The flood of new entrants into the financial services sector is creating a ‘race to the middle’, putting companies under pressure to be all things to all people, argues CoreData.
An opinion piece by CoreData Research has identified five significant trends within the financial services space.
First, “everyone” is now entering financial services – from News Limited to Coles – and companies are using their existing relationships with customers to “monetise them by providing financial services”, CoreData said.
News Limited in particular has launched Bright Day, which will sell indexed investment products to subscribers via OneVue.
“There are others in the wings too, but the ones that we know about are all focused on businesses which have intimate digital relationships, deep pockets and the desire to stretch their brand into new spaces,” CoreData said.
Second, there is a race to the middle in the sector as “businesses which offer anything” start to replace traditional banks, superannuation companies and insurance companies.
“By the end of 2015 it will be normal for Australian super funds to offer other financial services products, ranging from credit cards to home loans.
“What is interesting is that they are planning not just to use their existing digital relationships to do this – or to market them via websites – but to use their distribution teams via work place visits and financial planners,” CoreData said.
Third, the trend towards ‘one-stop shops’ is causing the pricing within the industry to shift, with new players entering at the “bottom of the price curve” said CoreData.
“In some of the test bundles we have seen proposed, things like a balanced super fund will be free if the member has enough other products which is going to start to push pricing down,” CoreData said.
There is also a “broad realisation” that superannuation funds are failing to take advantage of their scale, which will see the cost of Australian super funds and banks to be “deeply scrutinised”, it said.
Finally, banks are under margin pressure within their wealth businesses and they are likely to begin selling off their non-core assets, CoreData said.
“If you are one of Australia’s big four and you are facing margin squeeze, then a fast way to release capital is to get rid of those assets that don’t have the yield profile you want, have a longer payback period or damage your brand,” it said.
“Right now there must be teams of people running around Australia’s big four examining all their businesses and asking which of these can they can get away in a trade sale, or float separately or simply reabsorb into the main businesses,” CoreData said.
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