Discussing the role of private equity in the financial services sector.
Recovery is the new normal for today’s global banking industry. Although most banks are much healthier than they were in 2008, the industry is still faced with an uncertain global economy, low interest rates, increased regulation, activist investors and disruptors like FinTech, to name a few. In this challenging environment, Private Capital plays an increasingly important role, whether in the form of PE firms, loan purchasing, venture capital investing, lending by insurers or direct lending through debt funds. Private capital firms are buying up bank debt, acquiring banking businesses, entering markets where regulations discourage bank lending, and investing in payment platforms and other FinTech challengers. At the same time, banks and Private Capital firms are forming new partnerships and joint ventures in areas such as credit card services, asset management, collection platforms or custody. As banks continue to evolve their business models, Private Capital will influence what a bank looks like in terms of structure, offerings and interaction with customers.
Almost a decade later, the aftershocks of the financial crisis continue to be felt. Many banks are in much better shape after layoffs, penalty payments, and restructuring. However, banks still face a growing regulatory burden, low interest rates, slow economic growth rates, low commodity prices, and increased uncertainty in emerging markets such as China. Compounding these issues are new disruptors such as activist investors demanding greater performance and return on equity (ROE) from banks.
The development of financial technology or FinTech is a good example of today’s rapidly evolving relationship between banks and Private Capital. Investors are being drawn to the potential of FinTech – not only as a disruptor to big banks, but also as an enabler for big banks to kick-start their own innovation so they can improve services, reduce costs and support growth, transforming their traditional business models at the same time.