Oliver Wyman Report Says Corporate Valuations and New Shareholder Value at Stake for Incumbents in a Digital, Modular Marketplace
The Financial Services industry needs to digitize existing core businesses to radically reduce operating costs and maintain current market share, profits, and valuations – but merely digitizing for increased efficiency will be insufficient for new shareholder value creation. This is the topline finding of Oliver Wyman's State of the Financial Services Industry 2017 report, Transforming for Future Value, launched at Davos this year, which finds that financial services incumbents will need to make clear, strategic choices about where and how they can compete in evolving ecosystems.
"Very few firms have articulated a digital equity plan which establishes how their investments will generate future shareholder value in a digital, modular financial services environment," said Oliver Wyman's Managing Partner for Financial Services, Ted Moynihan. "As a result, while the largest global banks and insurers are seeing shareholder value grow by an average of 10% per year, major fintech firms both new and old are delivering value growth at more than twice that rate – comparable to growth rates of leading tech industry giants."
The 20th annual Oliver Wyman report poses a range of potential examples for CEO and firm approaches to digitization (Stay the Course, Digitize and Defend, and Go on Offense to Grow). In addition, the report explores three emerging ecosystem archetypes — demand aggregators, platform providers and component suppliers – looking specifically at the capabilities and broader organizational implications of each archetype, and management actions that will guide an incumbent's journey to sustainable advantage and new shareholder value.
"Last year, our 2016 State of Financial Services report, Modular Financial Services, focused on the changing structure of the industry as digital tools made it easier for firms to compete as specialized providers in a richer, more modular financial services ecosystem," said report co-author and Oliver Wyman partner, John Lester. "This year, we dive deep into the implications for the large financial services incumbents that play such a crucial day-to-day role in supporting the world's economies."
"We believe the central issue for incumbents confronting that future is sustainable value, or how can incumbents bring more value to customers' daily lives in a digital word? How can incumbents translate that into increased value for shareholders? Our goal in the report is to chart out a few different paths that incumbents can take in answering those questions," said Rick Chavez, Oliver Wyman partner and report co-author.