Modular Financial Services: The New Shape of the Industry
January 19 2016 - 07:05PM
Business Wire
Oliver Wyman report identifies $1 trillion
of banking and insurance revenues and costs to shift
Financial services are becoming “modular”, with digital
distribution platforms, new product providers, alternative sources
of capital and a growth in outsourcing fundamentally reshaping the
industry. This is according to Modular Financial Services: The New
Shape of the Industry, a new report by global management
consultancy Oliver Wyman.
The Oliver Wyman study estimates that this change could see $1
trillion of revenues and costs shift in banking and insurance, an
industry with $5.7 trillion of revenues today. New customer
platforms could capture $50-150 billion of revenues from today’s
banking and insurance markets, equivalent to several eBays or 1-2%+
of banking and insurance revenue today.
Consumers will benefit most from modular financial services.
They will be able to access a wider range of product providers, and
the increase in competition will drive margin compression. The
report estimates that $150-300 billion of value may migrate to
consumers by way of lower prices. Innovative business models based
on new technology will capture share, with the potential to capture
a further $150-250 billion of existing revenues.
“Modular financial services are emerging at different speeds
across markets. Currently, banking in the US is more modular than
in Europe and Asia. Property & Casualty insurance has become
more modular than Life insurance. Now, the modular industry
structure will go deeper and spread to new markets,” said Oliver
Wyman Partner and co-author, Matt Austen. “Since the crisis, most
firms have focussed on optimising their existing, integrated
business model. Now, the industry is going to move towards a new,
modular structure.”
The report highlights that large, integrated financial services
firms still enjoy significant competitive advantages -- including
existing customer relationships, secure at-scale operations and
meeting the requirements of regulatory compliance -- and are still
well-positioned to succeed. However any costly, inflexible legacy
infrastructure will be unsustainable and competition will force a
significant overhaul of incumbents’ operating platforms. The report
estimates target cost savings for the world’s largest banks may
need to be as much as $340 billion. The cost of “replatforming” the
world’s largest banks is substantial, potentially more than $4
billion each, larger than the average annual dividend paid by the
100 largest universal banks of $1.7 billion.
Oliver Wyman’s Managing Partner for Financial Services, Ted
Moynihan, added: “Even if we do not expect a completely modular
financial services sector, the way customers buy financial services
and how firms deliver them is going to be transformed.”
The Oliver Wyman Modular Financial Service report is available
here.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With
offices in 50+ cities across 26 countries, Oliver Wyman combines
deep industry knowledge with specialized expertise in strategy,
operations, risk management, and organization transformation. The
firm's 3,700 professionals help clients optimize their business,
improve their operations and risk profile, and accelerate their
organizational performance to seize the most attractive
opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh
& McLennan Companies [NYSE: MMC]. For more information, visit
www.oliverwyman.com. Follow Oliver Wyman on Twitter
@OliverWyman.
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