Johannesburg - Adaptation to the instability in global
financial markets is not the only factor making changes to financial
institutions' business models essential.
Nigel Vooght, a partner and global financial services leader
at PwC, says the financial crisis has forever altered the landscape in which
financial institutions do business.
These institutions have to deal with the aftermath of the
financial crisis, which has brought about stricter regulations and fiscal and
political pressure.
This places banks in particular in a vice-grip, says Vooght.
On the one hand politicians are pressing them to lend more
money to individuals to give the struggling economies a consumer-driven
injection, and on the other hand regulations oblige them to keep more capital,
which limits their ability to grant new loans.
Vooght says new loans should however be made available to
companies because they have the ability to stimulate economic growth. But
healthy companies are not borrowing because they make money even during a
recession.
While financial institutions have to adapt to these altering
circumstances, they also have to make plans to adjust to socio-economic
changes.
Johannes Grosskopf, banking and capital markets leader at
PwC, says there are outstanding opportunities for financial institutions that
can adjust to the new trade routes between emerging countries, demographic
shifts, behavioural changes as a consequence of technological reform, the
struggle for resources and government intervention.
“Financial institutions have to decide which opportunities
to exploit because the institutions will in future not be everything to
everyone,” he says.
PwC says demographic changes will play a largely
determinative role in the success of financial institutions.
Africa’s growing population and rapid urbanisation will
create a need for financial services other than those currently offered to,
say, the ageing populations of Asia.
“Younger people’s financial services needs are different
from those of those who are older, and the younger ones will require digital
services.”
The expansion of digital and mobile financial services
creates unique challenges.
Vooght says the biggest challenge for financial services
institutions is how they can earn a sustainable income from electronic and
cellphone services.
“New methods, such as payment systems being developed by
Microsoft and Google, will disrupt the electronic supply chain and financial
institutions now have to think how they can make money from the Web.”
Electronic financial services will also change clients’
behaviour and their attitudes to institutions, he says.
The new rapidly growing trade routes between South America,
Africa, Asia and the Middle East will also require adjustments. Not only are
these countries attracting more competitors in financial services, but the
different legal and regulatory frameworks, political systems and business
practices will increase risk and require timeous adjustment.
The struggle for natural resources – from food and water to
oil and gas – will draw an increasing number of competitors to the trade routes
in their efforts to finance new investments and to serve as intermediaries for
trade between the different countries.
Vooght predicts that this will lead to the establishment of
regional and international banks and banks that offer speciality services to
specific sectors.
Grosskopf says the new markets can accommodate the
development of mutual and cooperative banks as well as institutions that only
offer loans and don’t take deposits.
That said, there are exciting opportunities for visionary
financial institutions that realise that financial services will in future
differ greatly from what they were in the past.
- Sake24
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