Deregulation, Disintermediation, Diversification

The 3 D's have been a continuous topic over the past two decades but still some FI's are not making the necessary transformations. Let's summarize the evolution again:

The deregulation of the various pillars in the financial services industry in most countries has attracted many more competitors to disintermediate your business. Plus, more continue to emerge as virtual-Internet entities or product-line extensions of well-known retail brands such as WalMart, Canadian Tire, etc. At the same time the middle class has not kept pace with economic progress in terms of wealth, wages and well-being particularly since the recession started a few years ago. Therefore the mass market is not increasing its demand for financial services and they are encouraged to rationalize their debt loads by governments (who can't get their own spending in order). The younger people, or Gen Y, who are not tied to traditional channels are even more difficult to target market. Consequently, the wealth management segment receives an over abundance of relationship competition while the rest are in a commodity competition mode. Naturally margins shrink and outlooks are bleak!

Now comes the need to diversify revenue streams, which the large banks have done well with their deep investment pockets to grab even larger wallet shares from the consumers. Our assessments of small and medium sized FI's point to real inertia when it comes to diversification. Other operating revenues, or non interest revenues are relatively stagnant or demonstrate no new streams of income. There is a self-defeating complacency rather that an aggressive collaborative outreach to expand the value propositions offered. In a lot of cases the knowledge and skills of the people in these institutions are not relevant to the revenue innovation challenge which exists and the Boards are not demanding more contemporary results from their leadership who tend to use the recession as their excuse. Expanding revenue with complimentary product offerings is an imperative and innovation needs to be a strategic priority which results in quantifiable new income annually

Pat Palmer | Wednesday, February 22, 2012 | Comments (0) | Trackbacks (0) | Permalink