Global economic growth remained robust in 2007, but the outlook for the future is considerably less favourable than in recent years. According to the World Bank, Global GDP growth is now estimated to have slowed to 3.6% in 2007 from 3.9% in 2006, and is projected to moderate further to 3.3% in 2008. There is now greater uncertainty concerning the forecasts as downside risks to the global growth outlook have significantly increased and there is also a concern that financial market developments in the second half of 2007 could have exacerbated these risks.

The US economy showed signs of fragility towards the end of 2007 due to deteriorating credit quality in the housing markets and the problems in the financial market. In the first half of 2008, US consumer spending is slowing down as a result of lower mortgage equity withdrawal, tighter credit conditions and as variable-rate mortgages are reset at higher rates.

Higher inflationary pressures, weaker outlook for the US economy and more volatile financial markets have also contributed to a more vulnerable outlook for the UK economy and financial markets. According to the FSA, more difficult financial market conditions are likely to persist for some time, which increases the downside risks to firms and makes the financial sector more vulnerable to future shocks. There is a risk that credit conditions will tighten further, which would increase the existing pressures on consumers’ finances and spending.

As financial institutions look to the future, they are struggling to sustain growth in a world of fast-changing threats and opportunities. The choices that financial service providers are making every day will determine whether they will be able to exploit emerging opportunities, manage risks and gain a competitive advantage during this critical period.

While western financial institutions continue to reel from the credit crunch, Islamic banking, with assets approaching one trillion dollars, is growing at roughly 20% per annum. According to the IMF, in addition to its strong annual growth record of the past few years, Islamic finance is deemed to be in a stronger position to withstand global financial turbulence, luring investors to search assets not marred by the turmoil hitting other parts of financial markets.

One-stop-shop

Financial institutions wish to become a one-stop-shop for customers. Banks, securities firms and insurance companies are competing for the same customers with essentially the same products. Given this competitive landscape, it's no wonder that managing the customer relationship is a top priority in financial services.
These firms are forging deeper relationships with customers and striving to gain greater share of wallet and mind. The snag of such a strategy is ensuring that the necessary systems and applications are up and running at all times. When customers have numerous financial services options literally at their fingertips, there is little room for errors.

In addition to increasing the loyalty of their current customers, financial services firms must also continue to attract new clients. This will likely require face-time and meaningful human interactions. That said, people, processes and systems that a prospective client may come into contact with, such as a website or even a call center system for inquiries, have to be performing optimally.

Multinational companies face the daily challenge of tailoring their products not only to different needs but chiefly to different countries, cultures and traditions. As customers are up to four times more likely to buy in their native language, this involves adapting all the literature into the language of their target countries and providing a localised version of their services through every customer touch-point.

In this scenario, the winners will be organisations able to turn the challenges into opportunities to build effective customer relationships; improve process efficiency; foster talent and creativity; establish improved risk management processes to deliver more sustainable returns; and leverage new regulatory demands to catalyse the business and enhance market confidence.