How are financial services evolving in this hyperconnected era?

22 Oct
SIBOS 2019

How are financial services evolving in this hyperconnected era?

Daniel Garcia (Senior Research Analyst, IDC Financial Insights)

During SIBOS 2019 last month, leaders from the academic circle, well-known global financial institutions, the Governor of Bank of England, technology companies, Olympic medal athletes and even an EX-MI5 spy, discussed not just how financial services are evolving in this  hyperconnected era but also how technology is impacting in every aspect of our life, and how to use it to survive in the digital era revolution.

DAY 1: Living in an uncertainty digital era

The first plenary was feature by renowned academic Dame Minouche Shafik, director of the London School of Economics and former deputy governor of the Bank of England. She addressed the current economic trade war between the USA and China, which is impacting on the global growth perspective, making it harder for monetary policymakers to balance their decision-making process between independence and patriotism. Also, she pointed out that knowledge is essential to maintain competitiveness in this changing and uncertainty era, where Universities (especially in the UK) are at risk of losing out on collaborative research as it depends of the Brexit outcome. 80% of British economy relies on services, in other words, it is a knowledge-based economy rather than manufacturer seller.

In this environment, companies should not only be maximizing profits but also finding ways how to promote and retain talent, and to contribute sustainably in their communities. The traditional rules of the game are changing. Social dynamics, income distribution, and technology are transforming how the knowledge is converted into innovation in this hyperconnected digital era.

Globalization is not just about moving products to any part of the world; it’s about also how to interconnect transactions from different jurisdictions, minimizing payment frictions and risk exposures, said Javier Perez-Tasso SWIFT CEO. For this reason, SWIFT is promoting and innovating solutions as GPI to improve transparency, reducing fees, and minimizing settlement risk for trade partners around the globe. In a hyperconnected world, payments are at the core of the financial system, boosting liquidity and global resource allocation process: hyperconnected global trade.

Data is the new oil in the digital era, and like its predecessor, quality and quantity are essential to determine the value. For this reason, Lance Uggla, CEO of IHS Markit pointed out how data is changing the game is related to the quantity, the quality, and the types of data that are required to improve our decision-making processes.

In order to create useful data, it is necessary to collaborate with others, to improve transparency and efficiency, exploring new ways to use data in real cases for business and people.

Technology will not only help us extract better data but also process it in a better way (e.g., data analytics).

Finally, the closing plenary was focused on how banks are driving digital transformation and the experience of Standard Chartered represented by its CEO, Bill Winters.

Mr. Winters mentioned that currently, traditional banks are moving IT budget from maintenance to a more strategic approach, investing heavily in innovation to reduce processing cost, improve risk management, and to boost cybersecurity controls. But he also stated this is not a simple task, especially for Global Financial Institutions that must comply with multiple regulations across the globe; for this reason, partnering with other companies is essential to leverage operations.

Each region is exploring different regulation frameworks and approaches to address the uncertainty that comes with this transformation process, but what it is more important for Mr. Winters is to promote innovation to exploit the real value of a global network i.e. data.

 

DAY 2: The future of financial systems

The second day at SIBOS was nothing but exciting. The future of the financial system as a whole, depends on connectivity, sorry Hyper connectivity!

As the center of international capital markets, Stock Market Exchanges play an essential role in this matter. For David Schwimmer, CEO of the London Stock Exchange Group, his main job is to promote sustainable and stable growth in financial markets, diversifying their products and services across multiple jurisdictions worldwide. For this reason, he explained the LSE is acquiring strategic assets to increase market share on FX and Fix Income to deliver cheaper and a broad range of products to their clients, considering different risks and markets.

Also, Charles Li, CEO of Hong Kong Exchanges and Clearing Limited, stated that integration between East and West is even more necessary when political forces are trying to reduce globalization, rising protectionism barriers: “it’s time for financial markets (more than ever before) to think and operate globally to fight back”.

And because of this, the HK Exchanges and Clearing Limited made a bid to acquire the LSE (not successfully so far) to break barriers, boosting efficiency through synergies and reducing opportunities cost global wise. According to Mr. Li, China’s financial system will be heavily controlled by the Government for decades ahead, leaving HK as the main bridge for capital flows from China to the global financial systems, and vice versa.

Another great plenary session hosted during this day at SIBOS, was the Future of Banking with an underlying topic: payments. In this session, leaders from well-known high street banks, the Bank of England, and new payment systems providers shared ideas of how important it is for financial institutions to connect with a trustee payment system. In a non-distant future, financial services will focus on how to deliver a friction-free experience to their clients, from any device and 24/7 availability.

