Recent S&P 500 churn proves that the only constant is change!
Tuesday, June 07, 2016
Innosight’s latest Executive Briefing, Corporate Longevity: Turbulence Ahead for Large Organizations, recently caught my attention. Its report states that over half of the companies currently listed on the S&P 500 are expected to be replaced in the next 10 years.
The S&P 500 covers approximately 80% of the U.S. equity market by capitalization, comprising the top 500 most valuable companies trading on Americas stock exchanges. Historically, the index enjoyed a stable performance, but what many investors may not realise is the increased level of replacement (churn) of the companies that make up the list. In 2015, 28 companies were replaced due to their shortened lifespan, marking the S&P 500’s highest churn rate since 2009.
In 1965, companies remained on the S&P 500 for an average of 33 years. In 1990, this was down to 20 years and the projection is that (by 2026) companies will have a 14-year lifespan. The decrease in company longevity is largely due to mergers and acquisitions and the growth in start-up organisations that are highly valued.
So how is this relevant to the world of payments? It struck me that there are some interesting parallels between the S&P 500 and our industry: it has also seen the shortened lifespan of some long term high-end payment participants due to mergers and acquisitions and there is no denying the arrival of disrupters into the domain.
The analogy continues with the author’s statement that, increasingly, companies ignoring the opportunities created by market influences are a contributing factor toward the churn. Replaced companies are not adapting their business models to meet modern-day challenges and demands, they fail to partner with the disrupters, or simply don’t take the time to restate their vision in order to shift their investment to new segment areas.
In the payments world, our customers are burdened by regulation, consumers are demanding real-time payments, cross border payment volumes are increasing as people move around the globe and companies expand their reach. Further, banks and payment intermediaries need to protect their market share from the rapid influx of Fintechs entering the space.
I’ve said it before, and I’ll say it again, now is the time! It’s time to plot your new route to longevity. It’s time to assess your current environment and begin to evolve legacy systems to modern platforms to ensure your future success.
My team and I will be at PayExpo and EBAday this week. Feel free to come and meet us and we can share our vision for how you can maintain business while embracing innovation.
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