Financial services to benefit from tech disruption

Technological disruption is set to be a major benefit for incumbents in the services sector, according to a new report from global asset manager PGIM.

PGIM highlighted the potential for market leaders in financial services to widen their moats against upstart competitors as a range of disruptors expand the accessible market for financial firms.

Neobanks pose “no threat” to major financial institutions, according to PGIM, since they target “unbanked and disengaged” parts of the market in contrast to the focus of traditional banks on prime consumer and business lending clients.

Despite the threats posed by robo-advisers, PGIM noted that they “have not vanquished” traditional wealth managers, who have instead been able to successfully integrate automated models into their businesses.

PGIM is confident that the disruption witnessed across healthcare, finance and logistics will propel technology-forward market leaders to new heights, rather than leave the trail of destruction seen in retail and manufacturing.

The global investment manager, with some US$1.5 trillion in assets under management, pointed to high infrastructure costs, sticky client bases and heavy regulation in these industries as key factors behind this prediction.

“The COVID-19 pandemic accelerated the development and deployment of new technologies that are radically reshaping winners and losers across the services sector in both developed and emerging markets,” said Taimur Hyat, chief operating officer at PGIM.

“At PGIM, we believe long-term investors can get ahead of this transformational phase in the services sector by actively positioning their portfolios to capture the investment opportunities and mitigate the risks from this impending wave of technology-driven disruption.”

However, Mr Hyat noted that certain disruptive technologies will not arrive as soon as some may expect.

“The hype around innovations like blockchain and autonomous vehicles is way ahead of today’s investable reality,” he said.

“Not all these changes will happen tomorrow — and the long sunset will provide opportunities for investors who can identify the transitional opportunities.”

In its report, PGIM said that institutional investors should consider “tangible investment opportunities” such as “private blockchains and infrastructure for greener and smarter vehicles” as the evolving technologies mature.

The report was based on the insights of over 70 investment professionals from PGIM’s fixed income, equity, real estate, private credit and alternatives managers as well as leading academics, technologists, industry analysts and venture investors.

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.