Financial services companies plan to expand their credit, asset management, and insurance capabilities over the next year, according to a study released Tuesday by PricewaterhouseCoopers.
"There is a renewed interested in consumers rather than private banking customers and the wealthy," said Nigel Vooght, a partner in the global accounting firm PricewaterhouseCoopers and its financial services industry leader. "There is a great interest in the mass market."
Growth from this source could mean companies will expand what they offer and look for expansion opportunities overseas, he said. A lot of interest exists in expanding the products and services offered to consumers, he said, including credit, asset management, and investment products.
According to the survey, 89% of the companies overall will look first to organic expansion, but Mr. Vooght said only 10% of overall growth will come from this source. Companies will look for alliances, joint ventures, mergers, and acquisitions when organic growth does not satisfy their growth expectations, he added.
"A third of respondents thought these broad targets for growth were unrealistic through purely organic channels," Mr. Vooght said.
Geoffrey Bobroff, an East Greenwich, R.I., analyst, agreed that any expectation for fast growth generated purely organically is too optimistic. "Firms will have to break new ground or strike out in new directions in order to grow," he said.
Mr. Bobroff said he expects some merger and acquisition activity in the next 12 months as financial services companies look to broaden their investment product menus. In the past six to eight months, he said, there has been significant interest from companies looking to buy hedge funds and other alternative investment strategies.
"I would suspect that there will be M&A activity as it relates to the asset management business," Mr. Bobroff said. "I think we have seen some of this, and I expect it will continue."
The study said that 40% of the 201 large-company financial executives interviewed expect growth from alliances and joint ventures, 28% from mergers and acquisitions, 27% from outsourcing services, and 6% from corporate venturing.
For banks, Mr. Vooght said, this would mean a lot of new opportunities for lending. "I think the economic environment will lead to more lending both to individuals and to business," he said. "I think we will see financial services firms more willing to use commercial lending in order to help them grow."
For companies to reach their growth goals, entering new markets must be considered, he said, and there are many opportunities to expand in countries such as Brazil, Russia, India, China, and Korea. Companies cannot just open an office and expect to succeed, however.
"Firms have to be innovative to succeed in a new market," he said. "In order to be successful, a firm has to enter a new market and raise the barrier of entry for other firms looking to go into this market."
Rahoul Chowdry, the global banking and capital markets assurance leader at Pricewaterhouse Coopers, said financial services companies that do business in India have grown 7% to 9% annually in the last four or five years but that he expects 16% compounded annual growth for them the next 10 to 20 years. Rapid growth in the middle class and in the young segment of the population will support growth in India, he said. "This new generation is more comfortable using credit," he said.
Mr. Bobroff said that there may be growth opportunities but he is skeptical.
"It is important that there is growth potential, but our friends at PricewaterhouseCoopers are becoming too optimistic in the marketplace," he said. "From a consulting standpoint, I am sure that this is encouraging to their client base, but I just don't know how accurate it is."
Many financial services companies are still desperately looking to save money by cutting costs, Mr. Bobroff said, and on the other hand, look to reduce commissions in order to keep customers.
Mr. Vooght said regulation is among the barriers for companies looking to grow. Some are still wary about taking a risk and expanding into other areas, he said.
