does threats. In particular, they have the opportunity to reinvent themselves as leaner and nimbler operations that can form more personal relationships with their customers and better respond to their needs.
To reach this place, however, BCM organisations need to be more proactive about boosting innovation and customer intimacy, while driving down costs. They also need to look at how they can build the workforce and develop the technological capabilities that will get them to where they need to be in future.
Understandably, given its far-reaching impact on both our economy and society, technology is a major preoccupation for BCM leaders. The vast majority (84%) of BCM CEOs who responded to our survey believe that technology will completely reshape, or at least have a significant impact on, competition within their industry over the next five years. This presents them with a major challenge in terms of living up to customer expectations. Banking is a notoriously complex business where security is of paramount concern, yet customers still expect banks to provide the same easy and intuitive online experience as retailers and tech companies.
RegTech is another important driver of change. Global demand for regulatory, compliance and governance software is expected to reach US$118.7 billion by 2020, according to fintech insights provider Let’s Talk Payments. With a plethora of RegTech products to choose from, BCM leaders must work out how they can best boost their organisation’s competitiveness by using technology to cut the cost of regulatory compliance.
CEOs recognise that they need to make changes – this comes through very clearly in the discussions that I have with them. In practice, however, they are holding back from taking the decisive action that is needed to harness the power of disruption for their organisation.
Our survey found that BCM CEOs cite digital and technological capabilities as the area they would most like to strengthen so that they can exploit new opportunities. Yet, puzzlingly, just 40% of BCM CEOs are considering the impact of artificial intelligence (AI) on their future skills needs, with a mere 6% doing to a great extent. This is despite AI already having a big impact on trading desks through the automated switching of algorithms and it being set to transform the way in which organisations interact with their customers in future.
On a final note, data is undoubtedly one of the greatest assets that BCM organisations typically have at their disposal – and it is the envy of most other sectors. In my experience, however, they are not using this data to their advantage. Most are not investing in predictive modelling, machine learning and other advanced analytical capabilities that could help them to sharpen their customer targeting and create more personalised and relevant services. Since they are only capitalising on a fraction of their data’s potential, they risk being overtaken by competitors that are more adept at exploiting customer intelligence.
BCM faces the same stark choice as virtually every industry sector right now – disrupt or be disrupted. CEOs must make sure that their organisation chooses the former option and there is no better time to start than today.
Kevin is a partner in PwC, the world’s largest professional services firm. He is PwC's Clients and Markets Leader in the UK and the Global Banking & Capital Markets Leader.
During his career he has primarily focused on advising, leading and delivering projects for Investment Banks across a broad agenda from strategy to process efficiency, Front Office to HR, globally and locally. His clients have included JP Morgan, UBS, Deutsche Bank, Barclays, HSBC and HM Government. He has previously worked at IBM, Credit Suisse and The Royal Bank of Scotland and has been based in London, New York and Frankfurt. He is a member of the Institute of Chartered Accountants in England and Wales.