Risk-Management : Risk Assessment : Information Assets :
Do You Know Your 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
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 Oliver Wyman State of the Financial Services Industry 2013 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
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].