Global investment in FinTech to top $150bn within 5 years claims new report

BY Fraser Tennant

Global investment in FinTech is set to top $150bn over the next five years, putting one in four financial services (FS) companies potentially at risk, according to a report published this week by PwC.

The report, ‘Blurred Lines: How FinTech is shaping Financial Services’, is based on a survey of 544 respondents across 46 countries and examines the development of new financial services sector technologies and their potential impact on the FS market.

Pointedly, 83 percent of survey respondents said they felt at risk of losing some of their business to standalone FinTech firms, with 67 percent citing pressure on margins as being the top threat to business, followed by loss of market share (59 percent).

In terms of the relationship between FS firms and FinTech companies, while the report notes that joint partnerships are “the most common way” in which collaboration takes place, it also makes clear that there are particular challenges to overcome. Chief among these are IT security, regulatory uncertainty and differences in business models.

“Given how fast technology is changing and lines are blurring, no business can afford to rest on its laurels,” said Steve Davies, EMEA FinTech leader at PwC. “As competition hots up, the result will be a reduction in margins and a loss of market share for traditional financial institutions. Those who do not act now are at risk of falling behind as FinTech changes the industry from the outside. Incumbents cannot afford to ignore this trend. Nevertheless, our survey shows that 25 percent of firms currently have no interaction at all with FinTech companies.”

The PwC report also identifies the distributed ledger technology Blockchain as being the next evolution in the FinTech story, with huge cost savings and improvements in transparency being real possibilities – a “once-in-a-lifetime opportunity”, according to Mr Davies. Testament to this belief is PwC’s identification of more than 700 companies that have recently entered this space.

Mr Davies concluded: “In the past, financial services companies have provided invaluable services to clients by acting as intermediaries in the system. Their functions are now increasingly being usurped by technology-driven business models. Before these traditional intermediary roles become obsolete, firms need to wake up to the once in a generation opportunity provided by this changing financial landscape.”

Report: Blurred Lines: How FinTech is shaping Financial Services

People are the problem – report

BY Richard Summerfield

Global M&A activity has been one of the most notable stories of recent years. Dealmaking activity climbed sharply in 2015, rising to $4.7 trillion, up 42 percent on 2014. Companies have engaged in deals in new and complex markets, lured by the promise of reduced costs and value creation opportunities.

However, dealmaking today is rife with risk. A new report from Mercer, ‘People Risks in M&A Transactions’, looks at one of the most potent areas of risk: individuals often fail to adapt to organisational transition brought about by M&A, and this can create turmoil. 

If left unchecked, the inability of individuals to manage uncertainty and embrace change brought about by deal making can have a profoundly negative impact on an organisation.

Issues such as employee retention, cultural integration, leadership assessment, compensation, benefit levels and overall talent management are significant. Fifty-five percent of buyers surveyed by Mercer said that employee challenges continue to present significant risks in M&A deals.

Companies are completing deals in a highly competitive and demanding economic landscape. Increased competition and the influence of activist shareholders, for example, are combining to greatly curtail the length of time in which companies can carry out their due diligence procedures. They are under pressure to get deals done quickly.

Forty-one percent of acquiring companies claimed they have less time to complete due diligence compared to three years ago. Furthermore, 33 percent of acquirers believe sellers are providing less information about assets for sale.

“Both buyers and sellers tell us they need rich data, unique insights and practical guidance to maximise transaction value and reduce people-related risks. The goal of our research is to enable business leaders, inside and outside of the HR function, to make more informed people decisions in the current challenging global deal environment," said Jeff Cox, Mercer’s global M&A transaction services leader.

According to Mercer, companies should invest in their employees with the same enthusiasm they have for managing their balance sheet and other investments. By focusing on staff, companies can minimise disruption and increase value in people related areas.

Report: People Risks in M&A Transactions

Internationally immobile

BY Richard Summerfield

As employers look to develop the business leaders of tomorrow, they are increasingly using mobility to bolster their talent pipeline. However, according to a new report from PwC, companies are greatly neglecting one part of their work force: women.

PwC’s ‘Moving Women with Purpose’ notes that international mobility experiences can be of great benefit to both employees and employers, and by allowing staff to develop their careers overseas companies can create opportunities for staff to develop into future leaders and key talents. However, PwC’s data suggests that the number of women being transitioned into international opportunities is remarkably low, at just 20 percent of international assignees.

PwC interviewed 134 global mobility executives and 3937 professionals from over 40 countries and found a huge disparity in the number of women wanting to experience overseas work in the careers and those being afforded the opportunity to pursue such a position. Indeed, 71 percent of female ‘millennials’ – millennials, for the purposes of PwC’s report, are defined as being born between 1980 and 1995 – want to work outside their home country during the course of their careers, yet only 20 percent of the current internationally mobile population are women.

More and more women wish to be considered for international assignments, yet that demand is not being borne out in reality. More than half of the survey’s respondents said their female employees were being under-represented in their company’s mobility populations.

