The future of financial services in three data points

When was the last time you heard that the financial services industry is going through tremendous change? Sometime in the last few hours, perhaps. Maybe even in the last few minutes.

It’s become a familiar refrain: new technology, new competitors, and new workforce trends are transforming the fundamentals of the industry. The story is told so frequently that it’s easy to tune it out.

But that would be a mistake. The evidence is clear that financial services, along with much of the global economy, is the middle of extraordinary, ongoing change, with no end in sight. We can see why with just three pieces of evidence.

The first is this research on corporate longevity, which builds on work from Yale University’s Richard Foster and uses the listings of the S&P 500 as a proxy for disruptive economic change. The analysis shows that in the 1970s, the average company’s lifespan on the S&P 500 was over 35 years. In 2018, the average hit 22 years—and it’s projected to hit 12 years by 2027.

At the current rate of turnover, half of the S&P 500 will be replaced in the next decade by companies that we haven’t heard of yet, leveraging technologies that haven’t been invented.

The second piece of evidence comes from the “$1 trillion club”—businesses whose market capitalization has surpassed the remarkable threshold of $1 trillion. In mid-January, Google parent-company Alphabet joined the club. Only three other companies have ever reached this size: Microsoft, Apple, and Amazon.

These four businesses share some striking similarities. All four are tech firms. Compared with other large organizations, all four are remarkably young—the oldest is Microsoft, founded in 1975. Three of the four are increasingly active players in financial services, blurring traditional industry lines.

This points to the tech-driven future of the economy, which we can see in other ways too.

Consider that the operating models of many of today’s leading organizations would have been unthinkable a few years ago. Uber is the biggest taxi company in the world and owns no vehicles. Facebook is the biggest media company in the world and creates no content. Airbnb, the world’s largest accommodation provider, owns no real estate.

The third piece of evidence is that the purpose of corporations is starting to shift. Last year, the CEOs of 181 of the biggest corporations in the US released a remarkable letter on the purpose of large businesses.

The letter challenges the view that corporations exist only to create shareholder wealth. Instead, the letter’s signatories commit to meeting the expectations of five different stakeholder groups: customers, employees, suppliers, shareholders, and communities.

“Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term,” said Jamie Dimon, CEO of J.P. Morgan Chase and chair of the Business Roundtable, which released the letter.

“These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

The letter ends with the statement that “each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

In addition to Dimon, the letter’s signatories include other financial services heavyweights like the head of Bank of America, the founder of Black Rock, Apple’s Tim Cook, and Amazon’s Jeff Bezos. (Yes, Apple and Amazon are players in financial services thanks to initiatives like Apple Pay and Amazon’s small-business loans, Reload program, and other bank-like offerings.)

The letter signals a paradigm shift in the purpose of corporations—and that the disruption is only getting started.

So what’s behind it all?

Technology attracts a lot of attention in the conversation about what’s new and exciting in financial services. To a large extent, this is deserved.

Consider this report from the World Economic Forum on the future of jobs, which highlights four specific technological breakthroughs as drivers of change that will impact business growth: ubiquitous high-speed mobile Internet, the global adoption of AI, predictive big data analytics, and the implementation of cloud computing. These four, the WEF reports, are set to dominate the near future of business growth.

Likewise, MIT researchers Erik Brynjolfsson and Andrew McAfee argue that technological change has brought the world to an inflection point. In their book The Second Machine Age, they make the case that universal access to the Internet and the invention of AI are the most important one-time events in human history.

On a similar note, this new Accenture research on the future of financial services found that 10 percent of work could be automated by 2025, while almost half could be augmented by machines. The resulting cost savings, productivity gains and improved customer experience could add up to $140 billion in value to the industry in North America However, to achieve this value, organizations need to view technological change as broad organization and culture change.

The report encourages taking a holistic strategic approach to processes end-to-end optimizing for both people and technology. Organizations should consider the work culture that needs to adopt and support the changes to the work environment.

History will be the final judge, but there’s no denying that we’re living through a period of hugely significant technological developments like AI, cloud computing, blockchain and much more. These are reshaping the competitive landscape in financial services and other industries.

Yet it is also undeniable that technology alone cannot explain this sustained disruption. The other great engine of change is demographic shift.

Millennials are now the biggest single generation in the global workforce. They have new attitudes about work, new expectations, new values, and different approaches to how work should be done. Their influence is pronounced.

A recent report from Accenture’s Fjord design agency on the trends shaping the future found that the traditional career path is being challenged “along with other symbols we once used to define our place in the world … because what we buy and where we work have become more fluid.” Employers need to embrace the liquid expectations of workers including the growing population of temporary and contract workers and prioritize purpose in their hiring practices to attract new generations of workers.

The demographic story does not stop with Millennials. Demographic shift in the workforce involves both ends of the age spectrum. For the first time, there are now more Americans over the age of 50 than under the age of 18. Some of these Traditionalists and Boomers are retiring or have retired. Others are working into their “golden years” and will remain an important part of the workforce for years to come. To get the most from their talent, companies must find ways to connect the workforce across generational divides.

Still, Millennials are undeniably the workforce’s future. Research shows that by 2025, they will make up 75% of all workers. Leading disruptive firms are already attracting more than their fair share of Millennials. For example, Accenture’s workforce is approximately 80% Millennials right now.

The financial services industry, as a whole, has not kept pace. Firms are struggling to attract young talent. Many financial services companies report workforces made up of 30-40% Millennials. This has knock-on effects for everything from people practices to technology policies to strategic decisions at the highest level.

The industry is simply lagging other sectors of the economy in this area. This matters because the biggest disruption for financial services is coming from non-traditional industry players, who are attracting more Millennials to their workforce

The situation brings to mind a quote from the science fiction writer William Gibson: “the future is already here—it’s just not very evenly distributed.”

An uncertain and exciting future

This all adds up to a period of widespread ongoing disruption of unknown duration and unprecedented scope. The past provides very little guidance on what is likely to come next.

But it does prove that the industries that don’t move with the times are likely to suffer the consequences—and that the workplace policies and people practices at organizations can play an important role in the ability of those organizations to survive and thrive.

The world is changing. Financial services must change with it—including its people practices and workplace cultures. Companies need to consider a whole new approach to the employee-employer relationship.

This is why the time is now for HR to reinvent itself and refocus on the needs of people.

In my next blog post, I’ll unpack the first steps.

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