Paul Wallbank – Brilliant Communications

Tag: business

  • How banks will survive the fintech onslaught

    How banks will survive the fintech onslaught

    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.

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  • Opening the chequebook. Can you buy a Silicon Valley?

    Opening the chequebook. Can you buy a Silicon Valley?

    How do you build an industrial hub like Silicon Valley? Many cities and regions have tried various tactics, from demolishing entire suburbs to attract corporate headquarters through to spending millions on enticing film productions and countless examples of setting up Digital Hubs.

    An interesting experiment is happening at the moment in the Australian city of Melbourne where the Victorian state government is spending millions on subsidies to businesses, government enterprises and academic research centres to set up in the town.

    One of the Victorian government’s most surprising moves was to poach Sydney’s Sydstart startup conference for a million dollars. Naturally the event will have to be renamed and there’s no word on who will pay for the branding consultant’s time.

    Opening the chequebook

    Having an open chequebook is fine, but in the absence of a broader strategy that ties in educational, financial and other vital factors for building an industrial hub it’s hard to see how spending taxpayers’ funds on adhoc projects is going to create a sustainable local tech sector.

    The National Broadband Network security office subsidy is particularly galling given it’s a payment to a Federal government owned corporation and it’s highly likely the facility would have been based in Melbourne anyway given the organisation’s Network Operating Centre is already in the city.

    Added to the embarrassment of the NBN announcement are the overwrought claims of job creation. While it’s possible a total of 300 building staff might be involved in the construction, the idea the centre will employ 400 IT and telco security staff is surely stretching credibility.

    The failed games industry

    Sadly for Victorian taxpayers this isn’t the first time their government has tried to use their chequebook to attract high tech business. In the late 1990s a similar effort was launched to attract video game developers.

    For a while this worked but ultimately the Victorian games sector declined in the face of a high Australian dollar, a shift in the economics of studio produced games and successful competition from Queensland who built their own subsidised centre on the Gold Coast by offering better incentives that those on offer in Melbourne.

    Both the Queensland and Victorian efforts ultimately failed and today both states have little to show for those subsidies.

    At least though the Victorian government is trying, unlike its property development and coal mining obsessed neighbours in Sydney who are in the process of selling off their Australian Technology Park hub and replacing it with a poorly articulated thought bubble of a technology precinct based out of a disused power station in a transport blackspot.

    Sydney’s failure

    In the process of coming up with these ideas, the New South Wales government managed to alienate the most successful of Sydney’s tech startups, Atlassian who last week floated on the NASDAQ stock market for over four billion US dollars.

    One of the notable things of Atlassian’s story, and that of most other successful Australian tech startups, is how little direct government support features in their development.

    That direct government support like subsidies feature so little in these company’s successes really tells us what really works for governments wanting to develop an ecosystem – providing the environment for skills, capital and distribution networks to develop.

    Without a long term plan it’s hard to see how Victoria’s ‘splashing the cash’ will end up any better than previous efforts with other industries. As Silicon Valley, Israel and the UK have shown, it’s consistent long term investment in the industries and the infrastructure that allows businesses to developed that creates successful industry hubs.

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  • Atlassian and the changing tech investment mindset

    Atlassian and the changing tech investment mindset

    Last week’s successful float of software collaboration tool service Atlassian may mark a number of turning points for the tech industry, both globally and in the company’s home country of Australia.

    Unlike many of the high profile unicorns which have dominated the tech industry headlines in recent times Atlassian is a real, and profitable, business with revenues of 320 million dollars that has grown at over 40% in each of the last three years.

    An even greater difference to the unicorns is Atlassian has raised little in external funding, instead the company was bootstrapped from a $10,000 credit card debt as this BRW profile of the business describes.

    Having a profitable, debt free business not beholden to a small army of investors is distinctly different to the Silicon Valley greater fool model hoping for cashed up sucker to buy their unprofitable, but well publicised, operation out. In fact it appears the greater fools themselves are dropping out of the market.

    Atlassian’s float may well be the marker that investors are looking for more substance in tech companies than just the promise of millions of eyeballs.

    For Aussies the lessons are sharp, Atlassian shifting its corporate functions to the UK last year and now listing on the US stock is a sharp reminder of just how out of touch with the technology sector Australian industry has become.

    Had Atlassian listed on the Australian Securities Exchange at the same capitalisation, it would have been the market’s 38th biggest company sitting between two property companies and one of the few technology listings on the board.

    On the ASX Atlassian would be one of a handful of technology businesses on the banking, mining and property dominated Australian exchange. It was that dominance of old world businesses and local investors’ lack of understanding of technology stocks that saw the company’s co-founder Mike Cannon-Brookes long maintain that Atlassian would never be listed in Australia.

    Another weakness for the Australian markets are local investors’ obsession over yield with businesses large and small paying out dividends at a far greater rate than global equivalents. This makes it hard to retain earnings and invest in new markets and R&D. Basically an Amazon could never exist in Australia.

    For companies looking at following Atlassian’s footsteps the lesson is clear – the Bay Area startup model of chasing investor funding with the hope of finding a greater fool isn’t necessarily the best way to build a business and that bootstrapping a cash flow positive business gives founders greater control and flexibility.

    To Australian entrepreneurs Atlassian’s lesson is to find a worldwide problem to solve and go global immediately. A domestic market focused primarily on property, banking and mining while being obsessed with short term yield isn’t going to be hospitable for local startups.

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  • San Francisco prices itself out

    San Francisco prices itself out

    Has San Francisco become too expensive? An article on Bloomberg business suggests the prices for accommodation and labor have become too high.

     

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  • America’s fading middle class

    America’s fading middle class

    The US middle class is losing ground reports the Pew Research Center citing its latest report that finds less than half of all Americans identify as middle class.

    A fading middle class is bad news for companies basing their businesses on increasing consumer spending such as old school retailers, big box stores and fast food chains. The affluent youth culture of the 1960s consumerist model is particularly under threat as the falls in income have fallen disproportionately on the young, as this New York Times examination of American social trends shows.

    The end of the 20th Century miracle

    It’s hard to see this trend being reversed as the bulk of the Twentieth Century middle class miracle was the surge in well paid manufacturing jobs during and after World War II. After thirty years of seeing those roles going offshore, the next wave of technology threatens to do away with them altogether.

    That next wave of technology doesn’t promise to be good for middle class professionals and managerial workers either as automation and artificial intelligence promise to do away with many of their well paid jobs as well.

    A large middle class is historically an aberration, when the term was first formally used in Britain just on a hundred years ago only 20% of the population fitted the criteria – incredibly the US only started studying the nation’s middle classes in the 1950s – and prior to the industrial revolution only a tiny group of merchants and professionals could fit the description.

    A wartime boom

    It was the economic boom after the Second World War that saw the assumption of everybody except the most chronically disadvantaged becoming middle class.

    That idea really started to pass in the early 1970s but as a myth it’s continued to hold on, partly due to easy credit that’s allowed workers on declining real incomes to keep up the charade of an ever increasingly prosperous middle class lifestyle.

    However that charade is increasingly becoming harder as the Pell survey shows and that is bad news for those retailers, fast food companies and other businesses based on the 1960s consumer model.

    All is not lost though, the vast majority of those falling out of the middle classes in 21st Century America – or Australia, the UK, Canada and New Zealand – will still have lives far richer and healthier than those of the middle classes a hundred years ago.

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