The following is a summary of the points I made on a panel discussing “Innovating to 2030 – The Next Ten Years” alongside Megan (Caywood) Cooper of Barclays and Charles Damen of FIS Global/ Worldpay, brilliantly anchored by Jonathan Middleton. This was part of UK Finance’s Digital Innovation Summit 2020. As expressed here, these points are free from the constraints of a conversational setting and don’t follow the same order as the conversation did.
2030 is not a ten-year runway; in fact it is much shorter. Because we are not starting from 2020 as the zero point on the scale but in the negative. While a lot of private capital is floating around seeking investment opportunities, we are, as societies and nations, in a state of economic and social peril brought about by the effect of Covid19. Especially debt. And we will take time to recover from it.
Innovation sees the “possible” — what can happen — whereas we need a reality check as to what is “probable” considering we are indebted and poor. Innovation must therefore serve a very different function in our lives over the next few years.
The finance industry and business in general need to take active account of the political and social context they work in. The recent NYU Stern/ DHL Global Connectedness Report finds that with Covid19, while the flow of people slowed predictably with lockdowns and travel bans, and that temporarily the flow of goods did too, overall the flow of capital and information did not.
Organisations and societies are experiencing what I call generational flow aka boards and executive teams are older, while the consumers are much younger. The two groups naturally operate with different time horizons which, if out of sync, cannot lead to much strategic cohesion.
Equally businesses need to take account of emerging risks many of which may be rooted in political and social movements, which may be shaping a consumer’s point of view more on which follows.
The consumer will shape transformative change in financial services. The consumer is changing and institutions must change to serve those changing needs and expectations. The consumer is now self-directed, being served by platforms and marketplaces. Boards need to learn to engage with these as shareholders, take their views on risk into account (see: recent legal case in Australia where a major pension fund had to change its investment strategy in response to a legal action by a 25yo member), match their time horizons as stewards of capital with the time horizons of the shareholders, change the makeup of the boards, examine their investment theses/ business models. Loads of money have been invested in compliance and technology since the 2008 financial crisis but it is the change in consumer behaviour that will shape what Finance looks like in 2030.
The financial institution of tomorrow will look very different. Financial institutions are known to entice new customers with offers while offering no medals to the loyal customers on their books. As the consumer gains more power, supported by developments such as comparison marketplaces and platformisation of services, institutions will need to be more transparent and more competitive, offer switching of products at low to no cost, and compete for the consumer’s money. This shift in power will mean both culture and processes in financial institutions will have to change, effecting transformation at scale.
The differing time horizons I mentioned earlier are also driving the debate on ESG. In the past many large organisations were able to take benevolent-seeming CSR actions. ESG considerations demand a fundamental change in how businesses operate. It is not a nice-to-have add-on but a hygiene factor in how sustainable businesses are to built.
Innovations outside finance will shape innovations in finance. Big tech companies have a lot of data on the consumer but they have not always shown the ability to act responsibly especially as they push products and algorithmically nudge consumers towards content bubbles. We have learnt this year that though self-directed, we as consumers and citizens have limited ability or desire to deal with complexity, uncertainty, connectedness. Consumers using information non-critically can create asymmetries compelling regulators to step in to ensure that the asymmetries do not hurt the consumer. The FCA for instance has a 20-page guidance document on the use of social media for financial promotions. Financial innovators have to be cognisant of such boundary conditions when they engage with the consumer with their next earth-shattering idea.
It is tempting to mark one or the other player in the ecosystem as the most advanced innovator; it would be hasty and wrong. Because the interplay is complex and ongoing. Among nation-states as players, the very long-term, strategic, forceful moves by China need to be noted. Determined forays in Africa, the digitisation of the Renminbi, the rapid expansion of Chinese payment schemes such as AliPay, the one-belt-one-road (or Belt and Road) project. Seen in totality these moves are defining China’s formidable presence in how finance is being shaped.
The other most influential players are big-tech which are companies such as Google, Amazon and Apple which are sitting on vast amounts of not just consumer spend information but consumer intent information (through search histories, for instance). My lens here is businesses such as these cannot afford to pretend they operate in a space separate from politics.
In the picture are also the citizens. The citizens’ right to privacy butts up against the organisations needing to monitor their actions for KYC/ AML/ ATL compliance and it is all being wrapped up into the national security debate. The pursuit of digital innovation that seeks to serve the most technologically advanced users among consumers runs the risk of widening the digital divide and exacerbating exclusion and inequalities. As we know a more equal society is a more stable society, and a stable society fosters a healthy business environment.
So “advancement” in innovation will emerge from the churn between nation-states, big-tech and civil-society negotiating an acceptable balance. Right now, nobody is ahead because the churn is ongoing.
Optimism or realism? I am an optimistic realist. Realism allows us to take full stock of “where we are” and assess the situation. Optimism allows us to think of possibilities, “where we can go”. Between these two lie our choices — that must take account of and bring sensitivity to governance, inclusion challenges, the realpolitik of trade, shifts in globalisation, trends such as shrinking universe of investable listed companies while private equity remains flush with cash.
The possibilities are numerous. Of course this is why I love my job in governance. It enables the possible to be explored, looking ahead to “what can be”, while keeping compliant with a focus on “what is”.