The wholesale side of the financial services industry—mergers and acquisitions advice, foreign exchange, and the trading and underwriting of derivatives, bonds, and equities—is among the most global businesses in the world today. But the other side of the industry, personal financial services (PFS), is still largely a local game. This sector, which includes life and accident insurance, retail banking and brokerage, investment management, and payments, is dominated by local operators with local brands that command strong customer relationships and, more often than not, regulatory protection from incursion by outsiders.
All this is changing, however. The rapidly growing PFS industry is subject to the same forces transforming other areas of the world’s economy. Technological innovation is sharply cutting its interaction costs, which make up more than half of the total cost of PFS in developed markets.1 Global capital markets are integrating. Trade and capital accounts are liberalizing. And despite recent financial crises, the economies of many emerging countries have produced a growing middle class that represents a large new market for PFS products.
So PFS, like the wholesale side of the industry, will become global. The total worldwide profit pool for the sector is already $600 billion, almost all...