Financial Services Firms in Asia-Pacific Most Pessimistic About Outlook For Growth

Less than half (41 percent) of financial services firms in Asia-Pacific are confident about hitting their growth targets for the next 12 months, while one-third are pessimistic about their prospects, according to the latest report The Hunt for Growth Across Asia Pacific from FIS.

Asia-Pacific firms are less bullish in this regard than their peers in Europe and North America, where more half of the institutions surveyed are optimistic.

Acquiring new clients is the most important focus for Asia-Pacific institutions, with 49 percent citing this as one of their top three growth objectives for the next 12 months. This reflects the drive for top-line growth.

In addition, Asia-Pacific institutions cite improving their operating margins as a key priority for the next 12 months, with 47 percent of firms selecting it as one of their top three growth objectives.

Firms in Asia-Pacific are also the most likely to be considering M&A activity, with 29 percent citing this as a growth objective for the year ahead, versus 24 percent and 23 percent in North America and Europe respectively.

Resilience amid monetary policy and regulatory pressure

More than half (51 percent) of firms in Asia-Pacific say the economic outlook in their key markets represents a growth opportunity over the next three to five years.

Firms in the region are more likely to view government spending (cited by 36 percent of respondents) as a growth opportunity than those in North America and Europe.

However, as they pursue these opportunities, 63 percent say regulation will remain a significant hindrance, compared to just 53 percent of North American firms that say this. In addition, firms in the region are more concerned about the threat posed by monetary policy: 33 percent say that interest rates pose a threat, versus just 17 percent in North America and Europe that say the same.

Further, 30 percent are concerned by the threat of disruptive new market entrants such as fintech start-ups and Alibaba, underlining the need to pay sufficient attention to digital innovation.

As in other regions, large numbers of Asia-Pacific firms fear they lack the capabilities to fully realize their growth ambitions.

Some 50 percent say their current technological capabilities are not strong enough to fully support their growth plans, while 55 percent say the same about their operational capabilities.

Strengthening automation

Asia-Pacific firms are less advanced than those in North America when it comes to automation of trading: just 35 percent of buy-side firms have reached near-full or full automation, compared to 52 percent in North America. And only 32 percent of sell- side firms believe they have reached this level, compared to 64 percent in North America.

In three to five years’ time, however, 62 percent of Asia-Pacific firms expect to have highly automated trade execution, putting them on a par with North American firms (61 percent).

Asia-Pacific firms also anticipate significant leaps forward on automation over the next three to five years in areas such as risk management, where 67 percent of firms expect to be near-fully or fully automated, versus 38 percent today, and reconciliation, where 45 percent have reached high levels today but 66 percent expect to do so in three to five years’ time.

Mastering data management

Asia-Pacific firms are lagging European and North American counterparts on data management.

Just over half (55 percent) of Asia-Pacific firms say they are effective at unifying data across their organizations, compared to 59 percent and 69 percent in Europe and North America respectively.

There is also some catching up to do on big data capabilities: 54 percent say they are effective at using external, unstructured data to help drive decision-making, but 56 percent in Europe and 67percent in North America say the same.

Asia-Pacific firms have begun to put their data to work: 56 percent can visualize and simplify complex data for decision-making purposes, while 57 percent are employing predictive analytics tools. In both cases, however, Asia-Pacific firms lag those in Europe and, particularly, North America. As they seek to develop their capabilities, we may see talent gravitating from the more developed regions toward Asia-Pacific.

Embracing emerging technologies

While Asia-Pacific firms slightly lag those in North America and Europe when it comes to deploying live AI and blockchain solutions, there are a substantial number of firms now developing these technologies.

The survey shows that  30 percent of Asia-Pacific firms say they are piloting AI solutions. Performance analytics (44 percent), market data management (40 percent) and risk management (37 percent) are the main applications being explored.

When it comes to blockchain, 25 percent are now piloting solutions, with collateral management (45 percent), and clearing and settlement (36 percent) the major areas of focus.

Expediting digital innovation

Like their peers in other regions, Asia-Pacific businesses are attempting various approaches to kickstart digital innovation: 31 percent say they have tried to encourage a more open innovation culture over the past 12 months, while 30 percent have recruited digital technology expertise.

Many firms are looking beyond their businesses: 28 percent have collaborated with third parties they consider innovative, though this is fewer than in North America, where the fintech sector is more mature.

Asia-Pacific firms intend to pursue this drive in earnest over the next 12 months, but barriers to innovation persist. Cyber security risk (cited by 28 percent) is the most commonly cited barrier in the region, followed by complex legacy IT systems (26 percent).

These are similar to the problems seen in other regions, but lack of available investment capital is a particular issue in Asia-Pacific; it’s cited by 21 percent of firms there, but by only one in 10 firms in Europe and North America.

Rethinking the talent mix

Asia-Pacific firms consider themselves less forward-looking when it comes to disruptive technologies and new business models than their counterparts in other regions: only 56 percent say they are strong at this, compared to 65 percent of North American firms.

Firms in the region are acutely aware of the digital skills they must recruit to drive growth in an increasingly competitive and data-driven marketplace in the years ahead.

Digital transformation skills (cited by 64 percent of institutions) are the top priority, alongside digital distribution expertise (62 percent) are perceived as important or very important enablers of growth.

However, only 55 percent of Asia-Pacific firms see their in-house talent as good or quite good in these key areas, while the figure falls to 43 percent for big data skills. 

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