The news media are predicting that Australia’s financial services sector will have a $200 billion market share fall by 2019.
The industry is set to lose out to the likes of Citigroup, J.P. Morgan and Morgan Stanley, with a $400 billion market cap, according to research from research firm IDC.
The market has been shrinking in recent years, with the median size of the Australian banks being cut from $7.5 trillion to $5.4 trillion in the space of four years.
But analysts believe this will be the beginning of the end.
The report, released by IDC on Monday, predicts that by 2019, the market will be down to $600 billion, with most of that falling into the category of non-financial companies.
The majority of the fall will come from non-banks, with some of the biggest losses coming from financial institutions.
The key to the loss of the market, the report argues, will be in the category that has the most customers, and that will be dominated by non-corporate businesses such as banks, insurers and real estate.
For those companies, IDC says, there is “a substantial risk that their business model is in the process of collapsing.”
But analysts say there is another group of companies which have much less scope to change.
They are the smaller, less profitable, and less innovative firms which will be hardest hit.
Credit:IDC The first major step in that process, the IDC report predicts, will occur when the big three banks, which are still the largest financial services companies, merge in 2019.
This will see the collapse of the large, non-bank firms.
“The first major decline in the share of nonfinancial firms will occur from 2019 onwards,” the report says.
The reason, the analysts say, is that the big banks are the ones that will lose most of the non-cash transactions that they carry out.
This is a key component of the IDCP’s business model.
“Non-financial businesses in Australia will likely experience a significant decline in market share over the next three to five years, and are likely to be largely wiped out by the consolidation of the financial services industry,” IDC’s Mark Williams said in a statement.
“In contrast, the banking sector will likely see a large boost in market shares.”
Banks in the non bank sector will still make up the majority of financial transactions.
This could mean that some of those transactions will be carried out by big banks, as well as smaller financial services firms, as the market is still fragmented.
The big banks will be left with more customers and more cash to carry out their transactions.
However, the impact of the merger will be on the smaller firms, which will suffer.
IDC predicts that the financial sector will continue to lose market share for a decade.
It said the financial industry will see a $160 billion drop in market value by 2019 while the smaller non-finance firms will lose about $150 billion.
In the end, Williams said, the financial market will continue as a “dramatic drag on growth” and “an unsustainable level of debt”.
The report said there were still opportunities for the financial system to grow in the long term.
“Our report suggests that the banking system may grow at the rate of 3 per cent in 2019, and by 7 per cent over the coming five years,” he said.
“We think the banks’ consolidation will result in a net gain in the financial markets by 2019 of around $40 billion.”