Beyond fintech - the future of finance 10 years from now

The ubiquity of the term ‘fintech,’ a composite of finance and technology, shows how the lines between the two sectors have blurred. While this symbiosis offers great promise for the future, it has also caused some existential concerns among finance practitioners arguing for the importance of the human touch in a field that in many respects remains a great unknown.

That was the conclusion of a lively panel discussion titled ‘Beyond Fintech: The Future of the Finance Industry’ at the Milken Institute’s Women Leaders Summit in Singapore.

An audience poll at the event found that most of those present believed technology would make nearly a third of all jobs in the banking sector redundant. With Wall Street increasingly under pressure to adopt machine learning and companies like Google working with startups to disrupt financial markets, those fears are understandable.

“There has been a lot of talk about the progress we have made in technology. But, what we haven’t spent enough time thinking about is whether we have the ability to harness the power of technology.

Becoming inseparable

Addressing the debate around the disruptive and double-edged nature of technology, the panelists agreed that instead of worrying about fintechs taking over the traditional banking landscape, it’s best to view the next decade as an era of cooperation that will present significant opportunities.

"The future is, I think, going to be the human and the machine working together to create value in the world,” said Teresa C. Barger, Co-Founder and CEO, Cartica Management, LLC. In the asset management industry, machines driven by artificial intelligence (AI) will take over short-term trading functions, she predicted.

It’s important to understand how technology is changing the landscape for clients and the entire supply chain, and adapt one’s internal processes and capabilities accordingly, suggested Lisa Robins, Global Head of Transaction Banking, Standard Chartered. And, to do that, “we need a very different type of creativity, a very different way of thinking, and a lot of curiosity,” she said.

Banks are already acting accordingly. Citibank spends about a fifth of its costs on technology as the bank invests in innovation to disrupt its business model from within, noted panel moderator Julia Raskin, Managing Director, APAC Head Investor Sales & Relationship Management, Citi Markets and Securities Services.

“We work with platforms and we also become a platform,” observed Robins. “It’s not black and white anymore. Now, it’s a bit more complicated, and more exciting too.”

Enabling emerging markets

The impact of technology on the financial services sector is nowhere more apparent than in emerging markets, as innovation rushes to fill the gaps left by the region’s nascent financial institutions. Across Asia Pacific, the panel observed, institutions are joining forces with fintech firms to develop a range of products and solutions.

Standard Chartered, for example, is working with Ant Financial, Alibaba Group’s fintech arm, to develop a blockchain-based cross-border remittance service, Robins noted, to help Hong Kong’s Filipino expats send money home to their families.

Chinese fintech firm CreditEase uses its own credit assessment system to promote inclusive finance and serve segments of the population largely overlooked by mainstream financial institutions by effectively analysing vast troves of credit data, explained Lin Hou, General Manager, Wealth Management Product, CreditEase.

Westpac meanwhile has just opened regional innovation hub co.lab in Singapore and has tripled its investment in its venture capital arm, which incubates early-stage fintechs. One of the companies Westpac has invested in provides a payment platform that supports government healthcare and motor accident insurance payments in Australia. Westpac has also partnered with another firm that simplifies cash register transactions at restaurants and cafes.

Fear of fintech

For all the potential of fintech, a sobering note was struck while gauging the potential of a global economic crisis triggered by technology-related excesses. Barger noted that there is indeed a very real chance for such an event in the next decade. And, given the volume of money coursing through the global economy, even the impact of a small reversal could be hugely magnified, she warned.

Sanghvi pointed out that technology has enabled the flow of billions of dollars in investments into passive exchange traded funds run by trading algorithms. Sure enough, the rise of high-frequency trading has led to ‘flash crash’ events that neither emerging nor developed markets may be prepared to deal with.

“I wonder whether we've introduced more systemic risks in our financial markets, and I worry about whether we've done enough to ensure that our financial markets are stable and secure,” she said.

Many emerging economies, especially China, are dominated by retail ‘mom-and-pop’ investors with little or no financial expertise, Barger noted, calling for more regulatory oversight especially in corporate governance of listed firms.

Lin agreed, noting that while the Chinese government is working to put regulatory checks and balances in place, there is an urgent need for more efforts to ensure investor protection.

Growing a social conscience

The finance industry is still viewed with caution by the general public. Whilst regulation has gone some way towards making banks less risky (since 2008, global banks have paid over $300 billion in fines) it still has not clearly articulated how the industry is contributing to the economy, the community and the world as a whole. 

The industry needs to develop a social conscience and it is important that the right tone is set at the top and perhaps, even more critical, is how this change is embraced through the organisation, Sanghvi observed.

Apart from making banks safer, regulation can be a good thing for innovation too, Raskin noted.

“A lot of what we've done with data, comes not because we wanted to do it, but because we're being regulated into it. And that's spurring a ton of innovation,” she said.

Overall, considering the risks posed by technological disruption, understanding the human impact can help deal with them effectively and allow businesses to balance commercial imperatives with societal ones, panelists noted.

“I think the one thing I can say for sure is the future of finance is exciting. It's never been more exciting. The next 10 years are going to be very different from the last ten,” Sanghvi concluded.

Sneha Sanghvi is head of financial markets Asia at Westpac.