Financial services: confidence and optimism on the rise

According to the latest Forvis-Mazars C-Suite Barometer, 94% of financial services respondents say they’re growing, which is five points higher than the global average and up overall from 92% last year. At the same time, 97% of leaders in financial services predict growth in 2024, up from 90% last year. Also, more leaders in the sector are investing this year – 71% compared to 65% in 2023.

Looking back what have we learned?

The global financial crisis in 2007-2009, followed by the sovereign debt crisis in Europe in 2010-2012, saw the introduction of significant regulatory and supervision reforms to enhance the banking and financial sector’s governance and sustainability. The COVID-19 pandemic was the first real stress test faced by banks and supervisors, highlighting their ability to manage the crisis and prop up financial systems. Such hard lessons learned have given the banking sector the strength and confidence they needed to play a vital role in supporting economies. The regulatory framework now in place have enabled the industry to effectively manage recent political uncertainty following the war in Ukraine and the energy crisis, in the context of tighter monetary policy to tackle inflation, pushing confidence levels higher. 

Considerations: Given the continuing geopolitical volatility and high global interest rates, strategic adaptations are essential to strengthen operational resilience and better deal with uncertainties. Acquiring technological capabilities, enabling improved customer service and optimised processes and risk management, is one of the key levers for achieving this objective.

Growing with technology

Innovation remains a key growth driver for financial services. Banks are investing heavily in digitalisation programmes and new emerging technologies such as artificial intelligence (AI) to ensure they remain relevant and competitive. A key aim is to use data analytics to develop and predict customer behaviour to improve the client experience. Leaning on technology to achieve operational efficiency and better manage risks are further drivers. Having a vision spearheaded by good leadership ensures digital innovation has a clear purpose to support growth.

Considerations: A more digitalised financial sector heightens cybersecurity risks and regulatory scrutiny. Banks and other financial institutions also need to ensure that digitalisation programmes are ethically sound, planned and implemented so that security, legacy systems, and talent acquisition are not compromised. Adopting change management programmes and adapting the business culture and governance to attract and retain the best talent will be essential.

Sustainability at the top of the agenda

The financial services sector is increasingly using environmental, social and governance (ESG) initiatives as a key driver for change and growth. In particular, playing a pivotal role in supporting the economy has given banks the regulatory rigour, experience and agility to become ESG pioneers. Closely linked to digitalisation ambitions and investments in new technology, banks can lead the way in transitioning to a more sustainable financial sector.

Considerations: As a key pillar of the economy, the financial services sector needs to manage its own sustainability issues and ensure that finance is directed towards greener and more sustainable investment programmes and structures. Sound sustainability due diligence on finance and investment deals is now required and scrutinised by stakeholders, investors and regulators alike. Independent assurance will be increasingly important.

Accelerating growth and scaling up

Mergers and acquisitions (M&A) are seen as key to accelerating growth and leveraging synergies with other players in the financial services sector, particularly when looking to enter new markets or to fill gaps in product offerings.

M&A offers a defence mechanism for large financial institutions in particular to protect their positions and maintain a technological lead. However, approaches will differ. For asset managers, M&A offers a strategic move to reach the critical mass and scale they require. This consolidation trend in asset management is expected to continue in a business environment marked by pricing and regulatory pressure.

The race for scale and efficiency is also observed in other sectors, such as vehicle leasing, following the recent merger between ALD and LeasePlan, to meet market expectations for integrated and sustainable mobility solutions. The private equity sector continues looking for any opportunities in financial services that might emerge from the current context, despite the high interest rate environment, while remaining very active in the Fintech sector.

Considerations:  Profitability remains a key challenge. New technology and ESG shifts will lead to significant changes in financial institution business models. While the race for scale and efficiency will continue, the ability to optimise technological change and capture ESG trends will be essential.

Banks evolving strategies

Over the last few years, the major European banks have refocused their strategies on key businesses and geographies, aiming in particular to improve their profitability in a fragmented and increasingly regulated market. Examples include BNP Paribas withdrawing operations in the United States and Societe Generale’s ongoing exit from Africa after a long historical presence in the region.

Other key events impacting profitability include the cost of the European banking exit from Russia following the conflict in Ukraine. In addition, the European Banking Union project is still facing a number of national obstacles that are not encouraging cross-border mergers to achieve the long-awaited European banking consolidation.

Considerations:  Assessing the political, monetary and regulatory environment remains an important consideration for banks. As banks’ business models continue to evolve, a more focused M&A strategy that considers technological innovation, ESG ambitions and regulatory requirements is essential.

As a key sector of the economy, confidence and optimism are to be welcomed in the financial services sector. However, continued optimism and growth aspirations now rely on regulatory rigour, successful digitalisation programmes, sound acquisition strategies, and the ability to transition to a more sustainable economy.

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