The financial services sector comprises of insurance, banking, real estate, securities and commodities. There are a lot of changes that are expected to take place in the financial service sector in coming years thanks to the millennial generation, social networking and mobile banking. It is therefore important for executives to know some of these trends.
- The Internet will be used to engage with millennial employees and customers
Millennials are looking for more engagement from financial advisors and banks. They want advisors to connect with them using online tools instead of face-to-face conversations like they typically would have with older generations. 61% want video meetings with advisors and 57% will change financial advisors for a tech setting. Millennials want a more connected experience and want to work in an environment where they can freely use their mobile phones and social networks. Cisco reports that millennials won’t work at a company that blocks these tools or doesn’t let them choose between mobile devices. The financial services industry is regulated and is strict on what employees can access at the office but will eventually have to open up or risk losing top millennial talent.
- High turnover of millennials will delay strategic initiatives and growth
Millennials see the financial services industry as a stepping stone to other career options. Only 10% of millennials in the industry plan to stay in their current job for the long term, compared to an average of 18% across all industries. 42% are open to offers from other companies and 28% are actively looking for the next big opportunity, reports PwC. Millennials end up working for far more hours than they expected to and if they aren’t able to produce, they end up moving on to an entirely different industry. The financial industry is cut-throat and many companies understand that only a small percentage will be able to make it.
The new trends in financial services are mainly shaped with changes in technology. Technology will be greatly integrated in the day to day activities of financial institutions to ensure customer satisfaction, deal with the issue of minimum staff and also ensure that institutions abide with regulatory rules that see how the industry is run.
Marketing’s Big Data Boost
“Financial institutions have tons of information about customers and transactions, but until recently, they have done very little to understand customer behavior. Now customer data and preferences are increasingly important in targeted marketing campaigns,” said Steve Ramirez, CEO of Beyond the Arc, a provider of customer experience and advanced analytics solutions for financial services and other industries.
Financial institutions will use more internal customer data as well as third-party data to target their own customers for cross-sales opportunities and to target potential new customers, Ramirez said. “Banks are gaining momentum in their use of Big Data. Last year was more of a proof of concept, 2015 is when they will put this into widespread use.”
Mobile Payments Explosion
Apple Pay’s mobile wallet was introduced in the fourth quarter of 2014 and is expected to gain significant traction in 2015. Others, including Samsung and CurrentC, a mobile payments solution from a retailers’ consortium, will debut later this year, giving further fuel to the mobile payments fire. Forrester Research declared 2015 “the year of Apple Pay” in one of its reports. Capgemini’s 2014 World Payments Report predicts that mobile payments will grow 60.8 percent in 2015.
As much it is expected that the trends will drive the industry towards a greater future, the main drivers of financial services performance should not be forgotten. The central bank policy has a major role in how the industry moves followed by investor confidence.
Drivers of Financial Services Performance
Most of the largest financial services companies are major lenders and investors; their portfolio performance is driven by the earnings of other sectors. When the economy is healthy and businesses are expanding, part of that increased revenue returns to the banks as payment on capital. Banking profits tend to drop when the economy struggles.
Central bank policy plays a huge role in the financial services sector. Capital requirements are set by central banks, and interest rates help drive arbitrage opportunities between short- and long-term rates. When interest rate spreads are high, the sector performs well. Low rate policies also encourage businesses and individual consumers to borrow money, which takes place through the banking system.
Investor confidence affects the profitability of investment service providers. Asset management companies, private equity firms and other related services rely on investors who want to make trades. The velocity of transactions is important. This same concept can be applied to mortgage companies and home loans.