The financial services industry is emerging from an extraordinarily unsettled period and faces a fundamentally transformed landscape. Apparent ever-changing regulation, de facto separation of commercial and investment banking, serious capital constraints, and the emergence of new competition, or shadow banks, all pose serious challenges to success. Among myriad pressures, the regulatory environment remains the top issue facing financial institutions, particularly in Europe and among banks. New capital, reporting and compensation requirements are being enacted in countries and jurisdictions around the world, pushing up the costs of capital, operations, and compliance. This is especially true for banks and insurance companies who must identify and account for risk, and recapitalize to meet the planned requirements of Basel III and Solvency II, respectively. The emerging global regulatory framework and greater interagency cooperation is expected to add another layer of oversight and uncertainty to the regulatory environment. Each of these requirements restricts risk-taking and the availability of capital, which can impair revenue growth.
The financial crisis highlighted the importance of aligning growth initiatives with an organization’s risk management objectives and compensation practices to prevent excessive risk-taking. Similarly, the industry is adjusting strategy and operating models to protect business value, and improving data quality to ensure access to high quality intelligence to inform decision makers and meet regulatory reporting requirements. New operating system upgrades, efficiency overhauls and in some cases core system replacement may be necessary to create a flexible infrastructure capable of absorbing further change.
The experiences of the global financial crisis have created a financial services marketplace where success is driven by multiple factors. Economies have been strained and key players altered as competition intensifies. Consolidation and new market entrants are seen as a driving factor in the increase in competitive intensity over the past year alone. With the rise of mobile payments, hedge funds and alternative money management players, non-traditional entrants are also contributing to the increased need for mature institutions to be flexible to alter strategies in response to competitive pressures. The financial industry is responding to changes in the competitive landscape with many of the same strategies used to address elements of success on other fronts, such as innovating, improving brand identification and augmenting talent. The number one tactic for stronger competitive positioning, though, is to concentrate on the age-old approach of knowing and serving customers.