Event Report: The Transformation of Finance #Davos16 #WEF

Published on January 28, 2016 by R "Ray" Wang

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The Shift From Apologetic Regulatory To A FinTech Transformation

While the regulatory pressures have not subsided for the financial sector, concerns mount legacy financial and insurance providers as fin tech startups disrupt the existing landscape.   The transformation of finance panel included insights from one mature disruptor among the panelists of traditional financial services providers (see Figure 1):

Figure 1. The Transformation Of Finance Panel

@rwang0 @wef #davos2016 Transformation Of Finance

  • John Cryan, Co-CEO, Deutsche Bank AG
  • James P. Gorman, Chairman and CEO of Morgan Stanley
  • Tom de Swaan, Chairman of the Board and Group CEO ad Interim of Zurich Insurance Group
  • Christine LaGarde, Managing Director of the International Monetary Fund
  • Dan Schulman, CEO of Paypal Inc.
  • Gillian R. Tett, Managing Editor in the US of Financial Times

Key takeaways from the panel include:

  1. Fintech startups will continue to drive innovation.   Traditional institutions must learn to embrace the innovation or face stiff disruption.  The goal should be to embrace the innovation to win and no just take a defensive stance.
  2. Block chain tech is nascent but has huge potential.  While the amount in crypto currencies is at $7B US dollars, this represents a fraction of the $12T of US dollars in the overall money supply (M2).  Block chain tech will emerge to encompass more than just payments and incorporate digital identity, orchestration, and security.
  3. Financial service firms still fighting the regulatory requirements war. Regulatory environments around the world remain overbearing.  Regulatory environments will dictate how banks behave and the amount of profits achieved.
  4. Panelists feel cash will be history in 10 years.  Bankers see cash as inefficient and untraceable.  Consumers will have to fight hard to ensure that an anonymous payment mechanism remains or face a trespass of privacy despite the digitization of money.
  5. Financial services institutions hoping to remove as much human interaction as possible.  Machine learning and artificial intelligence will play a role in automating human interactions.  Financial services firms seek a reduction in labor force while augmenting human decisions for those that remain.

The Bottom Line: Business Models Will Change As Legacy Institutions Face Challenges From New Disruptive Technologies

Despite the huge regulatory burden since the Lehman Brothers crisis, the financial services market shows signs of optimization among the innovations emerging from fintech startups.   The combination of IOT, robotics, artificial intelligence, and block chain tech provide the foundation for the next transformation in finance. (see Figure 2).  As digitization continues, expect the greatest changes to come from a shift in how regulators will approach innovations.  Sandboxes and consumer led disruptions may ultimately influence regulators.

Figure 2. Constellation’s 2016 Disruptive Technologies

@Rwang0 2016 Disruptive Tech

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