Investors in global financial businesses do not believe industry leaders can provide the kinds of returns being delivered by the tech sector, with very significant skepticism about current digital transformation programs.

That’s our key reading of a report from global management consulting outfit Oliver Wyman, which also argues there is a clash coming in the financial services sector between strategies based on value and those driven by vision.

Investors are unimpressed. A large majority say current investment plans lack credibility and are not well understood. In fact, not a single survey respondent said banks had articulated a clear and credible digital transformation agenda when it came to costs, benefits and timelines.

And investors are voting with their wallets.

“There has been a dramatic change in the relative values of financial services and technology stocks. Since 2010, the combined market capitalisations of the 20 largest financial services firms has grown $800 billion compared to $3.8 trillion for the 20 largest technology companies,” they note.

The firm surveyed investors and found three-quarters were not confident digital transformation strategies will be effective, and hardly any believe plans are well articulated.

In a company blog describing the study, the authors write, “Investors understandably struggle to make sense of programs and end up being outright skeptical.”

“Concerns around implementation costs and the likely transfer of most benefits to customers are also common themes among investors.”

According to Chris Allchin, Partner and Lead Author, investors and analysts are unconvinced the current investment path of the industry. “They don’t understand what institutions are trying to deliver or what the end goal is, or why the institution will be more profitable.

Chris Allchin, Partner and Lead Author

Meanwhile, Christian Edelmann, Partner, and Co-Head of EMEA Financial Services says, “The challenge that our clients are facing is that they need to transform for the long term, but investor patience is actually quite low. So they need to deliver results in the short term in addition to transforming for the future.”

Clash of clans

In a report called “When vision and value collide – The state of the financial services industry 2020” the authors argue warn of a collision between the vision mindset and the value mindset.

Making a success of the collision between vision and value will mean making tough choices says Allchin. “It is going to mean a forensic review of the portfolio as it stands today.

“It means forcing the business and support functions to make simplification choices to get the benefit from new technology, and it’s going to mean agreeing to a small number of metrics which capture both vision and value but which can also be communicated to outside investors.”

According to the report, The way firms resolve the conflict between the desire to reimagine the business for the long-term and the need to remain disciplined and profitable in the short-term will define the industry in the years ahead.

Interestingly, the report says that both approaches can yield poor results. A value mindset tends to deliver only incremental gains with a low impact however they caution aggressive amounts of spending on transformation are no guarantee of success.

Indeed, some transformation programs are soaking up as much as five per cent of revenues. Despite building large teams with C-suite digital leaders and tipping funding into incubators, accelerators and various other innovations hubs, “[a]positive impact on the bottom line has been rare, and few firms we speak to are happy with the rate of change.”

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