Nov 172016
 

Then the robots came for the wealth managers…

While much of the focus on the effects of automation in the workforce falls upon manual, skilled and lower level clerical jobs, much of the impact of the next wave of automation will fall on higher level roles.

The rise of the robot financial advisor is a good example of this, as Finextra reports, Well Fargo bank has teamed up with fintech startup SigFig to automate wealth management.

Wealth management has been a lucrative field for banks in recent years however it has come with a reputational risk as poorly trained, incompetent or unethical advisors have pushed customers into investments more aligned with the staffs’ commission structures than the clients’ interests.

Given the costs and risks of employing well paid financial advisors, it’s understandable banks would be attracted to automating the function.

The problem for the banks is automated tools will commoditise the marketplace and almost certainly drive down margins.

So, along with the well paid jobs, the river of gold that was wealth management dries up for the banking sector.

Sep 182016
 

What would happen if the world’s richest people invested in startup businesses? Bloomberg Business ran an interesting, if flawed, thought experiment looking at how many nascent companies each country’s richest individuals could invest in.

It’s surprising how low those numbers are and, if anything, the result underscore how the 1980s and 90s banking sector ‘reforms’ caused the world’s financial system to pivot from its historical purpose of funding commercial enterprises into speculation, rent seeking and manipulating markets.

Apart from a smattering of venture capital not much has replaced the banks in funding the SME and entrepreneurial sectors, if anything it has been those ultra high net wealth individuals who have been financing the investment funds providing capital to entrepreneurs.

How the finance industry evolves in the face of the fintech boom and a world that’s slowly becoming less indulgent of the industry’s greed will be one of the defining things of next decade’s business environment. For the small business and startup sectors getting the funding right will also be a key factor.

The biggest question though is job creation, being able to fund new and innovative investments will be one a critical concern for societies dealing with the effects of an increasingly automated economy.

Jun 162016
 
how much money can we save on cloud computing

With the global Zero Interest Rate Policy experiment failing, we’re now entering the era of negative interest rates with a quarter of the world’s central banks charging savers.

The world is flooded with money, but we also have surpluses in manufacturing, a surplus in most commodities, of energy and an increasing surplus of labor.

From Shanghai to Barcelona, the surplus of labor is beginning to be felt as industries become increasingly mechanised and the consequences of short sighted economic policies over the last thirty years begins to be felt.

That labor surplus is also driving the political shifts in Europe and North America as workforces are finding their living standards being pressured and their economic prospects dwindling. As a consequence, voters are looking for scapegoats – immigrants in Europe, the EU in Britain and Mexicans in the US.

Regardless of which scapegoat you choose to blame for the global economy’s uncertainty, the fact remains we are in a time where scarcity can’t be assumed.

This means business models that are based upon restricted supply are, in most sectors, under threat. The whole economics of scarcity becomes irrelevant when there are no shortage of suppliers around the globe.

In some fields, such as energy, technological change is seeing the dominant positions of oil companies, electricity generators and distributors being challenged in ways that wouldn’t have been thought possible a few years ago.

Even regulated industries where government licenses artificially controlled supply – like taxis, broadcasting and telecommunications – increasingly new distribution methods are changing the economics of those industries. No longer is buying a government license a sure fire way to big profits.

Right now, the imperative for businesses to find the areas where there is scarcity and supply constraints. For many industries that may be too difficult a transition.

Negative interest rates though take us into uncharted territory. How the global economy responds to virtually free and unlimited money is going to be an interesting experiment.

Apr 252016
 
businesses based on debt are now going bankrupt

The breach of the Bangladeshi banking network has been shocking on a number of levels, not least for the allegations the institutions were using second hand network equipment with no security precautions.

Fortunately for the Bangladesh financial system the hackers could spell and so only got away with a fraction of what they could have.

Now there are claims the SWIFT international funds transfer system may have been compromised by the breach, which shows the fragility of global networks and how they are only as strong as the weakest link.

As the growth of the internet shows, it’s almost impossible to build a totally secure global communications network. As connected devices, intelligent systems and algorithms become integral parts of our lives, trusting information is going to become even more critical.

The Bangladeshi bank hack was a lucky escape but it is an early warning about securing our networks.

Update: It appears the hackers were successful in getting malware onto the network according to Reuters but, like their main efforts, were somewhat crude and easily detected. One wonders how many sophisticated bad actors have quietly exploited these weaknesses.

Feb 272016
 
mobile payments through smartphones and other devices are changing business

One of the greatest profitable accidents of the last twenty years was SMS messaging that delivered telecoms companies huge revenues for a service that cost them almost nothing.

In Somalia, we may be seeing phone companies leading the way in cashless transactions as the economy moves towards mobile payments on the back of service intended by one of the nation’s leading cellphone providers for a completely different purpose.

The Hormuud Telecommunication Company set up EVCPlus to deal with account payments but in an unstable and risky economy the service has proved an efficient way to deal with daily transactions

“It’s not safe to carry cash money here,” said Dhublawe Ibrahim Aden, 25, a hawker who sells shoes and clothes. “If someone has to buy my shoes and bungles [necklaces] then he has to pay me through my cellphone. I don’t accept cash money from clients.”

