By Frederic Dussart, Senior Vice President, Dell EMC Global Services
The Financial Services (FS) sector faces disruption from several angles. Smaller and well-publicised ‘challenger’ players like Monzo and Atom Bank are targeting those who live their lives on their smartphones. While large non-FS organisations, such as Apple, Android and Google are creeping over into the payments industry. And according to ourDigital Transformation Indexthe market understands these very real threats. 50% of FS organisations think that their company may become obsolete in 3 to 5 years time, while 80% expect non-traditional start-ups to pose a threat in future.
If you think about, as consumers we need banking but we no longer need bankers to do it. Some, including myself, believe that it’s just a matter of time before we’ll be turning to the Google’s of this world for everything, including our financial services. The ‘Ubernet’ if you will, something which The Economist warned us about back in 2014. So with this in mind, what should traditional FS organisations be doing now to ensure they’re able to adapt?
Mine all of your data and make use of it
If you look at new successful disruptors in any sector who’ve gone on to become the market leader, their success all hinges on using data to understand the customer and connect them to what they desire. Neither Uber, Airbnb nor Just Eat own any physical assets in their industries, they’ve just tapped into consumer’s desires to manage their lives through apps and ensured they have the right data and partnerships to deliver their “goods”. Financial services should be following their lead by making the most of the data they have at their fingertips. What they can really compete on is their customer knowledge, as they have years of historical data on them. By mining this data for insights businesses can decide where to streamline, digitise or expand the customer experience. Research already suggests that customers want to see faster services with 24/7 availability.
Monetise your strengths
Businesses should consider where their strengths lie and how they can be turned into additional revenue streams. For instance, historical customer data could be made available to other sectors. If someone has recently purchased a mortgage then they might be in the market for home insurance, life insurance, furniture and white goods. Years of experience and a deep knowledge of the industry could and should be packaging up for consumers to offer added insights and value. Barclay’s has been dipping its toe into this with its Code Playground, Digital Eagle and video tutorial campaigns. And more can be made of FinTech investments if a longer-term view is taken. Banks should partner with more mature startups to target new customer segments, or to use this technology to offer more comprehensive, capable, customized services to their customers.
Make sure you know where to begin & that your culture can keep up
Many of those I speak to know that they need to transform but are unsure where to start and how to build a strategic roadmap to get them there. They’re also still feeling cautious but to these people I say, measured and responsible risk-taking is essential to retain a competitive edge. No business should avoid self-disruption. They might be making 40% margins on a legacy product, but if new technology enables them to deliver the service at a significantly lower cost they mustn’t avoid it simply because it also requires narrowing their margins. This is precisely the thinking that allows companies like Uber to steal a march on the establishment it sought to challenge. Business leaders must also take responsibility for empowering the wider workforce in order to drive transformation and embrace an organisational culture that encourages employees to innovate and take risks for the good of the consumer. You might never be an Uber but you can certainly learn to behave more like them.
Form productive partnerships
This is where expert partners come to the fore. Particularly as 79% of FS organisations are still not investing in digital skills. Building a taskforce of experts can help fill any internal knowledge gaps within an organisation, as well help map out a strategy and then provide the tools to actually make it happen. A trusted advisor should help bridge the gap between the old, the new and the future, and produce measureable business value. Dell EMC has been working closely with The Bank of Ireland to help it compete effectively in the digital economy by developing a new online mortgage service and system in just 12 months. The service generated £250m in new mortgage applications in the first 3 months alone.
While we can’t predict exactly what the financial services world will look like in ten years’ time, we can be sure that whoever is able to adapt and evolve the fastest will be the ones who thrive. Just like a game of musical chairs, traditional FS organisations are trying to find their seat in a changing ecosystem. And with the right transformational strategy, culture and partners there’s no reason why older players can’t find a unique way to deliver stable growth and profitability.
‘No dinosaur’ – Carmaker Stellantis steps up electric ambitions
By Giulio Piovaccari, Gilles Guillaume and Nick Carey
MILAN/PARIS (Reuters) – Newly-formed Stellantis, a combination of Peugeot-maker PSA and Fiat Chrysler (FCA), wants to use its clout to take on rivals racing to produce more electric vehicles, Chief Executive Carlos Tavares said on Wednesday.
