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Financial Services Retooling

Authored by: Bas Heijnen and Alexander Kling

Executive summary
As financial services ROEs remain under pressure and banks continue to assess their business models, we have seen a number of institutions make difficult choices across their franchises, rationalizing and refocusing around products and regional footprints. Taking a detailed look at value chain components is the next logical step. Increased regulatory pressures have exacerbated the issues and in many cases, have accelerated the process of banks starting to unpick their value chains. Technology has been a key enabler in this journey helping banks with integration and interoperability efforts, but also opening up opportunities for new entrants and non-bank competitors.

The following analysis will provide a brief snapshot of the status quo with industry examples, and will outline a framework to assess key opportunities for banks. We also highlight business model choices and competitor archetypes to begin charting a path forward.

1. Trends in financial services

Platform rationalization is shifting from products and regions to value chain components
Given continuous RoE challenges in the current low interest rate environment and persistent cost pressures from regulatory compliance, many banks have taken approaches to refocus their platforms around core competencies, identifying and eliminating non-accretive businesses along product and geographical coverage dimensions.

While many of these exercises have largely been completed, institutions continue to struggle with RoEs below cost of capital. There has been a realization that the conventional approach to platform rationalization along products and countries/regions might not be enough, forcing players to take a more differentiated approach and start unpicking their value chains to identify incremental efficiencies.


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