Financial Services sector faces ‘systemic change’ within a decade driven by ESG

The world’s financial services sector is changing at a faster pace than ever before – and systemic change is expected within the next decade, according to industry leaders and experts.

32 leading industry commentators, CEOs, CFOs and board members from across the world have contributed their views on the future of financial services for KPMG’s Voices on 2030: Financial Services reinvented report.

The voices in the report represent many facets of the financial services industry, from the largest banks and insurers to early-stage new entrants to the sector. In combination, their vision of the future provides fascinating insights into where we are headed. Their predictions span five areas where they — and KPMG — expect change to be most profound. The five areas are:

ESG: the great behavioural driver of system change
The power shift: customers gaining control of their data moves power around the financial system
A changed landscape: business models proliferate and adapt
The data economy: data changes the economics of financial services
Talent opportunity: talent becomes open too, with ecosystem-based experience a competitive differentiator

The panel agreed ESG was arguably one of the main issues driving change in financial services, concluding that the world is lagging on net zero but by 2030, financial services capital will play a crucial role in delivering positive outcomes and helping to power the transition to sustainability.

The report also concludes that social issues including justice and equality will be fully embedded in customer demands while investors will proactively and significantly increase their exposure to asset classes such as renewables. Meanwhile, the industry will need to work together with political leaders, particularly on tax policy, to deal with the unfolding global climate crisis.

In 2030, there is a responsibility for all organizations to think about how they behave within a global ecosystem. A decade ago, the challenge for OECD countries was to cut their greenhouse gas emissions in half and for emerging markets to reduce emissions by 2.5 percent per year. We knew that without that progress, we would not put the world on track to keep global warming to from rising over 2.0 degrees above pre-industrial levels. Today, the challenge continues: insurers have a key role to play in architecting a system that provides incentives for change. We still need a transition plan that spurs technological advancement in areas such as carbon capture to enable fossil fuel emissions to be reduced enough to allow them to be in continued use without harming the planet. The technology must be affordable enough for China, India, Russia, and other emerging markets to embrace. Insurance companies that lead on finding solutions to the complex set of problems that the energy transition presents are significant winners in this marketplace.

Constance Hunter

Global Head of Strategy & ESG AIG

In 2030, there is a responsibility for all organizations to think about how they behave within a global ecosystem. A decade ago, the challenge for OECD countries was to cut their greenhouse gas emissions in half and for emerging markets to reduce emissions by 2.5 percent per year. We knew that without that progress, we would not put the world on track to keep global warming to from rising over 2.0 degrees above pre-industrial levels. Today, the challenge continues: insurers have a key role to play in architecting a system that provides incentives for change. We still need a transition plan that spurs technological advancement in areas such as carbon capture to enable fossil fuel emissions to be reduced enough to allow them to be in continued use without harming the planet. The technology must be affordable enough for China, India, Russia, and other emerging markets to embrace. Insurance companies that lead on finding solutions to the complex set of problems that the energy transition presents are significant winners in this marketplace.

Constance Hunter

Global Head of Strategy & ESG

AIG

In addition to ESG, the report contributors predict a number of other significant changes ahead including: a greater focus on digitalization and more immersive services for banking customers; a potential for conflict as regulators remain anxious to support innovation but flex their muscles with more high-profile interventions; greater diversity and inclusion as leaders seek out a wider talent pool with broader skills including emotional intelligence; and collaboration rather than competition, with more partnerships leveraging the skills and competencies of multiple players.

Partnership is powerful. Look at the way in which banks, technology companies and non-financial institutions have collaborated over the past decade to create network effects and virtuous circles that ultimately benefit customers. We’ve been able to reduce prices and remove friction for all participants across the system. Indeed, in 2030, customers — whether consumers or corporates — no longer see banking as a distinct activity. It has become invisible, embedded in the underlying interaction. That could be a B2B payment, optimization of the supply chain, or simple things like buying your groceries online. It has become the dominant distribution model for all banks. The reality is we are operating in a world where you can’t work independently. Banks have to find partners to create symbiotic relationships that build value and create network effects, both for customers and suppliers. In the digital economy, the bank’s role can even be as the curator of platform interactions. It can be a consumer or a producer.

David Rice

Global COO, Commercial Banking, HSBC

Based on the predictions from industry experts, the report offers recommendations on actions financial services leaders can take today, including targeting talent, giving innovators room to try new things, developing a data strategy and identifying the specific long-term business models to target.

Sector convergence has already begun, enabled and driven by new technology and innovation, but that is set to continue at pace. Concepts such as embedded finance, the platform ecosystem and the data economy may render traditional categories of financial services and providers increasingly less relevant. The other area where our voices speak as one is on the imperative to leave the world in a better place than we found it. They expect the environmental, social and governance (ESG) phenomenon of recent years to evolve and expand — ensuring that financial services companies drive positive change. That may include climate change mitigation, but also span social justice, equality and fairness. Elsewhere, many of our interviewees sense a power shift. They anticipate data driving new business models — and undermining existing ways of operating. But crucially, they also expect customers to recognize and enjoy clear benefits as they grant access to their data to trusted partners and businesses. Of course, not every prediction in this research will come true. Our aim with Voices On 2030 is to stimulate debate — to shed some light on the future without pretending to have all the answers.

Judd Caplain

Global Head of Financial Services

KPMG International

Read the full report Voices on 2030: Financial Services Reinvented

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Brian O’Neill, Senior Manager,
Global External Communications

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E: Brian.O’Neill@kpmg.co.uk

Notes to Editors:

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