Market Leaders in the Short-to-Medium Term

The crisis brought about by the global coronavirus emergency is the perfect demonstration of the fact that any predictions that we might make about the future will be subject to numerous factors over which we have little to no control. But, if we set aside those things which are difficult to foresee, the business world still follows patterns which allow us to make some more or less accurate projections.

One such detailed projection has just been published by the consultancy firm Deloitte. It’s entitled “2020 banking and capital markets outlook”, and it consists of a detailed study of the evolution of these markets in recent years along with reasonable predictions for the future, addressing a number of different aspects:

1. Riding the next wave of disruption

2. Regulations: Complex as ever

3. Technology: Fixing the basics

4. Risk: Leveraging technology to elevate risk management

5. Talent: Focusing on the human side of transformation

6. Retail banking: Platforms are the future

7. Payments: Remaining relevant as further disruption looms

8. Wealth management: The new core of the banking relationship

9. Investment banking: More pain before any gain

10. Transaction banking: Need for bold change

11. Corporate banking: Enhancing value streams beyond lending

12. Market infrastructure: The ongoing search for a new identity

13. A deeper dive

As you can see, it’s an intense summary for a no less in-depth study about what the banking sector and capital markets can expect in the years to come. In this post, we’re going to focus on the first of these sections, but we’ll delve in the others in later posts.

According to the study’s authors, “A new wave of disruption more forceful and more pervasive than what we have seen in recent years will likely unfold in the next decade.”

This warning hasn’t been plucked out of thin air. It comes from the foreseeable convergence of the factors which have so far established “the roots” of this disruption, such as technology, the economy, global politics, demographics or environmental factors. This convergence “should unleash unprecedented change in the broader society and economy, and, consequently, in the banking industry as well.”

However, there is a predominant driving factor for this disruption – the role of technology. In this disruption, we’ll see increasing fusion between current technologies, such as machine learning and blockchain, and emerging technologies, like quantum computing. This will generate new opportunities, new risks and “radically change work as we know it, as well as who is doing the work, and where it gets done.”

At the macroeconomic level, experts at Deloitte predict a “Japanification” for many advanced countries, particularly in Europe – persistent low growth combined with low inflation and near-zero or negative interest rates. To this, they add the “fundamental demographic changes” as a result of ageing populations in both advanced economies and emerging countries like China.

One final but no less important implication for the banking sector are the concerns about climate change and social impact, something which, like it or not, will oblige banks to reprioritise their role in society and sacrifice short-term gains for long-term sustainability.

The combination of all these things “could result in a drastic reduction in banking capacity, with fewer banks than we have today able to recover their cost of equity”, and the consequences aren’t far from the core of what GDS Modellica is all about: “These forces can also change how banking is done. Banking should become more open, transparent, real-time, intelligent, tailored, secure, seamless, and deeply integrated into consumers’ lives and institutional clients’ operations.”

For those who might see this as somewhat apocalyptic, there is an additional message: it’s the banking sector that should change, not the role of banks. Competitive advantages allow them to “remain trusted custodians of customers’ assets”, even when they have to assume new functions like protecting digital identities. This is true even if they probably will have to change their purpose, “placing themselves at the forefront of tackling large socio-economic issues, such as climate change or social equity.”

Success, as always, will be in the hands of those who know how to get ahead of the game and put themselves in dominant positions early on to address the new reality: “Instead of shying away from change, leaders should imagine the possibilities for how best to ride this wave of disruption”, conclude the authors.

It’s not possible to predict the unpredictable, whether logically or linguistically. But we can take note of market changes in order to anticipate the challenges, at least in a normal context. This is the context in which we need to understand these projections, and this is the context in which GDS Modellica is most at home: providing intelligence to the sector to help create market leaders in the short-to-medium term.