5 Factors Driving Financial Services Industry Growth

Barry L. Bulakites

August 31, 2022


Several factors are driving the growth of the financial services industry. These include adopting new and emerging technologies, investments in digital technology, and mergers and acquisitions. In addition, many companies face challenges such as talent shortages. However, there is good news: these challenges can be addressed. Here are some of them:

Investment in digital technologies

Investing in digital technologies is essential for financial services companies, as new disruptive technologies are forcing traditional business models to change and adapt. As these technologies become more accessible and affordable, more companies are leveraging them to improve their financial services offerings. In addition, new entrants, such as mobile network operators, payment service providers, and merchant aggregators, are also leveraging them to transform the competitive landscape. These changes will require innovative and sustainable financial services providers.

The financial services industry invests in emerging technologies such as blockchain, artificial intelligence, data analytics, the internet of things, and robotic process automation. While most companies are excited about the potential of these new technologies, many are wary of the risks involved. These organizations face sized data sets, regulatory compliance issues, and the fear that AI won’t do the job correctly. The result of these concerns is that new digital technologies may take a while to implement fully, or a steep learning curve may prevent companies from adopting them.

Adoption of new and emerging technologies

The financial services industry is focused on digitizing and adopting new and emerging technologies to improve operational efficiencies, speed-to-market, and customer experiences. As a result, banks are reducing spending on branches and investing in self-service digital channels. In addition, mobile banking and digital wearable devices are growing in popularity. These technologies offer financial institutions the ability to deliver complete end-to-end customer solutions.

Several companies are already utilizing chatbots and AI solutions for customer service. These digital technologies are helping banks to improve back-office processes, product delivery, marketing, and security. They use simple algorithms to perform tasks, saving significant banks hundreds of thousands of employees’ hours each year. These technologies may also help smaller banks automate paperwork, data exchange, and client communication. However, the main challenge for many firms is implementing them while maintaining compliance and quality standards.

Mergers & acquisitions

Banks pursuing mergers & acquisitions as a growth strategy should consider several factors:

  1. They need to define a strategic objective and business case clearly.
  2. They need to develop a practical methodology for valuing the contributions of each partner.
  3. They need to establish explicit governance models and management KPIs.
  4. They must define a process for transition and operational support.

They must also determine the timeframe and criteria for full diligence.

Although there are many benefits of mergers and acquisitions, they also have risks. For example, while the anticipated cost savings could be significant, the investment may not achieve the desired results due to unforeseen financial and regulatory issues or cultural incompatibility. Additionally, a new partner may be more challenging to integrate, leading to operational risks.

Talent shortage

The financial services industry is experiencing a shortage of talent. According to a report by Hays, 83% of banking employers cited a lack of skills in the last year. Moreover, more than half of these employers attributed the shortage to rival competition. This is not unexpected. Financial firms are known to attract disgruntled doctors, with the average pay at Goldman Sachs reaching $400,000.

The industry faces several challenges, primarily related to the retirement of baby boomers. The financial sector needs innovative and creative employees who can adapt quickly to change. It also requires people with cultural insight and the ability to lead diverse organizations. In addition, the financial services industry faces familiar talent shortages, such as in insurance actuarial roles and operational risk management.

Impact of COVID-19 pandemic

In today’s uncertain world, the financial services industry is facing a unique set of challenges. In addition to regulatory compliance, COVID-19 poses new regulatory requirements for financial services organizations. As a result, these companies must be adaptable, transparent, and act decisively. A successful COVID-19 operational model requires firms to balance fiscal solvency with regulatory compliance while minimizing the impact on their businesses and employees.

The COVID-19 pandemic has significantly impacted the global economy, economic structures, and financial markets. This study used a decision-making framework to evaluate the effects on financial markets in developed and developing countries. The findings were based on expert judgments and pairwise comparisons.