"This PwC report highlights a number of critical diversity disconnects. CEOs must drive an agenda where women are both aware of, and provided with, the critical experiences required to progress their career, including international assignment opportunities. Global mobility, diversity and talent management strategies must be connected to support the successful realisation of international business and people strategies," said Dennis Nally, chairman of PwC International.

Furthermore, only 49 percent of women surveyed believed that organisations had enough female role models with successful international assignment experiences. This shortcoming has a negative impact on employers’ female talent pools and global mobility programmes.

The report also vanquishes a number of myths around gender stereotypes, namely the suggestion that women with children would be unwilling to work overseas or that women would not seek an international assignment for fear of jeopardising a higher earning partner’s income at risk. Forty-one percent of the female respondents who noted that would want to undertake an international assignment were parents, compared with 40 percent of men.

Given the data contained within the report, the onus is on organisations to take steps to drive higher awareness of the positive experiences of female assignees moving forward.

Report: Moving Women with Purpose

“No hard landing” promised as China unveils 5-year economic growth plan

BY Fraser Tennant

A 2016 growth target of between 6.5 and 7 percent and a major reduction in unemployment are the main aims of China’s new Five-Year Plan – the achievement of which the government hopes will help address the country’s deepening economic problems.

Unveiled by prime minister Li Keqiang during the opening of China's 12-day annual national parliament on 5 March, the Five-Year Plan (the country’s thirteenth) is essentially a roadmap for the nation’s development from 2016 to 2020 and will be a “tough battle” to achieve, said Mr Keqiang, requiring China to face “more and greater difficulties".

Further key components of the Plan include the requirement for China to cap its energy consumption (for the first time ever), tackle rising inflation, and introduce an effective job creation programme. However, when announcing the Plan at the opening session of the legislature, the prime minister was noticeably less forthcoming with details of how the targets contained in the Five-Year-Plan will actually be met.

Also in the Chinese government’s sights is the restructuring of inefficient industries, in particular dealing with zombie companies (known as Jiangshi in China) – organisations that are unable to pay their bills and are reliant on government assistance to meet their financial obligations.

Perhaps inevitably, there has been much criticism of the Plan from many quarters with economists and investors raising concerns that the fiscal target outlined (a fiscal deficit equivalent to 3 percent of GDP) is not ‘aggressive’ enough. Critics have also said that the national growth target itself may cause problems, as under pressure central government officials may be tempted to obscure or even falsify data.  

In response, Xu Shaoshi, head of the National Development and Reform Commission (NDRC), said that the government wanted to improve the efficiency of its investments with a strategy of more targeted spending being adopted. "China will absolutely not experience a hard landing," said Mr Shaoshi at the opening of parliament. “These predictions of a hard landing are destined to come to nothing."

With China being the only major world economy (the second biggest) to announce an annual growth target, the pressure is now on the Chinese government to deliver its extensive economic reform programme to guarantee sustainable growth.

News: Economic reforms are crucial if China is to meet its growth target

International lenders expected in Greece to conclude bailout review

BY Fraser Tennant

Beleaguered Greek prime minister Alexis Tspiras has announced that he expects international lenders to return to Greece soon to conclude a review of how the country has complied with reforms agreed as part of a eurozone bailout.

The bailout, signed up to by Greece in August 2015, was worth in the region of €86bn (£67.2bn) and allowed the country to stay within the eurozone as well as avoiding the much-discussed and much-feared ‘Grexit'.

During an interview with Greece’s Star TV channel earlier this week, Mr Tspiras (who possesses a small parliamentary majority) stated his belief that official lenders will “return in the first 10 days of March” to conclude the review so that he can begin debt relief talks designed to assuage the Greek public and encourage investment.

The plans of the prime minister’s left-wing Syriza party have been frustrated thus far by the reluctance of lenders to return due to disagreements over the likely size of Greece’s fiscal shortfall by 2018. The Greek government says 1 percent of GDP, EU lenders say 3 percent and the International Monetary Fund (IMF) forecasts a gap of at least 4.5 percent.

Calling on the likes of the IMF to “return to realism”, Mr Tspiras added that there had to be agreement among lenders before Greece could continue with its recovery programme, which includes tackling the crippling effects of corporate tax avoidance and widespread corruption.

"The Greek government is implementing the fiscal consolidation program abiding by its commitment,” said Dimitris Papadimoulis, vice president of the European Parliament. “It is putting forth a broad reform agenda, including media, public administration and pension reform, wrapping up the chaos previous governments left behind after 30 years of corruption and clientelism. In this respect, the fight against tax evasion is crucial and it is evolving dynamically.

“The firm determination of the Greek government to pull Greece outside the financial struggle is proved by a specific program destined to provide millions of citizens with health coverage and basic safety nets. This is of paramount importance for the government and one of the major, critical aspects for bringing back, step by step, social justice.

“Following Greece's very important progress, the institutions should also implement what has been agreed and conclude with the first review of the program as soon as possible.”  

The Greek MEP also stated that the conclusion of the bailout review is vital so that sky-rocketing unemployment can be addressed and growth brought back, allowing Greece to leave behind one of the hardest periods in its history.

News: Greek PM says lenders could return for bailout review in early March