Irish financial services industry has more to do to reach its potential

More to do on innovative collaborations, skills deficit at acute levels, cybersecurity a top threat, operational efficiencies a key driver for growth, inadequate data and a financial services industry calling for Government action on a national strategy for AI. These are some of the views of 67 Irish financial services leaders as benchmarked against their global peers – extracted from PwC’s 2019 Global and Irish CEO surveys – on key business priorities determining their future success.

More to do on innovative collaborations

While confident about future revenue growth, Irish financial services organisations have more to do on innovative collaborations compared to their global counterparts. For example, just a quarter (25%) of responding Irish financial services CEOs reported that they are planning to collaborate with entrepreneurs or start-ups as a means of driving revenue growth in the year ahead compared to 30% for their global counterparts.

Irish financial services leaders are also less likely to embark on new strategic alliances and joint ventures (22%) compared to their global counterparts (37%); They also see less potential for new mergers and acquisitions.

Ciarán Kelly, Advisory Leader, PwC Ireland, said: “Collaborations with innovative start-ups are often a good way to access new talent, technology, markets and products as well as countering fee pressures. Fintechs, for example, often present opportunities to team-up, matching their culture of innovation with an established financial services firm’s brand, distribution and regulatory expertise.

There is also a growing interest in InsurTech and Blockchain capabilities, for example, often in partnership, as a source of talent and innovation. These platforms can not only introduce new innovations but can also vastly improve effectiveness and efficiency, especially in cost-intensive areas such as the customer-facing front office.”

At the same time, we see a renewed emphasis on efficiency and cost reduction in the Irish financial services industry but global counterparts are making greater strides. The survey reveals that six out of ten (60%) Irish financial services respondents plan to drive operational efficiency as a means to drive margin growth in the year ahead, compared to nearly three-quarters (72%) for their global counterparts.

Skills deficit more acute in Ireland – holding back innovation and growth

The availability of key skills is a top concern (84%) for Irish financial services leaders and is more acute than for their global counterparts (76%). Despite the majority (61%) planning to increase headcount in the year ahead, a significant proportion of Irish respondents reported that it has become more difficult to hire people (70%) and is substantially higher than the global experience (59%). The survey confirms that not only is the skills deficit prompting higher people costs in Ireland (70%) compared to global counterparts (59%), it is also holding back innovation and growth targets.

Cybersecurity top threat

As financial services organisations become more reliant on technology and data, they will need to limit the dangers of cyber threats. Cybersecurity is viewed as the top threat to business growth for financial services leaders in Ireland (88%).

Other business concerns include: geopolitical uncertainties (81%); the extent of regulation (76%); increasing tax burdens (73%) and uncertain economic growth (67%). Irish financial services leaders are much more concerned about real estate costs (61%) compared to global counterparts (41%).

Global financial services leaders are more concerned about certain areas of change

Irish financial services leaders are less concerned compared to global counterparts about certain key areas of change: the speed of technological change (Ireland: 63%; Global: 73%), changing consumer behaviours (Ireland: 58%; Global: 66%); supply chain disruption (Ireland: 30%; Global: 34%) and climate change (Ireland: 43%; Global: 55%). They are also less concerned about their ability to respond to a crisis (Ireland: 51%; Global: 57%).

Inadequate data for business decision making

A large majority (71%) of Irish survey participants reported that key information about important business disciplines such as competitor performance, supply chain, technology trends, customer preferences, business risks and employees’ views is critical for determining future strategy. But, on average, just 19% of Irish financial services leaders confirmed that the information they receive for key business decision making is adequate. The primary reason given for such inadequate data is the lack of analytical talent.

Dervla McCormack, Financial Services Consulting Partner, PwC Ireland, commented: “Irish financial services organisations face the dual challenge of the cost of turning vast amounts of data into actionable intelligence, and the need for high-quality data analytics to prove compliance in a complex, regulated market. Companies out in front are in a position to take advantage of an increasingly open and connected landscape, including using the data they have to gain valuable business insights.”

Calling on Government for a national Artificial Intelligence strategy

The survey highlights that Artificial Intelligence is set to revolutionise business beyond our imagination and the survey highlights that the Government has a key role to play. Over eight out of ten (82%) Irish financial services leaders reported that AI will significantly change the way they will do business in the next five years.

However, they lag their global counterparts where AI adoption is concerned. For example, 34% have no plans to pursue AI initiatives at present, compared to less than a quarter (23%) globally. AI and automation will have a profound impact on how we do business, how we work and how we live. Over half (54%) of Irish financial services leaders are of the view that AI will displace more jobs than it creates in the long run, compared to just over a third (37%) for international leaders. The survey highlights an important role for Government: 81% of Irish financial services CEOs are of the view that the Government needs to develop a national strategy and policies for AI including the expected impact on communities.

Key priorities – realising opportunities

The survey highlights that a variety of forces are putting tremendous pressure on the Irish financial services industry. Aside from the onslaught of technological change, keeping up with innovation, skills deficits, cyber threats as well as AI and data challenges, we see banks struggling to improve their return on capital, with many institutions continuing to restructure and cut costs.

Insurance companies are grappling with how to improve risk management. Our research also tells us that the asset management industry is facing downward pressure on margins and profitability.

PwC has identified five key priorities where financial firms can focus their efforts to realise opportunities and boost long term profitability and productivity:

1. Rethink change functions: 40% of global financial institutions are spending 20% of their entire budget on so-called ‘change-the-institution’ efforts. However, only 15% said that they were satisfied with their ability to execute change.

2. Prepare for the AI revolution: Irish financial services leaders lag their global counterparts in AI implementation. They need to understand how AI can be applied in their businesses and ensure they have the right talent, data and technology to exploit the opportunities AI can present.

3. Improve workforce digital IQ: 52% of Irish financial services leaders are of the view that AI will have a larger impact on the world than the internet revolution, but the lack of analytical skills is holding back progress. Upskilling on digital while getting the balance right between tasks performed by machines and humans and their collaboration will be key to future success for financial firms.

4. Bring an agile mindset to the mainstream: To keep up with leading incumbents and digital-only competitors, institutions need to recognise that they should employ productivity-boosting agile techniques while having a mindset that is open to change.

5. Embrace the ‘gig’ economy: We predict that the ‘gig’ employees will perform 15-20% of the work of a typical institution within 5 years. This translates into significant cost savings across the board along with the potential to improve the level of talent and innovation delivered from the employee base and is worth thinking about.

Dervla McCormack concluded: “There are clear opportunities for Ireland’s financial services industry to reach its potential, but the survey suggests that it needs continued transformation to achieve growth, increase productivity and bottom line gains. This will require embracing technology with the right mindset, while humans and machines work together in a fundamentally new way. To do this, the employees themselves must be ‘digital’ and organisations must better leverage the AI and data opportunities.