CBI PwC Financial Services Survey

Q4 2019

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  • Financial services organisations are more positive about the prospects for their sector for the first time since 2015.
  • The stirrings of optimism are reflected in an uptick in hiring, investment and profit expectations over the coming three months.

"The stirrings of optimism represent a significant turnaround given the flat and falling optimism that has beset the past four years. An uptick in hiring, investment in systems, and better profit expectations for the first three months of the new year are driving the positivity in the sector, following the general election. However, this year in particular, firms will need 20/20 vision in order to maximise performance. Not least as there is still work needed to bring clarity on Brexit transitional arrangements. Encouragingly, PwC has already observed firms responding to the current environment of long-term low interest rates, intense competition and continuing regulation by resetting strategy, changing their business models, and investing in technology and their people."

Andrew Kail, Head of Financial Services, PwC United Kingdom

Growth

Turning the tide
Participants expect business volumes and profitably to head upwards over the next three months. Yet, it should be noted that financial services sentiment is coming up from a low base.

Investment

Rising investment
Hiring is up and this trend is expected to accelerate in the coming quarter. As digital transformation gathers pace, the survey also highlights increasing investment in upskilling and systems modernisation.

Competition

Competing for customers
More than a third of participants report that the cost of customer acquisition has risen in the past 12 months and will continue to increase in the coming year. Participants see the main barrier to acquisition and retention as customer switching behaviour, closely followed by technology.


Looking ahead

  • As political uncertainty recedes, the uplift in confidence, activity and investment may well become more pronounced in the quarter ahead.
  •  While the election confers greater certainty over Brexit overall, the eventual terms for financial services and when they will be finalised are still far from clear.

Download the full survey results

 

Banking

What the results say
  • Survey results indicate a turnaround from the sharp dip in confidence seen over the past year.
  • The sense that the tide is turning is reinforced by the anticipated uptick in trading, investment and net interest income.
  • However, banks expect the fall in profitability to continue.
Share

Growth

Turnaround
Bottoming-out of sentiment among banks and building societies suggests that the sector is beginning to move forward with greater confidence. As the survey was carried out before the general election, confidence may be further bolstered by greater political certainty.

Investment

Squeeze on investment
Investment is flat for now. Yet as banks strive to create a more competitive customer experience and drive down stubbornly high cost-income ratios, the need for major investment remains acute.

Competition

Challenging the challengers
The pressure on operating models is heightened by the challenge from digital-only rivals, which are harnessing new technology to set the bar for innovation and customer experience, while operating at a fraction of the cost of legacy-reliant incumbents.

 


Looking ahead

  • Banks, building societies and finance houses can take advantage of greater political certainty and a strengthening in consumer and business confidence.
  • Scale is no longer enough in itself to capitalise and compete. With current operating models proving increasingly unsustainable, the race is now on to bring digital customer service and experience up to speed.

Download the full survey results


Insurance

What the results say
  • General insurers and insurance brokers are increasingly confident about their prospects. 
  • Confidence among life insurers remains subdued.
Share

Growth

Renewed growth
General insurers and insurance brokers are increasingly bullish about their prospects as premium rates and returns continue to strengthen. However, they also anticipate a rise in costs, which will be hard to absorb in the face of tight margins. Life insurers are less optimistic, though they expect profits to rise.

Investment

Pinpointing investment
Hiring is up. Systems investment is also increasing, which is matched by extra funds for upskilling within the workforce. Yet, with margins constrained, investment decisions demand exceptional precision.

Competition

Competing for customers
General insurers are the most likely to anticipate rises in acquisition costs over the coming year of any of the financial services segments in the survey. Insurers see customer switching behaviour as the main constraint on policyholder acquisition or retention, though technology is close behind.


Looking ahead

  • Spurs for renewed growth include the strengthening in general insurance premium rates and increased certainty over Brexit following the general election.
  • Growth opportunities are also opening up as the Government focuses on how to relieve the pressures on pensions, health and social care.
  • Closely targeted investment in technology is critical in meeting more exacting customer expectations, while reining in on unsustainable costs.

Download the full survey results


Investment Management

What the results say
  • Investment managers are now much more positive about the prospects for their sector, bolstered by a big turnaround in business volumes and fee income.
  • However, they expect profitability to remain flat, with increased income offset by an upturn in costs.
Share

Growth

Profit squeeze
Investment managers expect business volumes to rise over the coming three months. However, participants are also looking ahead to significant cost increases, which are set to hold back profitability. This underlines the need for greater efficiency, with both systems modernisation and economies of scale set to be crucial.

Investment

Investment boost
Investment managers are planning to increase systems investment to make operations faster and more efficient, while enabling them to launch new products and expand market reach. They are also stepping up hiring and spending on upskilling and training.

Competition

Attracting new business
Investment managers report that technology and regulation are the biggest constraints on customer acquisition and retention. These challenges look set to increase as reporting, cyber security and other regulatory demands mount the one side, while client engagement becomes ever more digitally-enabled on the other.


Looking forward

  • Volumes are growing, but profits are not. While tighter curbs on expenses are vital, boosting returns also demands the capabilities needed to differentiate performance and create a compelling client experience.
  • The rise in demand for impact investing opens up opportunities to attract new customers, while posing risks to managers that are unable to keep pace.


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Contact us

Andrew Kail

Leader of Industry for Financial Services, PwC United Kingdom

Tel: +44 (0) 7703 459 443

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