Professional & Financial Services
Industry Overview
Australia’s financial services sector is the largest contributor to the national economy, contributing around USD 101.27 billion to GDP over the last year. It has been a major driver of economic growth and, with 450,000 people employed, it will continue to be a core sector of Australia’s economy into the future.
The financial services sector provides financial services to people and corporations. This segment of the economy is made up of a variety of financial firms including banks, investment houses, lenders, finance companies, real estate brokers, and insurance companies.
The Australian Trade and Investment Commission notes that the “professional service sector is an important contributor to the Australian economy both in terms of employment and productivity improvement.”
Market Size
The Professional Services subdivision has been moderately affected by the COVID-19 pandemic. Subdivision revenue is expected to decline by 10% in 2019-20. However, revenue is forecast to rise by 0.3% in the current year, as economic activity begins to recover.
The Australia Professional Services market size is expected to reach USD 173 billion.
Highly developed financial markets make Australia one of the major centres of capital markets activity in Asia. Underpinning much of Australia’s financial services strength is the growth of its investment funds sector.
Australia has one of the largest pools of contestable funds under management globally, valued at about A$1.3 trillion (US$850 billion).
Facts and figures
The government has passed legislation that has progressively reduced the withholding tax rate on specified distributions from managed funds making it one of the most competitive in the world today. The government has commenced a major review of Australia’s tax system, recognising the importance of taxation for our international competitiveness generally, and for the competitiveness of the financial services sector.
Australia's asset-based finance and leasing industry is a dynamic part of the country's financing market with equipment leasing facilitating approximately 40% of the nation's equipment capital expenditure.
- The market has attracted a range of global and domestic competitors offering the full range of products including asset-backed debt financing, operating and finance leases, vendor finance, and structured finance for large assets such as aircraft and industrial equipment.
Maroc-trends affecting financial services.
Forecast five-year NPAT growth versus disruption, by product.
Trends
Technology Focused.
Younger users are demanding more tech from financial services providers, including personalised services and they expect numerous digital touchpoints to access data anytime and from anywhere, either from their phone, laptop or face-to-face. The pandemic has made the importance of digital access even more important and accelerated demand from older users as well.
- Millennials are fast becoming the most dominant segment of the workforce. By 2025, they are expected to comprise 75% of the Australian workforce.
Banking Strategic Focus and Technology Focus
For financial services, technology is a catalyst that is transforming the industry. To provide the services consumers demand and expect today, technology needs to play a significant role.
Banks have accelerated their investment in digitalisation, which in turn puts more pressure on wealth managers and other financial services firms to follow suit. That will continue to play out next year and beyond.
Implement robust data ownership and cybersecurity protocols
Collecting and analysing the data is just half the challenge; securing that data is another vital task. COVID-19 has shone a light on cybersecurity as numerous financial services firms, businesses and organisations have dealt with a huge uptick in cybercrime.
Cybercrime costs businesses and organisations a staggering $11.4 million each minute.
To keep valuable data secure, financial services firms need to implement robust protocols around data ownership and cybersecurity. That also includes checking on the security measures at software vendors.
Integrate a delivery of services through an ecosystem of partners
Expect fintech firms along with technology providers to make further inroads into financial services.
- For instance, Amazon now offers a range of financial services including, but not limited to, Amazon Pay, Amazon Cash, and Amazon Lending.
- In China, Ant Group, an affiliate of Chinese tech giant Alibaba, has a full ecosystem of financial services.
This doesn’t mean financial services firms need to go it alone. Partnerships between financial firms, financial management vendors, and fintech are increasingly enabling a seamless array of services that offer value.
There are benefits to fintech and financial services working together in the cloud. By adopting technology, financial services firms can provide more holistic services.
- For instance, Wealth advisors can offer more than just financial advice and a focus on ROI. Advisors can better support clients’ personal goals and lifestyles, as well as connect clients with experts for specific financial and non-financial needs.
Automate processes and reporting
Automating repetitive manual tasks frees up staff to do more strategic work. Surprisingly, much work in financial services is still manual.
- Up to 40% of work in a family office or wealth management firm revolves around aggregating and collecting historical data.
- It’s estimated that 95% of that work can be automated.
Minimising manual tasks enables firms to be more strategic and deliver higher value with better insights. It also helps them gain better knowledge of their clients, and proactively provide more strategic advice/services to them.
Embrace data
Big data is more accessible than ever. The widespread adoption of cloud computing makes it relatively easy for financial services firms to use powerful analytical tools, without having to add new infrastructure or staff.
More and more firms are jumping in gathering and aggregating data, using data analysis, AI, and predictive analytics to gather insights and make strategic decisions based on data.
COVID-19 has highlighted the importance of accurate and updated data as financial firms both large and small scrambled to plan for an uncertain outlook using cash flow simulations and financial modelling.
Firms also examined financial data to find potential areas of concern, as well as cost savings, and to thereby come up with a plan to adapt. To do this, financial services firms are providing key stakeholders secure, easy access to financial performance data in real-time.
Risks
Cyber risk
Cyber risk in the form of data theft, compromised accounts, destroyed files, or disabled or degraded systems.
Financial institutions face risk from misalignment between business and IT strategies, management decisions that increase the cost and complexity of the IT environment, and insufficient or mismatched talent.
Implementing the new technologies also the adaption of new technology needs highly skilled experts.
Another issue is standing out in a crowded marketplace, as more and more people are entering this field each year. Each business and individual have a significant amount of competition to go up against.
Cash flow
Cash flow is often a struggle because clients take too long to make payments, or don’t finalise bills at all.
Diversification
Diversification is also becoming a risk in recent times, for example, companies like Deloitte, KPMG, and PwC are selling services in more fields than ever before. These corporations are using their big budgets and well-known names to land clients, taking work away from smaller, more specialised firms.
Macroeconomic Risks
These risks are likely to affect the organisation’s growth opportunities like:
- Regulatory Changes,
- An unexpected change in current interest rates.
Strategic Risks
These risks may affect the validity of its strategy for pursuing growth opportunities like:
- The rapid speed of growth in disruptive innovations which are enabled by new or existing technologies.
- Executing the new strategies into the organisation.
Operational Risks
These operational risks might affect the key operations of the organisation in executing the strategy.
- In meeting up the requirements in terms of quality, time guidelines, and latest technology adoptions.
- Changing the business model.
Risks in financial services.
Conclusion
Technological involvement has played a significant role in ease the process of using financial services which positively impacted the financial services industry.
The financial services industry is still adjusting to the Financial Services Reform regime, which commenced on 11 March 2002. The adjustment will continue over the next two years while financial service providers transition from their current regulatory regimes into the Financial Services Reform regime.
Further changes and any further regulatory burdens must be justified, their impact on business large and small considered, and the wide range of services and products covered by the new regime carefully assessed.
Australia has a strong capability in business management services and the industry has grown in recent years mainly due to many companies outsourcing business management services.
Risk Outlook:
Emerging risks that will impact your organisation.
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