How can financial firms tackle the challenges that lie ahead in 2021?

Published On : 01/28/2021

By Paul McCreadie, Partner at ECI Partners, the leading growth-focused mid-market private equity firm

2020 was a hugely difficult year for businesses, and yet there were still some sectors that on the whole managed to remain resilient throughout. When looking at financial services companies specifically, almost three quarters (74%) of mid-market companies remained resilient during the pandemic, despite large scale disruption.

This statistic, from our latest Growth Index research, is hugely positive news for the sector, especially when taking into account the economic crisis that firms have had to weather as a consequence of Covid-19. So, how did firms remain resilient, and how will they tackle the challenges in the year ahead?

Investment and internationalisation

Firstly, investing in new technology is a key driver behind financial services remaining resilient in 2020. Traditionally, the sector has been slow to adopt digital transformation due to problems with legacy systems, large amounts of data and a hesitancy around a risky change process. In the last year, it is promising to see that this is changing, with 45% of financial services firms having invested in AI and machine learning technology – making it the top sector to have invested in this space over the last 12 months.

One business that has been investing in machine learning for the last few years – and reaping the benefits – is Avantia, the technology-enabled insurance provider behind HomeProtect. The business has undergone a large tech transformation in recent years, investing in an underlying machine learning platform and an in-house data science team, providing them with capabilities to return a quote to over 98% of applicants in under one second. This investment has allowed them to improve customer service, become more scalable, and in turn grow significantly.

Additionally, half (51%) of financial services firms have invested in cybersecurity over the last year, allowing them to protect their operating platforms and ensure they can continue to provide solutions to their customers.

Secondly, it is clear across all sectors that international revenues and profits have a positive impact on business resilience. Businesses that weren’t internationally diversified in 2020 struggled more during the pandemic. In fact, businesses who only had a domestic presence were three times more likely to be considered to be the least resilient.

Perhaps an attribute towards financial services firms’ resilience in 2020, therefore, was the fact that over half (53%) of firms already had a European presence last year, and over a third (38%) had a presence in North America. Having these diversified operations would almost certainly have contributed towards them successful weathering the many storms of 2020.

Challenges ahead

2020 may be over, but many of the challenges of the past year will continue into 2021, and companies will be looking to mitigate the impacts.

According to our research, the biggest short-term concern involved changing pandemic guidance, with 42% of financial firms citing this as a top concern. With the UK currently experiencing its third national lockdown, many businesses will have already had to adapt to rapidly changing guidance, exemplifying why this was the top concern.

Brexit was only cited by 24% of financial firms as a short-term concern, which is positive to see. However, due to Brexit, UK financial services firms are no longer able to passport their services into Europe, which may cause problems, particularly in the next 12 months as the Brexit deal is ironed out and the agreement is put into practice. While it’s positive that those financial firms surveyed weren’t hugely concerned about Brexit at this juncture, if this confidence is going to remain, the UK is going to need straightforward access to Europe and be able to operate there without issue. European collaboration is vital for the ongoing success of the industry, otherwise we may see these concern levels rise.

As a continuation from last year, businesses will also still need to be investing in working from home operations.  According to the research, 30% of financial services firms are already planning to adopt remote working on a permanent basis, so it’s imperative that decisions are made now about whether they invest more in enabling staff to do this, or in their current office premises.

Remaining resilient in 2021

Clearly there were a number of key factors that stood financial services firms in good stead last year, and will ensure that they remain resilient in 2021. Investing in tech, as many financial firms did throughout 2020, can help businesses offer a better customer experience, and retain and grow market share through winning new customers.

In terms of international expansion, firms are already planning to capitalise on this area, with over half (51%) of firms planning overseas growth in Europe over the next 12 months, and 43% in North America. Further plans to expand internationally is not only a good sign for growth, but should further increase resilience within the sector.

Ultimately, in order to maintain their growth and resilience throughout the next 12 months, it’s imperative that the UK’s financial services firms continue to put their customers first, invest in technology and remain on the front foot of digital change.

Wanda Rich

Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.