A new report by TrustQuay is predicting faster consolidation of the fragmented corporate services, trust and fund administration industry in the next two years.
The Future Focus Report is based on a survey of 90 industry representatives, wealth managers, private banks and family offices.
It reflects perceptions of a rapidly changing industry in which firms need to digitally transform their business models to adapt to a new environment of increasing consolidation and to meet the rising demands from regulators and end clients.
While more than four-fifths of respondents say the industry is undergoing unprecedented change, 59% see consolidation increasing in the next 24 months.
About 41% of those surveyed said they expect their own firms to increase merger-and-acquisitions activity during that time.
This is going to lead to ever-greater polarisation between global players and niche specialists, according to three out of four survey participants.
Keith Hale, executive chairman of TrustQuay, said in a press release this development cannot be underestimated.
“Our prediction is that in the next five years the industry will shrink from thousands of players to hundreds, coalescing around a small group of global players, alongside specialist firms who focus on a specific niche market or product offering,” Hale said. “As a consequence, the current middle tier of providers will be squeezed into one camp or the other.”
Compared to many industries – even those within financial services – the corporate services, trust and fund administration sector lags far behind in terms of digitalisation, often still relying on highly manual and labour-intensive working practices, the report found.
Industry players ranked the progress the industry has made in terms of digitalisation as only five out of 10. Two-thirds of respondents rated their own firms as low as six or less, with a quarter rating themselves below five on the digitalisation scale.
Nine out of 10 think firms need to digitalise their business models to remain competitive.
“Digital transformation is a real challenge but will become a key enabler for firms to provide levels of service efficiently and a high-quality digital customer experience,” Hale said. “The industry digital offerings currently lag far behind other sectors and so the pressure is on to digitally transform in a much more compressed time frame than has happened in other sectors of financial services.”
According to the survey results, the top three areas of innovation over the next five years are automating workflows, moving to the cloud and implementing client portals.
Hale said, “One area where we expect to see a rapid increase is the roll-out of interactive client portals as part of corporate service and trust digital offerings. These portals should provide end clients with a secure but intuitive window onto all the rich data the service providers already have in the core system or systems.”
This comes largely in response to client demand with two out of three respondents saying their clients want a greater digital experience, and 69% of firms now plan to digitalise their business and client engagement in the next two years.
“With the ever-increasing demands of digital-native clients, it is impossible to think that those firms who don’t provide this access will have viable and competitive business models 5 years from now,” Hale said.
In addition, 94% of those surveyed felt that regulatory requirements have been continually tightening since the global financial crisis. Combined with a drive for transparency, this environment has constantly increased the regulatory and compliance burden on firms.
In response to these challenges, 94% of those surveyed felt that technological innovation within the industry needs to accelerate.
“Despite the challenges, this time of unprecedented change can be a great opportunity for those firms who are able to successfully adapt to change,” TrustQuay’s executive chairman noted.
“But firms need to act now – in five years’ time the successful firms will have already digitally transformed and the industry will look back at 2020 as a turning point for the future growth and opportunities in corporate services, trust and fund administration,” he said.