Tower Group on Financial Services Strategy

by Erin McCune on November 14, 2006

in Banking, Strategy

In its Cross Industry practice 2007 report, TowerGroup anticipates three major strategic shifts for global financial services.

"The global financial services industry is changing in response to tectonic shifts in marketplace and business dynamics," said Guillermo Kopp, vice president of TowerGroup Cross-Industry research. "Traditional markets are saturated with product and service options. The maturation of established customer segments is limiting traditional market opportunity. Both customer satisfaction and loyalty are being eroded by competition from traditional and nontraditional sources and industries."

Three major strategic shifts on the horizon for global financial services:

Reinventing Financial Services

The financial services industry has been slow to reinvent itself in the face of an increasingly networked world. Without reinvention, institutions risk being disintermediated by nontraditional industries as new, previously unlikely competitors find their way into financial services. Rather than continuing to make tactical changes in response to shifts in the marketplace, successful firms will be those that consider how to reinvent the financial services institution from a blank slate — rethinking the full spectrum of products, services, and delivery options.

Repurposing Financial Services for Global Diversity

Financial institutions must begin responding more effectively to dramatic changes in a continuously shrinking world. Emerging economies will demand a broader range of product and service options to meet wider variations in customer needs and economic status. It is no longer acceptable to operate under a business model focused purely on shareholder value — meaning institutions must develop dynamic capabilities for serving a larger number of more varied and yet more modest customer relationships in a profitable way. Success will mean establishing a lifetime relationship with large numbers of people who were previously outside the normal scope of an institution's services.

Restoring Confidence in an Uncertain World

News of security breaches, loss of customer data, identity theft, fraud, and terrorism has been disturbing to individual financial institutions and the industry as a whole. Meanwhile, none of the industry's traditional risks (such as those related to credit, catastrophes, investments, or interest rates) have dissipated. To date, most institutions have pursued the single strategy of playing defense against the universe of global threats. Yet institutions have an obligation to take greater control by making an offensive foray into the global need for assurance, responsibility, and security.

TowerGroup

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