The worldwide market for financial services is evolving rapidly and by 2010 is likely to look very different than it does today. New asset classes such as private equity and hedge funds are attracting a growing number of investors, shifting the center of gravity in the world’s capital markets. The payments business – which is a major source of revenue and profit for many financial institutions – is being restructured, changing the fundamental economics of banking. Meanwhile, in many countries, the impending retirement of the baby boom generation is changing the focus of financial services from long-term accumulation to managed consumption. This study from Deloitte Research identifies major market drivers and operational challenges that financial institutions will likely face over the next four years and pin-points the strategies and practices recommended to create the "Hallmarks of Success".

The key drivers and challenges include:

Market Drivers

Given the high barriers to entry and tightly regulated environment, revolutionary changes are unlikely to occur over the next four years. Yet the evolutionary changes that are already underway should have a profound effect on financial services markets in every region of the globe. This section looks at four of the most important market trends, and analyzes their potential impact on firms in the financial services industry.

• New asset classes: Changing the center of gravity
  A wall of money is flowing into hedge funds and Private Equity (PE), shifting the center of gravity in the world’s capital markets, polarizing investment styles and creating headaches for regulators.
• Aging populations: Turning silver into gold
  Members of the wealthiest generation the world has ever seen are now quitting their jobs and preparing for a long, indulgent retirement – a phenomenon for which few financial services institutions may be fully prepared.
• Payments: P&L pain or pride
  Financial institutions potentially face significant Profit & Loss (P&L) pain due to the confluence of emerging regulations and technology trends. Financial institutions without a payments strategy are likely to be followers by 2010.
• Emerging markets: Opportunities, but no guarantees
  Emerging markets offer a possible solution to the growth problem, but only if financial institutions can adapt their business models to operate profitably in these new and largely uncharted territories by 2010.

Hedging their bets: Institutions using hedge funds

*) Excluding UK Source: The Economist, March 4, 2006

Operating Challenges

In addition to the major market trends, there are a number of operating issues that are likely to have a big impact on the way financial institutions do business in 2010 – both at home and abroad. These issues present significant management challenges, yet they also provide major opportunities to improve efficiency, service, financial performance and competitive advantage.

• Offshoring: Releasing the value
  To move beyond pure labor arbitrage benefits, major financial institutions will likely need to take their offshoring strategies to the next level by re-engineering business processes and developing a truly global operating model.
• Internal control: A springboard to improved operating performance
  Building the capability to be able to consolidate and report data beyond compliance demands by regulatory authorities is likely to be a key differentiator between winners and followers by 2010.
• The struggle for growth: Process and service innovation provide the keys to sustained performance and enhanced customer relationships
  In the struggle for growth in mature markets, a key hallmark of success to deliver sustainable revenue increases and enhance the customer experience is likely to be the ability to identify and execute services/process innovations, over product innovations.
• Mindset matters – Tax, accounting and financial reporting
  A radical shift in mindset is required amongst senior executives to bring transparency and technology to tax planning and financial reporting activities – a hallmark of success to a financial institution by 2010.

About the report

The Financial Services in 2010 report was written by Deloitte Touche Tohmatsu. This report identifies the major market drivers and operational challenges financial institutions will likely face over the next four years, and pin-points the strategies and practices recommended to create the hallmarks of success.

Learn more in the full report attached in PDF format below.