Two of the big challenges for FS sector firms are discovering new digital ways to interact with their customers and retaining ‘ownership’ of them, according to EY sectoral experts Marcel van Loo and Eoin MacManus.
van Loo said that within Europe there was still too much reliance on bank funding for business, but that this is already changing and rapidly, as the CMU progressed and new lenders began to appear.
He said FS firms need to go on a transformational journey to develop a better understanding of and capacity for digital interaction with their clients, as well as finding ways ‘to continue to own the customer’ and to explore in greater depth the potential for outsourcing.
van Loo also noted the significant potential afforded by the creation of ecosystems involving collaboration between FS companies and fintech firms. This will have an important role to play in their future strategies, he said. ‘You only have to look at the rapid growth of Alibaba and Tencent in Asia to see the potential power of fintech in the FS market.’
According to Eoin MacManus, every FS business today consistently has to change at an ever greater speed simply in order to survive and that there was a growing availability of technology to facilitate this. Even in such areas as audits and tax compliance, he pointed out, nearly every solution had a technological component. But while investing in such tools was important, ‘what we’re really investing in is the ability to deliver a better client result.’
Reflecting on Ireland’s potential in the future, MacManus said that half of the population was under 36 years of age and that this youth, in conjunction with the build up of technological capability in Ireland, made ‘an interesting cocktail’.
He noted that Dublin is an attractive location to establish and scale a fintech business, with fintechs in Ireland pushing ahead alongside their European counterparts. Apart from its close proximity to London, there were other positive factors supporting their growth in Dublin, too, he said.
For example, the significant footprint of major technology firms, including the presence of head offices of many US-players in Europe, had led to an international outlook and great supply of technical talent. A strong financial services sector, too, meant proximity to these institutions created opportunities to collaborate with more established players.
With strong government commitment to the development of a dynamic financial services and fintech sector, Dublin was also a very vibrant place in which to live and do business, MacManus said. ‘It is no wonder fintechs are looking to Dublin when areas like the “Silicon Docks” are alive with high growth businesses, creating a community of start-ups and scale-ups which is the envy of many major European cities.’
van Loo cited the relationship between Santander and online loan provider Kabbage as a good example of the new momentum now being seen in Europe. The Spanish-headquartered bank took an equity stake in the Atlanta-based fintech company in October 2015 as part of the latter’s $135 million fundraising and has subsequently begun offering small and medium enterprises in Spain and the UK access to online loans of up to €100,000 within hours, facilities which typically can take up to 12 weeks to arrange using conventional banking approaches.
‘This is a big wake-up call for Europe,’ van Loo said, adding that it called for ‘an even greater sense of urgency’ than was perhaps currently apparent.
Looking more globally, van Loo reflected that while there were still a large number of banks in Europe, only a few were truly global players. ‘It will be interesting to see what emerges,’ he said. ‘I expect we will see a lot of global players emerging from the US, but there’s also Asia, with China becoming an ever more powerful economy.’
Discussing the issue of Brexit, van Loo emphasised ‘Brexit does represent a real challenge for the UK & European economies, but there is no question that London will continue to be a major financial centre in the future.’ On the topic of potential relocations, van Loo comments: ’For many years, EY clients have been enhancing their presence across Europe as they expand their businesses, and Ireland is clearly in a good position to be a beneficiary of certain types of movement out of London.’
For the financial services sector there were many other challenges, van Loo said, including those of managing risk and dealing with increasing levels of regulation. For traditional financial services it had been a particularly difficult time. ‘They have had to try to negotiate process change while at the same time trying to get slicker in terms of their overall customer offering. The big questions for such firms is how they can they ensure that they remain relevant to their customers and at the same time can gain market share.’
In some respects,’ he suggested, Brexit had provided them with a chance to review their whole operating model. For many it has encouraged a deeper look at parts of their businesses that could flourish elsewhere whilst meeting the evolving needs of their customers – whether that’s Frankfurt, Dublin or elsewhere. So in that sense Brexit can be seen as another catalyst in an ever changing marketplace.’
Looking at the challenges for FS in a broader sense, following the financial crisis Europe was now in reasonable shape, he said, with some bright spots. ‘There’s still around €1 trillion worth of troubled loans out there, a legacy of problem areas still to be dealt with, and there is financial services overcapacity in Europe, which will lead to further mergers in the future, I believe.’
On top of this, FS firms had regulatory changes to contend with, such as PSD2 and GDPR, ‘so FS companies have a wide range of things to take on board at the one time,’ he said.