Of course, financial institutions cannot do this alone. Because of this, it is essential to partner with other parties to accelerate the speed of innovation and further the pace of adoption. This innovation will not just help to deliver better services to current clients but also will help to promote financial inclusion to those that are still out of the system.

Demographics are changing, and consumer behavior is demanding new ways to perform seamless transactions: It’s about bringing the banks to the clients and not clients to the bank.

The last session of the day was about the technology behind digital transformation: cloud computing and artificial intelligence.

But, when it comes to regions, there is a clear picture: in the US, cloud computing is leading adopter; in Europe, open banking is at the top of mind, and for China, it is artificial intelligence. For these regions, technology adoption is driven by the local notion of data privacy.

According to the panelists of this session, the idea behind the technology is how we use it to protect the people and not how to control it. For this reason, data privacy regulation is important to set the boundaries between the good and the bad.

One thing is for sure, we are all at the early stages of the learning journey about data privacy, and how we can make it more secure, transparent, and reliable. We shouldn’t take security for granted; instead, creating awareness about the risk will help the system to improve performance and efficiency for all participants.

 

Day 3: Lessons from the cold war

No, it is not a James Bond movie but it is the real “M.” Mrs. Dame Stella Rimington, former General Director of MI5 and best-selling international author was on the stage.

But probably you are wondering: what is common between financial services and war?

For centuries, societies faced challenges and threats to secure their integrity and survivorship: the war was always an alert call to stay awake. To survive, communities must innovate to stay ahead in this competition, creating new tactics and tricks, partnering with strategic allies, and learning from a continually evolving environment.

In today’s hyperconnected world, financial institutions must learn these lessons from an Ex-Spy, finding how to stay relevant in a market that is facing one of the significant disruptions so far. Mrs. Rimington stated that having the right people on board is critical to navigating during turbulent and changing times, with the necessary spark to think differently, and bringing new options to the table even if the odd plays against you.

And talking about the evil, cybersecurity was the next topic covered on the following plenary session featuring leaders from leading tech providers, consulting businesses, and global banks.

In this digital era, modern representation of the army are computers, with potent cognitive weapons able to combat attacks from very sophisticated enemies, at any time, and from anywhere. As soldiers, these computers oversee the safety and protection not just of one entity, but also of the whole ecosystem.

Therefore, it is important than ever for financial institutions to collaborate and standardize protocols to share experiences and increase resilience for the entire ecosystem.

But, in this context, how to navigate an era of renewed great power competition?

That was the question for the last panel of the day. Demographics are changing, and behind this is customer behaviour.

Also, economic importance is moving from West to East region, increasing productivity, all thanks to innovation forcing institutional change, and causing global geopolitical tensions. What is essential is not to miss the opportunity for the future, translating today’s innovation into a more inclusive society, using technology to reduce economic gaps and markets fictions.

 

DAY 4: closing with a “golden” flourish

Hard work always pays off, and despite the circumstances, it is important to learn how to be resilient and overcome adversity. That was the message of Mrs. Dame Kelly, Olympic Gold medalist.

Competition is always a learning process for all participants, but staying focused on the goal, and determination will help you achieve it. As Mrs. Kelly stated, it is not an easy road. Still, every experience will help you to leverage your knowledge, creating transferable skills that contribute to overcome the next hill and to conquer your goal (including a couple of Olympic Gold Medals).

For these reasons, companies need to learn how to be more resilient every day in a more complex and competitive market, driving innovation, and overcoming potential downturns.

Ecosystem collaboration is a powerful action that financial institutions can use to explore and to develop innovations hubs, learning from other participants, and boosting resilience.

Another exciting session of the day was related to banking perspectives: understanding the next generation of customers.

New generations are driving innovation at a faster speed than ever before, due to their consuming behavior, forcing companies to dedicate special effort (and resources) to understand what they demand.

For financial institutions, the impact of millennials’ transactional behavior has been on the radar for a couple of years already, creating omnichannel experiences and bringing the bank to the people, facilitating transaction processing. But surprisingly, there is some recent research indicating that the human element is still important at the end of the day for consumers (including millennials).

I guess at the end of the day, we still trust humans more than computers, good to know!

As every year, SIBOS is always an excellent opportunity to learn from other parties around the globe, how they are transforming information into innovation, how are they improving resilience in every day more complex world, and how they are exploring collaborative options to stay competitive in a changing market. Too many lessons from this years’ edition, but looking forward to what is yet to come.

 

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To learn more, please contact Daniel Garcia or head over to https://uk.idc.com and drop your details in the form on the top right.

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