This year, the Swift International Banking Operations Seminar (Sibos) is being held in thriving city of Singapore from 12th October to 15th October 2015. Organised by the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the conference welcomes representatives from various markets, job functions and institutions within the financial sector. Last year’s figures show that over 34 per cent of Sibos attendees came from the payments industry and 30 per cent represent commercial banks.
In preparation for Sibos, over the next few weeks bobsguide will be providing weekly insights into Sibos topics with comments from session speakers, beginning with a deeper look into the current financial services landscape and the impact that new disruptive threats are having on the sector.
The age of disruption
The financial services (FS) sector is going through a period of significant change and with this change comes more disruptive threats. At Sibos this year, delegates and industry experts will offer their insights into the current FS landscape and the challenges businesses face due to disruptive threats by new entrants. Including comments from Alan Laubsch, Director, Financial Network Analytics and Kevin Johnson, Manager, SWIFT Innotribe Startup Challenge, bobsguide explores the current financial services landscape and the disruptors that are changing the marketplace.
Today’s financial services landscape looks very different to how it looked pre-financial crisis. Once upon a time, we lived in a world where the top six banks reigned supreme and customers had no choice but to bank with these institutions, however, since advances in financial technology (fintech) and the emergence of new players in the marketplace, customers now have more choice and banks have no choice but to innovate, or risk being left behind.
According to Accenture’s ‘The Future of Fintech and Banking’ report, global investment in fintech ventures tripled to $12.21 billion in 2014, highlighting that the digital revolution has arrived in the financial services sector. Customer and client demands have also changed in line with technological changes and customers increasingly want to be able to instantly connect with payment service providers, make payments, send, borrow and lend money via digital devices and channels.
Alan Laubsch, Director, Financial Network Analytics believes that we are currently “in the midst of a major phase transition” and due to the emergence of nimble and fast moving new players, powered by exponential technologies, every global financial service business, from payments to personal finance, faces disruption.
On top of the fact that traditional players face threats from new entrants such as Facebook, which joined the P2P money transfer market in March 2015, financial services regulators are reportedly focusing more on payments and technology in 2015/16, which means that the sector has even more to consider.
Laubsch says that accelerating change hurts slow movers, but due to restrictions from bureaucracy and regulations it is harder for banks to move as quickly as they should. “To navigate complexity, organisations must be engineered for agility. Centralised predict and control will increasingly be replaced by sense and respond, powered by networked intelligence. Bureaucracy, legacy processes and regulations make it difficult for banks to move quickly. But mindset is the biggest problem: most incumbents are too focused on short term profitability, and myopic to emerging threats.”
According to Kevin Johnson, Manager, Innotribe Startup Challenge, the industry has always been in a state of disruption to some extent, with new products becoming available on the market all the time, although it is technology that is enabling the current levels of disruption we are seeing in the marketplace. “I think at the moment the biggest reason we are seeing this disruption, is due in part to technology enabling this, and also in part the fact the majority of financial services innovation is happening on the front end, which customers can see. There are new technologies entering the market place at the moment which have the potential to change the way the industry runs, bringing significant advantages to both the service providers and their customers.”
In order to keep up with this change of pace, financial services players are investing in financial technology, setting up innovation labs, accelerators and investment funds, indicating that the shift is here to stay. “The financial industry is working closely with new companies who are looking at this technology, to understand its implications, and while this may seem to be happening faster than normal, I think this is in part to it being more visible that it has been before, and technology adoption in the wider world being at a level, where new platforms can bring significant opportunities,” says Johnson.
Although there are more and more new players entering the FS market, traditional players are currently working to level the playing field and according to Johnson, are innovating their offerings to meet new customer demand and expectations. “While they are being pushed by the new entrants on one hand, the customers on another, and regulation on another, they are looking for innovative ways to serve their customers. One key example of this change is the move to real time systems on the back end, which will unlock positive innovation for customers, and participating firms.”
Laubsch believes that leading institutions are now more focused on improving customer experience and using big data to drive decisions. “Charles Schwab has launched a robo-advisor service to compete with software based investing platforms. Goldman Sachs has more programmers than Facebook, and now rivals Silicon Valley’s biggest venture funds while also incubating startups internally. Barclays and Santander have started Fintech incubators, and most leading banks have ramped up investments. And we are seeing more co-opetition (e.g., Citibank partnering with Lending Club for community lending). Far from a zero sum game, Fintech innovators provide efficiencies and new markets for banks who learn to embrace innovation. And ultimately, firms must seek to disrupt themselves before someone else does.”
According to Johnson, due to changes in the current landscape, traditional service providers are looking for potential opportunities for collaborate with new players. “The current Financial Services Landscape has changed, with a number of new players coming into this space offering services that traditional financial institutions offer. The traditional players are looking to understand these new players, and how they think. To spot potential opportunities for collaboration with them. This is evidenced by the large amount of fintech funds being run from within financial institutions, which are investing in companies to learn, as well as invest.”
Traditional players are keen to learn more about new technologies and how it could benefit their processes, and Johnson believes that because banks are investing more in start-up initiatives it shows a willingness to embrace innovation from the outside, and learn from new players. “There is also an understanding that some of the existing processes inside the industry are very manual, and would benefit from some of this new technology, so there is currently a lot of focus inside the industry to try to understand the new technology, and see what benefits this would bring, along with looking at what challenges it brings with it.”
Johnson says that although new entrants are bringing many benefits to the table, traditional players do gain some advantages over new entrants due to their wealth of experience. “The traditional players also have a significant wealth of experience when it comes to things like scalability. Tapping into this experience will allow the old players to bring significant advantages to the table, which the new players do not have, and this is the reason I think that collaboration rather than competition is going to be the future for a large number of up and coming fintech firms.”
Johnson says that he has noticed a significant increase in the number of institutions attending Innotribe events in recent years, which could signify that they are becoming more open to change. “I think the number of institutions that are attending Innotribe events has dramatically grown over the last couple of years, culminating in last year’s future of money at Sibos, on crypto currency being the most attended session across the whole of Sibos, shows that they are willing to listen, and I think Innotribe’s role within the industry is to bring some of what is happening outside, into the core of the industry, in a way it can understand the impact, and act on the messages we bring in.”
Over the next few years, Laubsch believes that exponential technologies that amplify social intelligence will play a critical role in this great age of disruption. “Fast paced complexity calls for a combination of human and machine intelligence. Shared big picture maps will serve as mass collaboration platforms: think Minority Report style interactive visualisations to explore and build intuition about complex systems. Our ability to transform data into insights using network based algorithms will revolutionise finance, from lending to asset management. By filtering signal from noise, we can detect emerging risks earlier and act before irreversible tipping points are crossed. And finally, peer-to-peer technologies such as the bitcoin blockchain technology will help re-architect the financial system for resilience.”
However, Johnson says that technology on its own is not the answer. “I think to meet the new requirements coming from customers, and regulators alike is going to take a deep look at the existing technology on one hand, but also the processes that are built on top of it, to see how this technology could bring improvements in efficiency. Without looking at this holistically, it’s almost like coming up with an answer, without understanding what the question is in the first place.”
Hear more from Alan Laubsch at the SWIFT Stand on Wednesday 16th October at 2pm as part of the SWIFT Institute Lecture Series and Kevin Johnson at Innotribe session ‘The Future of money: A burning platform’ at 11.30am on Monday 14th October.
Don't miss Sibos Topic 2: Regulatory compliance and the fundamentals of ISO 20022 later on this week…