Sector report: financial services

Companies from all areas within the financial services – including banks, insurance, payment processing services and wealth managers – are all encountering challenges and opportunities from the rapidly evolving fintech ecosystem. They are in a process of transformation into more digitised, customer-focused and flexible businesses. After the global financial meltdown in 2008, the financial industry has been living in a low-interest rate environment. This has been even more true after the covid-19 pandemic’s shock last year, which brought about even more massive monetary intervention. Interest rates are currently at a new all-time low and stimulus packages are used abundantly by governments around the world to fight off the economic effects of the lockdowns from which the world has not entirely shaken yet. Public and private markets have reacted jubilantly to cheap capital, which is to drive more investments within the next few years. How does monetary policy impact the financial services sector, however? The answer to that question is somewhat complex. Treasuries yields are arguably pricing in a rate hike, which would, in theory, benefit banks because of the bond holdings on their balance sheets, especially in a prolonged inflationary environment like the present. However, we have not quite seen that yet. Expansion monetary policies coupled with fiscal stimulus should, in theory, continue to benefit the retail banking business. Low interest rates are rather unfavourable to insurance businesses, on the other hand, according to conventional economic wisdom, so a rate hike should in theory benefit that sector as well. The pandemic has propelled various emerging fintech businesses ranging from cashless payment operators to online banking to brokerage services, which has continued to translate into record numbers of deals and record estimated total dollars in them. The 2021 Banking Industry Outlook report by consulting and auditing firm Deloitte, paints the current situation for the banking industry in terms of the new competitive landscape that disruption, accelerated by the pandemic, has shaped: “For the banking industry, the economic consequences of the pandemic are not on the same scale as those during the Global Financial Crisis of 2008–10 but they are still notable. In addition to the financial fallout, covid-19 is reshaping the global banking industry on a number of dimensions, ushering in a new competitive landscape, stifling growth in some traditional product areas, prompting a new wave of innovation, recasting the role of branches, and of course, accelerating digitisation in almost every sphere of banking and capital markets.” The report notes further…

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