Stellantis is now the world’s fourth largest carmaker, with 14 brands including Opel, Jeep, Ram and Maserati, and like its peers, it is grappling with a shortage of semiconductors and investments in electric vehicles.
Low global car inventories and cost cuts should help boost profit margins this year, though the carmaker is also looking beyond savings, Tavares said.
“This is not a crisis merger,” he told an analyst conference, after Stellantis forecast higher profitability for 2021 and PSA and Fiat which merged in January reported better-than-expected results for 2020.
“This is a merger that is going to open new opportunities for a company that is sound, with talented people … who do not want to be cornered in a legacy or a dinosaur position.”
Stellantis aims to deliver over 5 billion euros a year in savings through the merger, as well as bulking up to face industry challenges.
Automakers are racing to develop electric vehicles to meet tighter CO2 emissions targets in Europe and this week Volvo joined a growing number of carmakers aiming for a fully-electric line-up by 2030.
Stellantis plans to have fully-electric or hybrid versions of all of its vehicles available in Europe by 2025, broadly in line with plans at top rivals such as Volkswagen and Renault-Nissan, although Stellantis has further to go to meet that goal.
The group said 2021 results should be helped by three new high-margin Jeep vehicles in North America and a strong pricing environment there. The U.S. market has driven profits for years at FCA and starts off as the strongest part of Stellantis.
The carmaker is targeting an adjusted operating profit margin of 5.5%-7.5% this year.
That compares with a 5.3% aggregated margin last year: 4.3% at FCA and 7.1% at PSA excluding a controlling stake in parts maker Faurecia, which is set to be spun-off from Stellantis shortly.
Tavares said he did not consider the guidance to be cautious. It assumes no more significant lockdowns caused by the global COVID-19 pandemic, but the executive warned of other headwinds including the rising price of raw materials.
The industry is being squeezed by a COVID-19-related global shortage of semiconductors, used for everything from maximising engine fuel economy to driver-assistance features.
Tavares said the problems might not be fully resolved by the second half of 2021, as some auto rivals have flagged, describing supplies as the “big unknown” for revenues in 2021.
The group is now working through reorganising some of its factory set-ups, though it has pledged to close no plants, and finalising new management teams.
Priorities for 2021 will also include defining a strategy for China, Tavares said, where some Stellantis brands have struggled more than rivals.
Tavares, who previously ran PSA, achieved an improvement in margins at the French carmaker by cutting costs, simplifying its vehicle line-up and delivering synergies on its purchase of Opel/Vauxhall, a strategy investors hope he can replicate.
Combined adjusted earnings before interest and tax (EBIT) amounted to 7.1 billion euros ($8.6 billion) at the group last year. At the end of 2020, combined liquidity stood at 57.4 billion euros and free cash flow at 3.3 billion euros.
Stellantis is planning a capital markets day for late 2021 or early 2022. The group’s shares closed flat on Wednesday.
(Reporting by Giulio Piovaccari in Milan, Nick Carey in London and Gilles Guillaume in Paris. Additional reporting by Giancarlo Navach and Sarah White. Editing by Mark Potter and Elaine Hardcastle)
Volkswagen CEO tweets, Musk-style, on market-cap milestone
By Thyagaraju Adinarayan and Christoph Steitz
LONDON/FRANKFURT (Reuters) – When the market value of Germany’s Volkswagen briefly rose above the 100-billion-euro mark on Wednesday for the first time since 2015, the boss of the normally staid carmaker took to Twitter, Elon Musk-style, to crow about it.
VW shares soared as much as 6% after investment bank UBS raised its price target on the stock by 50% and said the company’s new electric vehicle platform was set to challenge Tesla’s dominance in the battery electric vehicle (BEV) market.
Herbert Diess, chief executive of VW Group, highlighted the UBS note on Twitter and shared the market capitalisation milestone.
