The implications for financial service providers to adapt to evolving current factors and trends

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I am currently working as a trainee journalist for ITV and I have produced articles them and researched and provided production for the financial services in the UK. Word is getting around about my knowledge and understanding and the FCA has invited me to address its members. Following my research, I am now going to produce a report evaluating how changes might affect things like employment, products and marketing. I will evaluate the implications for financial service providers to adapt to evolving current factors and trends.

Demographics are likely to have impact on financial services provision. In the UK we have an ageing population problem and this has implications on the provision of pensions. Life expectancy for men is 78 and for women is 82. However, if you reach 65, it increases to 84 for men and 86 for women. Because we have an aging population it means people are living for much longer and puts strain on the government because they are forced to pay state pension which is £155.65 a week for a longer period of time. A change in demographics will change the provision of state pension. Before there was a big strain on the government because they were paying state pension for a long amount of time because people are living longer and there is an aging population. Because people are continuing to live longer and the life expectancy for men and women is constantly increasing the government were forced to increase the pensionable age.

Currently the pensionable age is 65 for men and 63 for women but in 2018 it will be 65 for both men and women and in 2020 it will increase to 66 for both. This means they are paying state pension for less time saving their resources. Increasing the pensionable age will effect employment. People in the UK will be expected to work for a longer period of time; this is good because you are now contributing to the pensionable fund which means you have more money in time to come. However, as you get older, health decreases. And therefore, there is less point in having all the money to spend. Furthermore, a change in demographics will impact products and marketing. Occupation pension is now being advertised on TV and is being made aware of it existence and importance. Employees are now encouraged to contribute to their occupational pension as the employer will be willing to contribute also.

Nature of work will also impact financial services. During a recession the unemployment levels increase because businesses are not doing well and not a large demand on goods and services which results in people becoming redundant. During this time people have less disposable income and as a result it means people don’t save a lot. This has direct impact on mortgages because people will struggle to pay off the mortgage repayments especially if they are unemployed; their property may get reprocessed. On the other hand, in a boom period, unemployment will be low and people will be have higher income allowing them to save more money. A change in the economy will change the nature of work.

If the economy is in a recession, businesses tend to struggle, more people are made redundant, and unemployment levels go up which means lots of people are not in a position to save or obtain a mortgages. In contrast, during a boom period, more people can afford to take out a mortgage because there are more people in employment, are earning more and have higher disposable income. This has a direct impact on products and marketing. At the moment the Bank of England rate is 0.5% which means interest earned is very low. This means that the older people who like to save money will not be benefiting as they will be getting interest rates of less than 1%. However, this means that some mortgage repayments are low and is staying the same. Therefore, the government have created a product for over 65s which is bond where they can put their money in and gain a higher amount of interest on money only if they do not touch it.

Moreover, financial inclusion will have an impact on financial service provision. Three million adults in the UK who currently don’t have access to banking facilities. As a result, this makes it difficult to pay people state pension. It is common to those without banking accounts live in remote areas where they may only have a post office. Therefore by upgrading the ICT at post offices, it meant that anyone could go to a post office and open an account and the government could then deposit things such as pensions into these accounts.

Changes in technology means that the majority of the three million without banking accounts now have them either at the post office and have online banking accounts. Due to the post office now having a range of different products they will need to have more employees to keep up with the demand. Post offices will be offering more retail banking services and will be widely used such as credit cards, mortgages, loans, savings accounts, foreign exchange or even issuance. As a result of the ICT upgraded customers can get banking facilities and have a large range of financial products. Other banks and building societies have impacted from the improvements of the post office and lose out on customers and income.

Furthermore, low inflation will have impact upon financial service provision. This has implications for endowment policies returns and retirement annuity rates; these policies can be linked to the rate of inflation which is currently 0.5% in the UK. If the rate is very low like it is currently, it means the monthly payments are not going to rise and therefore the returns will be fairly low in time to come. However, if the inflation rate is higher, the monthly payments will go up. If you pay more, the returns will be higher. The change in inflation will effect endowment rates policies and retirement annuity rates. If it increases your monthly payments will increase and will be good for you as you can then get a higher return in time to come. However, if the rate is low then you pay less and do not get a high return on your endowment policies and retirement annuity’s. These products are very good for the customer although if there’s low inflation then it will negatively affect the return.

