November 28, 2006

In 2007 and beyond, the global financial services industry will increasingly grapple with three major strategic shifts: reinventing financial services at its core; repurposing financial services relative to the global diversity of a changing customer base; and helping restore confidence in an uncertain world.

These are among the findings explored in a series of new research reports from TowerGroup (Needham, Mass.), which examine the top business drivers, strategic responses and technology priorities that will fuel core sectors of the global financial service industry in 2007.

"The global financial services industry is changing in response to tectonic shifts in marketplace and business dynamics," said Guillermo Kopp, vice president of TowerGroup cross-industry research, in a statement. "Traditional markets are saturated with product and service options. The maturation of established customer segments is limiting traditional market opportunity. Both customer satisfaction and loyalty are being eroded by competition from traditional and nontraditional sources and industries."

TowerGroup finds fundamental innovation--based on real-time transactions, interconnected services, advanced customer analytics and business intelligence--to be critical for financial services institutions. "Understanding core business drivers, strategic responses and technology initiatives for 2007 and beyond will help financial services executives embark on the dialogue regarding innovation that each institution must have relative to its future," Kopp said.

Below are details on the three major strategic shifts on the horizon for global financial services, as outlined in TowerGroup's cross-industry practice 2007 report:

Reinventing Financial Services: The financial services industry has been slow to reinvent itself in the face of an increasingly networked world. Without reinvention, institutions risk being disintermediated by nontraditional industries. Rather than continuing to make tactical changes in response to shifts in the marketplace, successful firms will be those that consider how to reinvent the financial services institution from a blank slate--rethinking the full spectrum of products, services and delivery options. Repurposing Financial Services for Global Diversity: Financial institutions must begin responding more effectively to dramatic changes in a continuously shrinking world. Emerging economies will demand a broader range of product and service options to meet wider variations in customer needs and economic status. Institutions must develop dynamic capabilities for serving a larger number of more varied and yet more modest customer relationships in a profitable way. Success will mean establishing a lifetime relationship with large numbers of people who were previously outside the normal scope of an institution's services. Restoring Confidence in an Uncertain World: News of security breaches, loss of customer data, identity theft, fraud and terrorism has been disturbing to individual financial institutions and the industry as a whole. Meanwhile, none of the industry's traditional risks (such as those related to credit, catastrophes, investments or interest rates) have dissipated. To date, most institutions have pursued the single strategy of playing defense against the universe of global threats. Yet institutions have an obligation to take greater control by making an offensive foray into the global need for assurance, responsibility and security.

"Senior financial services leaders must rethink the business drivers of their firms in terms of global trends and emerging risks, while redefining markets along new and innovative lines," said Rodney Nelsestuen, senior analyst in the TowerGroup financial strategies & IT investments practice and author of the Cross-Industry report. "These visionary shifts in strategy will ultimately result in better stakeholder value, as delivered through improved profits and more effective internal processes."