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Structural Shifts and Challenges Seen for Securities Industry Service Providers

A report by McKinsey forecasts industry compression and increasing pressure from Fintech firms for securities industry service providers. The sector has been stable with annual revenue growth of around 3 percent since 2010 but has begun to undergo a major structural change, the report said. “Firms are feeling pressure on their revenues from tighter regulation, and on costs, due to asset manager clients’ concerns over their own bottom lines and profitability.” The report predicts that over the next five years top-line growth will remain moderate, but “market structure and the balance of power among firms will shift, driven in large part by technological innovation.” The authors suggest that heavy investments in advanced analytics, automation and robotics, among other innovations could be key to firms’ success and that firms that fail to respond to these shifts will be left behind. The report also notes that distributed ledger technology, or blockchain, will have an impact on service providers although not in the near term. “Full disruption would require coordination and broad acceptance among firms that are traditionally competitors, as well as among other key players such as broker-dealers, investors, and regulators,” the report noted. DTCC  and BNP Paribas are among firms which recently halted blockchain projects for reasons that included lack of industry readiness and cost, Reuters reported.