Storm brewing

Wealth finserv M&A: A self fulfilling prophecy?

It has been a while since my last post, August seems a distant past. As we approach December, the developments during the second half of 2016 are what some may call the tail-events. Earlier this year in May, I wrote a piece on What’s next for UK Wealth beyond Robo, the action within the Wealth sector is far from quietening down. We are witnessing a storm of sorts but is it perfect?

The headlines in the wealth sector M&A have gone well beyond UK and with the latest shake-down in the fund sector the M&A activity is sure to extend to other finserv segments. What appeared to be UK only phenom, the evidence points to a global fact finding, with M&A just being a cover? Is M&A a self fulfilling prophecy or is it just a precursor to more exciting (its always cost and regulatory pressure: with technology the answer) times? The wealth value chain is changing dramatically and so are all the impacted and related processes.

There is some good research out on robo-advice (via Finextra) and this burnmark research sheds light on emerging ecosystem of challenger (read: Digital) banking. Where this ecosystem sits and how it evolves standalone versus partnership with existing infrastrucute will determine and create a perfect storm.

What used to be many to many from a customer centric view point is now evolving to become a one-stop-shop. Changes from PSD2 to pressure on fund management industry the new ecosystem is a bit of a hash right now. The technology providers (both old school and new breed), client facing fintech concepts such as digital banks, robo-advice, regulatory changes, cost and competittive pressures demonstrate enough of a druck on traditional segments to think of M&A as potential way out of the technology and fintech pressure.

A self fulfilling prophecy it may be, a storm it maybe but we will only know the asnwers when value is created for the customer. We cannot rely on history or convetional thoughts as the events of the latter half of the year suggests, this maybe a foundation for the future?

New Wealth Industry

The elements that go into the make-up of future state Wealth industry also sit at the core of fund management industry which is facing challenge to the status quo on a daily basis. The crus of the matter is the core of mmoney management ranging from model portfolios to retail asset management are swivelling and pivoting.

Looking through the prism of the catalyst of changes we are in for a bumpy ride before we get into perfect storm of growth. Key catalysts that carry the change baton forward all have a role to play.

Digital banks pose a threat but have a challenge of optimising their own operating model. Deviation from what a normal bank offers is good but is it good for share holders and clients. Global retail banking revenues of US $1.5 trillion represent a massive opportunity but is many to many model or one to many model that will thrive?

Technology outsourcing is ripe but efficiency isn’t and this is where the real differentiation will drive growth. Use of AI (artificial intelligence), better client management tools and a move from multiple providers to valued partners has to become a cornerstone.

RegTech is not a buzzword. Automation and transparency to create an efficient and effective information flow is of paramount importance. This has all been said and reported but all the M&A activity – who is the end beneficiary? The customer, the shareholder, the regulator, or the senior management? Is this is an opportunity for Fintech?

PSD2 is coming but no one talks about it. M&A can weave PSD2 as a center stage and create value, but will it? We are quite far from utilising PSD2 as a tool to enhance customer experience. The value-creation is a menu based approach, who decides the value? The customer, the entitites or the fintech?

If we add Robo, AI, Payment platforms to this, this is complex. Chaos is the new norm. The race is on: the race to survival, the race to create value or race to the bottom (atleaset for some). M&A might be a self fulfilling prophecy if not executed it may turnout to be self-destruction. The change is in the air – what is it going to be a self fulfilling prophecy or a perfect storm?

 

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