In the age of digitalisation, you can almost rely on change being constant and business agility has become more important than ever. The LINK spoke to three Member companies within the financial industry to hear how they view change in a fast-paced environment and what can be expected in the future of finance.
Speaking of the future makes you look back and evaluate the past. Comparing the finance industry of today to previous years, one of the more obvious differences is the change in regulation, which has not only increased but also hardened. Kræn Martin Andersen, CEO and Founder of finance consultancy firm Viking Invest, said: “In my opinion, the financial sector is definitely more regulated today compared to before the Lehman crash and the financial crisis in 2008”.
Further regulation will come into effect this year, creating even more challenges for global financial institutions already struggling to comply with an enormous amount of regulations. Two sweeping directives, MiFID II and the second Payment Services Directive (PSD2), will be enacted this year and create new hurdles for financial institutions.
Although regulation can hamper financial organisations, technology has helped facilitate innovation in the industry. Ulric Almqvist from Danske Bank, said: “The finance industry 20 or even 10 years ago is hard to compare to what we have today. This progression has been driven by a number of factors, but fundamentally technological advances has led the charge”. Almqvist said that the decreased cost of technology, easier access and open sourced tech, such as the the internet, have been the main drivers allowing the technological development in the sector. He said: “We are no longer simply a branch and phone network.” Andersen agreed and said that banks are now more open to listen and adapt fintech and artificial intelligence (AI) technologies compared with 10 years ago.
When asked about emerging technologies within the industry, Carl Bergholtz from merchant banking firm NOR Capital, said that technologies such as AI and machine learning will help banks understand their customer’s needs better in the future, thus helping them provide a more tailored service and better user experience. Andersen added that the amount of fintech start-ups being launched is vast and very exciting to follow.
Recently, one of the most talked about technologies that is expected to change the future of the financial sector is blockchain. Bergholtz said: “We believe that blockchain technology is here to stay and will in time become an established technology.” However, he was not as convinced of the future of cryptocurrencies. He said: “That’s a completely different topic and the jury is out on where that will finish.”
Andersen said that blockchain has not yet impacted his business, while Bergholtz claimed that it had only affected it indirectly and Almqvist said that Danske Bank had seen a positive change because of it. He elaborated and said that blockchain has challenged their way of thinking and therefore has contributed to “a more frequent and organised self-reflection”. However, he added: “This is a journey and not a sprint and we still have a long path to follow.”
Almqvist also touched upon the various challenges of blockchain and said that the main ones will be the actual implementation of the new technology as well as education. Changing systems can create a huge amount of work, especially for large corporations and it is important to be sensible in the implementation and “not simply ignore the old way of working”. Bergholtz agreed and called it a “daunting task” to implement new technology across an organisation. He also claimed that blockchain represents a fundamental change, even for digitally minded companies. He said: “Placing authority and trust into the hands of a large and distributed network instead of a traditional central management structure requires a mindset change that, for many reasons, both good and bad, are difficult for many companies to contemplate.”
But despite the challenges, Bergholtz highlighted that change is necessary and that “financial institutions will have to adapt or face the threat of being disrupted by challenger banks and other digital offerings”. He concluded that it comes down to corporate governance and said that “management teams will have to decide if they want to be leaders or followers in the new environment”.
While implementation might be a challenge, the collaborative nature of blockchain is what makes it so elegant, Almqvist argued. “By design the technology requires collaboration, and the industry has to understand what that means. Historically banks struggle with this concept,” he said. He added that the key to success is bringing everyone along on the journey and educating them. Furthermore, a shift towards a more collaborative equilibrium will probably also spur an emergence of new business models which will affect how we view the future of finance.
What to expect from the industry in the future is a debate that has been ongoing for some time but what we can establish already is that the landscape will continue to change. Almqvist advised that if as an organisation you are not “fully” embracing these changes then the future may not look so bright. Bergholtz agreed and said: “Fortune favours the brave so a proactive approach to change is recommended.” Andersen said that the global push on regulation will continue but added: “What will happen to the current finance environment after Brexit and with the current US administration is another topic.”