“The market has been waiting for our #BEV-ramp-up and wanted to see some proof points,” Diess posted.
Traders reacted with comparisons to Tesla chief Elon Musk who frequently uses Twitter to talk up products developed by his companies, cryptocurrencies or other buzzing technologies.
The comparison, at least for now, must end there.
Diess sent his first tweet using the “@Herbert_Diess” handle less than two months ago and has since tweeted 51 times. While he has managed to amass almost 25,000 followers in this time, Musk can boast of 48.3 million.
“The sheer fact that he started his own account apart from the official VW account tells me, that between the lines he wants to express: We are here,” a Germany-based trader said.
Though unrelated and more a market-moving tweet, another trader highlighted instances of a probe by the U.S. Securities and Exchange Commision on Musk’s tweet in 2018 that he was considering taking Tesla private at $420 a share.
EV RACE VS. MARKET CAP RACE
But despite recent share price gains — up 20% this year — VW’s market capitalisation is just one-sixth that of Tesla. Shares trade 7.5 times 12-month forward earnings; possibly its role in the EV transition is not fully priced.
Tesla meanwhile trades at 160 times 12-month forward earnings, levels many consider bubble-like.
On the market capitalisation gap, UBS said VW’s only takes into account its EV business out to 2025, and doesn’t price its cash flow-rich legacy business, indicating there is room for the share price to rise.
It added that VW would likely “master” the transition to close the volume gap with Tesla in 2022.
At 300 euros, UBS has the most bullish price target on VW. Analysts’ median price target on its shares was 191 euros, according to Refinitiv data.
Preferred shares, which are listed in Germany’s benchmark DAX index, hit January 2018 highs on Wednesday, while ordinary shares rose as much as 5.6% to their highest since July 2015, two months before the diesel scandal broke.
VW closed 4.7% higher at 185.18 euros per share on the day, taking its market value to 99 billion euros.
Tesla vs VW https://fingfx.thomsonreuters.com/gfx/buzz/ygdvzellrpw/Pasted%20image%201614767907811.png
(Reporting by Thyagaraju Adinarayan in London and Christoph Seitz in Frankfurt; Editing by Sujata Rao and Jonathan Oatis)
UK offers ‘super deduction’ to temper 25% corporation tax hike
LONDON (Reuters) – Britain will raise corporation tax to 25% from 19% from 2023 to help pay for the cost of the COVID crisis but tempered the tax rise with a “super deduction” to spur investment, finance minister Rishi Sunak said on Wednesday.
“The government is providing businesses with over 100 billion pounds of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery,” Sunak told parliament.
“Even after this change, the United Kingdom will still have the lowest corporation tax rate in the G7,” Sunak said.
Sunak said he would encourage businesses to invest their cash reserves with a so-called “super deduction” to reduce their tax bill by 130% of the cost.
He said that under existing rules, a construction firm buying 10 million pounds of new equipment could reduce their taxable income in the year they invest by 2.6 million pounds but with the “super deduction” they could reduce it by 13 million pounds.
“We’ve never tried this before in our country,” Sunak said.
Sunak quoted the Office for Budget Responsibility as saying it would boost investment by 10%; around 20 billion higher per year.
“It makes our tax regime for business investment truly world-leading, lifting us from 30th in the OECD, to 1st,” he said.
“This will be the biggest business tax cut in modern British history.”
The United Kingdom introduced corporation tax at a rate of 40% in 1965. It rose to a high of 52% in the 1970s.
In the 1980s, the main rate was cut to 35% under Margaret Thatcher, then during the 1990s from 35% to 30% and eventually to 20%.
The rate was cut to 19% from 2017 and was supposed to be reduced further to 18% and then 17% but has been held at 19%.
Sunak said small businesses with profits of less than 50,000 pounds a year would be charged only 19% – so around 70% of businesses would be unaffected.
He also said the government would taper in the tax on profits above 50,000 pounds so that only businesses with profits of 250,000 pounds or more – around 10% of companies – would be taxed at the full 25% rate.
(Reporting by Guy Faulconbridge, editing by Estelle Shirbon)
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