As a result of technological developments we now have many goods and services that can be purchased online. For example, insurance, life insurance, loans, mortgages, credit cards, savings and investment products and much more. More businesses have online capability because it is easy and convent for the customer. Customers want to be able to purchase goods and services from the comfort of their home. Now, businesses have created databases where customer information is stored, they are then informed by email or post about what new financial products and services are available. Security within these sites have improved largely, people can now buy products with a lot of confidence; personal details are safe and there are many acts that protect customers online. A change of technological development will impact financial services. Over time technology will improve and more businesses will operate online and more financial products and services will be made online.

This will have a positive impact on customers as they will be able to do everything from the comfort of their home. However, this may reduce the amount of customers who go to physical banks and building societies for their products which may have a negative impact on their sales and income. Nevertheless, operating online will provide more job opportunities for a large number of people because offering services and products online needs specialised staff to make it all work; therefore there will be an increase of employment in the technological departments. Security may impact services and products online because they are the major target for hacking and therefore lots of money and time will need to be invested into these services to provide confidence that personal details are safe.

Additionally, distribution channels will influence financial services. We now have many high street retailers. For example, Tesco, marks and spencer, Sainsbury and Asda that are now all providing financial services and products. They have financial products such as savings products, loans, mortgages, insurance and credit cards. It isn’t only banks and building societies that can provide these products like it used to be. Furthermore, we also have online comparisons like go compare and compare the market. This allows you to compare and rate different places to find the cheapest options. The change in distribution channels will affect many factors in the financial services industry. More high street retailers will provide financial services for customers and current retailers will provide more products to customers.

This will have positive impacts on employment as more people will be recruited into businesses who start to sell financial products as they need people who are specialised in these areas in order to sell them. New financial services and products are being advertised online and on the TV to make sure that everybody knows of their new services which will encourage new customers to go to new retailers for their financial services and products to seek better deals. Although being great for new retailers who start providing these services and products it is has negative impacts on banks and building societies. More businesses will be going to new retailers and thus reducing the customer’s banks and building societies get and therefore reduce their income and profits.

There are many new innovated new products that are available to customers such as virgin who have a virgin one account which is an integrated current account, savings account and mortgage account all in one. Another integrated product is a buy-to-let mortgages which allow you to take a mortgage but to rent it out to other people, this is a good investment opportunity. Deferred credit arrangements is also another new products which allows you to purchase the product now but pay for it later. Lastly, 0% APR finance means that if you get finance for an expensive product you do not get any interest. Everyday more new and innovated products are introduced into the market. This will increase employment as more people will need to work on these new products. However, this will increase competition between banks, building societies and retailers which over time may be negative for those who cannot keep up with the constant competition. Those who do keep up with the competition will do very well and increase their sales. Additionally, it will benefit customers as they will have a large range of different products that they can pick from and will help them pick the best deals.

Lastly, the credit crunch has impact upon financial service provision over the next five years. The credit crunch started in the USA and banks were providing loans and mortgages to unreliable borrowers who has low credit history and income and they couldn’t pay is back. The government had to then pay the banks out with tax payer’s money. The state of the economy will effect financial services. If there is a boom period more people will want to save money and take out loans and mortgages however after the credit crunch, it will be hard to obtain one. Customers will need to go through many checks to ensure that they will be able to repay the bank in the future and many banks may decline loans or mortgages and so that the banks and building societies are not in danger of a similar issue like the credit crunch. This may negatively affect banks and building societies because many customers may be put off by the many checks on their accounts but perhaps it’s better because the extra checks will reduce the risk on the banks and building societies which is good.

In conclusion, there are many factors and trends likely to impact upon financial services provision over the next five years in the form of demographics, nature of work, financial inclusion, low inflation, technological developments, distribution channels, innovation and new products and lastly the credit crunch.

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