Like Kenya’s M-PESA, EVCPlus is showing how slower and more basic connections aren’t a barrier to African economies leading the world in some online services. Sometimes having access to basic services isn’t an impediment.

Dec 172015
 

Earlier this week the Financial Times reported how the eleven biggest North American and European banks had shed 100,000 jobs this year, so it when I was asked to do a segment on the future of banking for radio station ABC666 in Canberra I was more than delighted.

The ABC producer’s interest had been piqued by an Ovum research paper detailing the IT spending of banks and their increasing focus on security.

Rethinking payments

In Ovum’s view much of the banking industry’s security  comes from the diverse range of payment options coming onto the marketplace. Another factor in the increased spend are the US credit cards moving to contactless payments.

Certainly the increased focus on payments security is being driven by the range of new devices with smartphones, wearable technologies and the Internet of Things opening up a whole new range of commercial channels. This is something driving the development of services like Apple’s and Google’s payment system and part of a wider battle over who controls those channels.

Underpinning much of the security focus is the interest in blockchain technologies which move the authentication records off central ledgers – historically one of the core functions of banking – onto a distributed network of databases.

Core challenges

That shift in record keeping is just one of changes affected the banking industry’s core functions, crowd funding and peer to peer lending threaten to displace banks from being the main providers of business capital, one of the fundamental reasons for the banking sectors existence.

It should be noted though the banks have largely stepped away from being the providers of small business capital over recent decades as the ill conceived ‘reforms’ of the 1980s and 90s saw the finance sector being more focused on housing lending and doing mega M&A deals with the big end of town.

The Financial Times report notes a decline in M&A deals is one of the drivers for the staff lay offs at the major banks, it’s notable that technology is changing that business function as much of the due diligence can be better done by artificial intelligence and algorithms rather than highly paid corporate lawyers and bankers.

Where have the bankers gone?

As the banks lay off senior staff, it’s notable many are finding their way to fintech companies. The Wall Street Journal however describes the relationship between incumbent banks and their would be disrupters as far more complex than it seems.

Increasingly banks are buying or taking stakes in promising startups along with establishing their own investment arms and running hackathons to identify potential disruptors. Many in the banking industry are quite aware of the changes happening.

That the banks are adopting the new technologies and identifying the threats shouldn’t be surprising, over the past fifty years the sector has been adept at applying technology from batch processing on mainframe computers through to deploying Automatic Teller Machines and rolling out credit cards to improve their business operations. Banking is one sector that’s proved itself fast to identify and adopt technological changes.

Are the banks going away?

So with fintech startups snapping at their heels, is it likely today’s banks are heading for extinction? Probably not suggests the CEO of fintech startup Currency Cloud, Mike Laven who describes such talk as being part of the “Level 39 bubble”, referring to the financial services startup hub based in London’s Canary Wharf.

Laven’s view is some banks will evolve while others won’t do so well and historically that’s what we’ve seen with other technological shifts – some of the incumbents adapt and reinvent themselves while others are not so adept and wither away.

Some of the bigger threats to banking may be social and economic change. Today’s rising of interest rates by the US Federal Reserve may mark the end of the last decade’s ‘free money’ mentality that’s been so profitable for them in recent times. The end of the consumerist era also challenges those financial institutions basing their business models on a never ending growth of consumer spending and household debt.

Almost certainly the banking industry is not going to vanish, however it is going to be a very different – most definitely a much leaner – beast in a few years time. What is certain though is the days of banks as we’ve known them in the second half of the Twentieth Century are undergoing dramatic change in the face of technological and social change.

Nov 272015
 
Piggy Bank

The industry that benefited most from the economic reforms of the last twenty years of the 20th Century was the banking industry.

With the elections of Margaret Thatcher and Ronald Reagan three decades of good times began for the banking sector.

Now the good times are drawing to a close warns former Barclays boss Antony Jenkins who told a London audience how the banking industry faces an ‘Uber moment’.

While Jenkins focused on the fortunes of branches and frontline staff, the technological change facing almost all aspects of banking from tellers to risk analysts and upper management are all facing massive changes as artificial intelligence moves into fields that a few years ago most believed couldn’t be automated.

For the incumbent banks shareholders this is mixed news, on one hand it makes their existing operations vastly more profitable – the One Percent become the .001%.

On the other hand for the incumbents, the market is opening up new competitors and as Jenkins points out some of these disruptors will be the banks of the future. At the moment though established banks will do all they can to interfere with new entrants.

While interference will only go so far, the real challenge is to get ahead of the changes which is why financial technologies (fintech) has become such a hot topic in the last three years with major banks sponsoring or opening their own incubators, accelerators and hackathons.

Another important aspect in a changing environment is that of regulation and with the banks winning from the deregulations of the 1980s and 90s it may well be that we’re going to see a tightening on their powers as technology changes the playing field.

One thing is for sure, bankers are about to find times as exciting and challenging as many of the industries they displaced late in the Twentieth Century.