I spent last week, while covering the World Economic Forum in Davos, (from the UK, of course!) delving into a range of themes that i wouldn’t normally get too involved in. I found it really interesting, and learnt so much – looking back, i think my tweet based guide pretty much covers the main themes from the forum. If you were there and think i missed something important, please do let me know. Anyway one of the sessions that was of particular interest was the Global Fintech Revolution. The Fintech discussion lasted an hour, and in this post i summarise the key points.
Who participated in the Fintech Debate?
- Francisco González – Group Chairman of BBVA
- Cecilia Skingsle – Deputy Governor of the Central Bank of Sweden
- Eric Jing – CEO of AliPay
- 450 million users in china, 200 million users with partners outside of China
- Dan Schulman – CEO of Paypal
- 200 million users in 200 countries
- David Craig – President of Financial Risk at Thomson Reuters
The Fintech Revolution:
Dan Schulman talked about:
Digitisation and the Move Away from Physical Cash
- Cheque usage, and cash for small value transactions particuarly, is diminishing
- Cards and currencies are increasingly digitised through offerings on mobile devices
- Dan acknowledged though that 85% of the worlds transactions are still conducted using cash
The Power of Mobile
- Dan spoke about 80% penetration of mobile devices among the worlds population, and this was predicted to increase to 90% in the next 5 years
- Mobile gives consumers the power of a bank branch in the palm of their hand explained Dan, enabling consumers to complete basic finance transactions securely, quickly, on demand and in a cost efficient manner
- In fact from a merchants perspective, Dan explained how it was cheaper by 80-90% to serve a customer through the digital world compared with a physical bank branch
The Convenience of Mobile is Disrupting Conventional Business Models
- Mobile is muddying the conventional way of working – if someone makes a purchase via mobile and picks it up in-store, is that an online or offline transaction?
- The convenience of online is making merchants think twice about where and how they are operating
- Retailers are wanting to use mobile as a way to get closer to their customers and potential customers, and digital payments (coupons, discount codes, rewards) are a key enabler of this strategy
Trust is at the Heart of all Financial Services
- Dan explained how trust is based on service, security, privacy and how technology companies are among the most trusted companies in the world
- Interesting!
- Public and private boundaries across the generations are different, and understanding these is critical for financial institutions – i suppose what Dan is saying here is that solutions need to be agile and flexible to cater for the different customer bases
CyberSecurity is and will continue to be a Big Deal
I was surprised at how long it took before cybersecurity was mentioned, but it was Dan who raised the alarm bells describing how cybersecurity will be a key challenge and how all institutions need to address the cybersecurity risk
Eric Jing hit the nail on the head:
Technology is Enabling Solutions that were Previously Impossible
- Cloud based products particularly are bringing down the cost of enabling and delivering solutions to customers, and giving companies the ability to launch products really quickly. Once launched cloud solutions allow vendors to extend solutions quickly and on-demand
Fintech – Technology is enabling Financial Inclusion
- This was a point that Eric, and Jack Ma too, continued to reiterate during the WEF
- Eric explained how a third of AliPay customers were from rural areas and gave the example of…
- Tibet where mobile payments, through AliPay, account for more than 90% of all electronic payments and crucially are helping to provide financial inclusion to traditionally under served populations
- Interesting point by Eric was that fintech is not about disruption, but about how financial institutions across the board could better server the “little guys”
Focused Innovation and Trust
- This was an important point for Eric, for AliPay don’t seek to innovate just for the sake of innovation
- Innovation at AliPay revolves around how to create value for the customer, how to better protect and serve the customer – a lot of these themes revolve around how to enable trust in the AliPay offerings
Francisco González, BBVA, gave
The viewpoint from a traditional bank embarking on a transformation journey:
Fintech Transformation is a Long and Difficult Journey
- BBVA started their transformation, to become agile and innovative, 10 years ago
- From a customer and solution perspective, BBVA covers the whole payment process – and newcomer startups cover just one small part of the payment process
- Francisco stressed the importance of the customer relationship
- The steps that a incumbent needs to take to move from legacy systems in stages:
- Overhauling the banking management with a blend of bankers and technology folks
- First moving to the cloud, mobile and real time solutions in baby steps and then evolving those solutions to the next generation technology
- On the journey to digital, the need to manage legacy
- Key technologies for banks right now are the Cloud, AI, Blockchain and Big Data
- There are 20,000 banks in the world today, due to the fintech revolution this number will reduce – ooo-err missus!
Banks will be Service Companies
This was interesting stuff, Francisco talked about how banks:
- Margins in the future will be very low
- Will need to provide extreme transparency to their customers
- Solutions will not be developed in-house, but instead be sourced from different providers and package them to provide an enhanced customer experience
- Solutions will need to be scalable and reach a high volume of customers
Fintech Future Predictions:
- The need to tackle the growing cybersecurity threat
- Managing data, AI will be a game-changer and blockchain will be a standard!
Cecilia was a typical central banker (no offence!) and talked about:
Striking an Innovative and Regulatory Balance:
- Striking the right balance between safety, efficiency, innovation and standards
- The importance of innovation in financial services and how innovation would spark growth in the sector
- The need to specifically focus on innovation and gave the example of Swish in Sweden, supporting 24/7, real time payments
- Widespread acceptance of card and mobile based payment solutions
- Being technology neutral, the growth of biometrics in the future and ensuring that products (cash/digital) can live and work side by side
- How at the same time cash, for many people, is the safest form of money that you can carry
David Craig from Thomson Reuters:
Traditional Financial Institutions are Innovators
- Eh? You might be thinking… Well David described how Thomson Reuters have been around for 160 years and were innovating, working and adapting through all of the major technological and cultural shifts during that time
A Fintech Shift in the Last 7 Years
- So, David explained how over the last 7 years financial institutions have been playing it safe and complying with various regulations, but consumer demand has evolved and demands innovative and improved customer financial services
- Talent, investment and innovation over the last 7 years has changed, due to the ability to do things quickly due to computing power – technology previously only available to larger institutions is now available to smaller players who can often enhance specific processes, and deliver solutions in a cheaper and faster manner than incumbents
- Consumers see improved experiences on their mobile devices from other outlets/providers and want the same from their financial institutions
- Incumbent financial institutions are in a “special place”, and can either go it alone or collaborate – Thomson Reuters is looking to collaborate and work with various innovative startups to deliver solutions through the Thomson Reuters platform
Blockchain – Truly Transformational
Interestingly it was a good 45 minutes into the discussion before blockchain was discussed, and David was the first to sing its praises:
- David predicted how 2017 will be the year that blockchain goes from a theory/proof of concept idea to production use trials (most commentators are saying this!)
- Blockchain and distributed ledger technologies require trust across the network of participants – this collaboration David argued changes the nature of the financial industry which has historically not collaborated, rather competed with one another
- Participation, through collaborative studies and partnerships, in the industry around blockchain is at an all time high, and that is due to blockchain
Watch Fintech and your Digital Identity!
- The industry will sit up and take note of fintech and where fintech firms are investing and who is investing in fintech firms
- David’s bold prediction was the end of centralised infrastructures and and a world where trust is distributed
- A world where not people are no longer looking after their debit/credit card, but their digital identities