Do Financial Companies Know Their Information Balance Sheet?

  Do Financial Companies Know Their Information Balance Sheet?

  *Information Businesses Linked to US Banking Could Have Higher Market
    Capitalization Than US Banks by 2020

  *All Financial Services Firms Can Drive Long-Term Prosperity by Monetizing
    Their Information Assets

Business Wire

NEW YORK -- January 23, 2013

According to global management consultancy Oliver Wyman, the value in
financial services is quickly shifting from balance sheets and physical
distribution to information. This trend is occurring globally, but is perhaps
most easily observable in US banking. There, information businesses related to
banking such as independent payment networks, credit bureaus, ratings
agencies, exchanges, and data providers, among others, may be more valuable
than the industry’s traditional balance-sheet based businesses by the end of
the decade. Oliver Wyman’s annual State of the Financial Services Industry
2013 report titled, A Money and Information Business, finds that most
financial services companies have an opportunity to become information-driven
companies that grow and monetize their information assets. Firms that exploit
this opportunity will find areas to prosper even in the face of challenging
macroeconomic conditions and regulatory uncertainty. On the other hand, firms
that fail to identify how the evolving information landscape is affecting
their business could suffer from a similar kind of disruptive change witnessed
by the travel, media, telecommunications and music industries.

Banks and insurers continue to control a unique and extraordinarily valuable
array of information assets. The 16th annual Oliver Wyman report finds that
once a firm understands its information assets and how the evolving financial
services information landscape can help monetize those information assets or
threaten them, it can build what Oliver Wyman calls the “information balance
sheet”.

“We conceived the idea of the information balance sheet as a mechanism by
which executives can begin to get a grasp on their information assets,
exposures, opportunities and threats. In short, it provides a framework to
understand the aggregate impact of information and inform on how changes in
information are going to change and affect earnings, as well as prioritize
potential investments in information,” said Aaron Fine, Partner at Oliver
Wyman and primary author of the report.

Other key findings of the report include:

  *“Coopetition” between traditional financial services companies and
    information companies may be among the most dynamic forces in financial
    services going forward, bringing together the complementary strengths and
    weaknesses of partnering firms. Such partnerships can produce significant
    tactical earnings opportunities in short periods of time.

  *Digitalization and the free flow of information have given clients in many
    areas a clearer view of the cost associated with each component of what
    used to be bundled services and the opportunity to be more selective in
    their spending.
  *“Information shocks”, defined as changes in firm, competitor or client
    information-related behaviour that have a significant impact on earnings,
    may affect earnings as much as interest rate shocks and other
    macroeconomic factors. An example of an information shock: clients
    becoming more price elastic as the information environment evolves.
  *Long-term success in using information depends not on the number of “hits”
    but on the size of the “misses”. Firms that hope to be successful must
    establish strong controls that ensure they avoid critical mistakes.

“‘Money’ is a value business, ‘information’ is a growth business. The value of
money has never been lower and so financial services firms that define
themselves by their monetary balance sheet will struggle to grow. Those that
instead define themselves by the growth potential of their information have a
very different future,” said Fine.

Key exhibits from the report include:

  *Market Capitalization of US Banks vs. Bank-Related Information Businesses
  *The Rise of Information
  *The Shifting Balance of Money and Information
  *Impact of the Changing Value of Information and Money on Financial
    Services Margins
  *The Economy Viewed Through Financial Services Data
  *Potential Information Opportunities from Consumer Deposit and Payment Data
  *Information Opportunities Across Financial Services
  *Strategic Threat #1-Cooperation with Information Companies Reduces
    Barriers to Entry and Opens the Door to Greater Competition
  *The Global Financial Services Information Company Landscape
  *Strategic Threat #2-Value Migration from Traditional Players to
    Information-Driven Companies (Global Telecom)
  *The Information Balance Sheet (for an Illustrative Firm)
  *Information Tactics Archetypes
  *Information-Driven Banking and Insurance – Example: Advanced SME Lending &
    Support

The Oliver Wyman State of the Financial Services Industry 2013 report is
available at:
http://www.oliverwyman.com/state-of-financial-services-2013.htm .

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 50+
cities across 25 countries, Oliver Wyman combines deep industry knowledge with
specialized expertise in strategy, operations, risk management, and
organization transformation. The firm's 3,000 professionals help clients
optimize their business, improve their operations and risk profile, and
accelerate their organizational performance to seize the most attractive
opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan
Companies (NYSE: MMC). For more information, visit www.oliverwyman.com.Follow
Oliver Wyman on Twitter @OliverWyman.

Contact:

Oliver Wyman
Jung Kim, 646-364-8355
jung.kim@oliverwyman.com
 
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