Covid-19 to digitise financial services industry, firm says

The Covid-19 pandemic is set to “reshape” the financial services to become more digital, according to new research from 11:FS.

The challenger firm has examined the effects of a recession and the implications of the long-term recovery and reinvention that will be required in the wake of the pandemic, suggesting it could result in a digital shift across the banking, investment management and insurance industries.

The research indicated that in the short-term, the crisis will have laid bare some “fundamental operational flaws”, forcing firms to digitise at speed, while as a recession hits in the medium-term, a “domino effect” will see firms under immense revenue, capital and costs pressures. The firm suggested this would mean fintech valuations will fall and spark “inevitable” M&A activity.

11:FS said the longer-term picture would see M&A continue with banks being bailed out by governments, and the industry embracing digital technology to create “leaner organisations and new distribution models”.

The challenger firm suggested the move towards digital technology would happen through firms accelerating digital partnerships as part of cost-cutting measures, increased automation and AI meaning certain jobs will cease to exist, and marketplaces playing a bigger role in product distribution as customers shift to digital channels. Furthermore, the firm believes platform-based companies will gain shares at the expense of other distributors.

Commenting on the research, titled How the Covid-19 pandemic will accelerate digital financial services, 11:FS director of research, Benjamin Ensor said: “The Covid-19 pandemic has created an immediate operational crisis in financial services firms that have ignored the digital imperative.

“They have been caught out by the sudden switch to remote working, the mass closure of branches, contact centres and agencies, and the fundamental flaws associated with paper-based processes.

“While so much is still in a state of flux, there are trends already emerging that point to how financial services firms must react. By demonstrating the advantages of being digital by design, the crisis has created the impetus for the whole financial services industry to embrace new ways of working and delivering services to customers.”

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