In this podcast, Hani Kablawi, BNY Mellon’s Chairman of International, shares the three global megatrends affecting the financial services industry, and how they have inspired financial services companies in a renewed search for purpose and value. Hani has oversight of BNY Mellon’s European, Middle East, African, Asia Pacific and Latin American activities, showing the breadth of our businesses in 34 countries. Working closely with our largest global clients, Hani has developed keen insight into their most pressing concerns and compelling priorities.
The Megatrends Affecting the Industry
1. The Rise of the Individual Investor
- Individual investors are accumulating wealth faster than in previous years, thanks to the aging demographics as well as the recovery of equities and nonfinancial assets since the 2008 crisis
- According to Capgemini’s World Wealth Report 2020, there was a 9% increase in global wealth growth from 2018 to 2019, and since 2012 there’s been a CAGR of 7%. 2010 was the first year to see growth following the financial crisis in 2008
- In developed markets, retirement savings have primarily shifted from defined benefit plans to defined contribution plans resulting in individuals becoming increasingly responsible for making investment decisions for themselves
2. Technology as an Enabler
- All companies, in effect, have become technology companies
- With the acceleration of technology and cloud computing, financial services companies are limited only by their ability to imagine what’s possible
- It is incumbent on financial services and all other industries to leverage technology to deliver more and better value to clients
3. Geopolitical Shifts and Their Economic Impacts
- A number of interconnected trends are changing the geopolitical landscape for financial services companies
- There’s been a backtracking on globalization, with more withdrawals within borders from a trade perspective, and increased ring-fencing within national boundaries
- The Eurozone’s near-mutualization of sovereign debt could signal the potential emergence of a competitor to the U.S. dollar as a reserve currency
- A realignment of traditional trade and financial interconnections among developing markets is replacing long-lasting trade links
- The impact of the coronavirus is forcing organizations to reconsider the future of the workplace
How Companies Are Responding
Financial services companies have been reacting to these trends in two ways. One: They are undergoing a renewed vigor and evaluation of their purpose in society, and linking that purpose to what they do and how they do it. Two: They are increasingly seeking new ways to generate value for their stakeholders—not just shareholders but clients, employees and the communities in which they operate.
Finding Company Purpose
- Companies are asking themselves how their existence is helping to make the world a better place. Financial services companies, in particular, are evaluating how they invest and how they operate, with a sense of social purpose in mind. And asset owners are thinking increasingly about what impact every dollar they invest will have on society
- A recent study that BNY Mellon conducted with the Official Monetary and Financial Institutions Forum (OMFIF) showed that three-quarters of the central banks, sovereign wealth funds and public pension funds surveyed consider Environmental, Social and Governance (ESG) factors in their investment process
- Purpose varies among disparate companies, so the ways in which asset owners, sovereign wealth funds, investment management firms and corporates manifest ESG in their investment habits will also vary. One organization might care more about climate change, while another might be more interested in social justice. Such diversity of thinking is very powerful as we all work together to make a difference
- In the past, the lack of standardization in ESG investment practices has been a hindrance for investors when choosing how to allocate their investment along ESG principles. With our new BNY Mellon ESG Data Analytics App, we’re saying to clients they can choose the factors important to them and can compare themselves, their returns, and their ESG practices and allocations against crowdsourced industry benchmarks
Driving New Sources of Value
- Value is a simple concept that is hard to achieve: It represents how companies provide their clients with better solutions at a lower price point, with less risk and strong controls, to achieve better client outcomes
- This quest for value is driving investment firms to become even more efficient and effective in delivering products and services to their clients
- Achieving value in this way requires companies to really embrace data and digital approaches. For example, BNY Mellon has worked with more than 60 clients to migrate over 400,000 manual transactions to digital since March of this year
- As we help clients drive more digital transformation and digital adoption, we are able to deliver data back to them much faster and at a more granular level. They can consume and digest it wherever and however they want, and combine it with other data sets to create insights
- For example, we’ve partnered with Order Management Systems (OMS) providers: Bloomberg, BlackRock’s Aladdin and SimCorp to give liquidity managers cash flow positions much earlier in the day or even the prior day, on their chosen OMS, thanks to our cash flow predictive analytics
- Doing so requires a modular, open-architecture approach in which we work with companies across the industry to ensure that our clients still have their choice of providers
As companies think about the next few years, the opportunity to align their purpose with what they do and how they do it will continue to be important. ESG considerations will continue to climb up the significance curve for investors. That significance will be driven by what stakeholders are expecting of their providers, whether citizens wanting more from their sovereign wealth funds; pensioners and retirees setting higher expectations for pension funds; or sovereigns and pensions expecting more of their investment managers. Similarly, companies will continue to search for value, and put value in terms that can be quantified and understood. The companies that can do both effectively may be those that not only survive but thrive in rapidly changing times.
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