Spending by financial services companies on improving customer interfaces may be coming at the expense of investment in crucial back office IT systems, suggests research by Pinsent Masons, the international law firm.

Just 2% of financial services companies surveyed have prioritised investment in back office technology over the last three years, whilst 77% have prioritised investment in enhancing customer experience.

FCA research shows the number of IT failures at UK financial services companies has increased 138% over the last year alone to 600. 

MPs have also been vocal in urging financial services companies to invest more in back office technology in order to better protect consumers. The call came as part of the launch of an inquiry by HM Treasury into IT failures in the financial services sector last month. 

Pinsent Masons explains that investing in back office technology is vital in reducing the risk of operational incidents, such as systems failures and data breaches. 

Alexis Roberts, Head of Financial Services and Partner at Pinsent Masons, says: “Financial services companies can be seriously undermined by underinvestment in the back office.”

“The race to capture market share through customer friendly technology is, understandably, very important but that shouldn’t be at the expense of essential architecture.” 

Only 3% of companies see investor feedback as important to growth

The research reveals that only 3% of financial services companies see investor feedback as important for growth over the next three years, down from 7% over the past three years (see graph). The low level of importance businesses place on investor/co-owner feedback is very surprising.

Pinsent Masons says the research also shows financial services companies now see acquiring IP or new technologies as the most important objective of M&A activity, more so than increasing market share or expanding into new product lines (see graph).

Over the next three years, 70% of financial services see acquiring new technologies as the most important objective of M&A activity, up from 58% over the past three years. Meanwhile, only 46% see increasing market share as the most important, down from 50%. 

Alexis Roberts adds: “Effectively harnessing the power of technology is key for M&A activity and organic growth amongst financial services companies. This is true across the entire financial services sector - not just fintech and insurtech.”

“Technology continues to render more traditional M&A objectives, such as increasing market share or expanding into new geographies, as much less important. In crowded markets, financial services companies that fall behind in developing and using technology will find it difficult to keep up.” 

“Although M&A remains a popular method for growth, we are increasingly seeing financial services companies enter into alliances and joint ventures which give them exposure to new technologies without the same commitment as M&A.”

Methodology

The lists were produced by Mergermarket from a variety of public sources of information and company databases. Growth rates were calculated based on turnover reported in accounts for the past three years and, to be eligible for inclusion, companies had to have shown growth in each of the previous two years. There was a minimum turnover threshold for inclusion based on the most recent set of accounts: €50 million for AMT, financial services and infrastructure. For energy, the threshold was €30 million.