Last week at the same time we were still in Dubai packing after this year’s edition of Sibos. I kind of wondered why in Dubai? Especially in September. Part of the answer came from Chirag Shah, chief strategy and business development officer for Dubai International Financial Centre (DIFC): “Within a four-hour flight radius of Dubai, you have one third of humanity, USD 6 trillion in GDP and access to the emerging markets of South Asia and the Middle East.” Moreover, Dubai is considered now an essential gateway to the Africa-Asia trade route, a hub for all sorts of trade and financial flows. And maybe it is also considered some kind of model, for its engagement with the global economy via business, tourism and consumerism. An example of the Islamic capitalism rise.
But coming back to older manifestations of capitalism, this edition marked 35 years since the first Sibos. SWIFT CEO Gottfried Leibbrandt said: “This year’s Sibos has taught us that the world has fundamentally changed, and what this means for banks, for SWIFT and Sibos will provide food for thought in 2014.”
So, what has this Sibos taught us?
That technology is not the only issue posing new challenges in the future to the banking industry? Specialists say that technology developments and effectively using new technology are not the only aspects changing the face of banking and that developments in the political world have become more influential than ever. Well, that is definitely not unexpected.
That cyber-security is the main fuss now? SWIFT announced it during the opening plenary as the next step. But Sibos Issues says that while delegates were enthusiastic about the central role of technology in today’s banking industry, as many were also worried about creating a system that is safe and secure.
That regulation overload could pose a death threat to correspondent banking and that compliance related costs can prove prohibitive for small banks? On Thursday’s compliance forum discussion on “Global regulation, regional perspectives” 55% of audience members polled strongly agreed that it was more challenging for smaller players in the market to keep up with continuously evolving regulations due to resource constraints. Also, 62% of audience members polled said they had to turn away a small amount of business because of regulation, 32% saying they had turned away a lot.
That mobile payments’ role is not so clear yet to the industry? Opinion is divided between those who see an opportunity for banks to reach the 2.5 billion people who still have no bank account and those who believe it is eroding the role of banks, creating challenges related to customer interaction.
That “Banks need to have a well thought through innovation agenda” as Rajesh Mehta, regional head of treasury and trade solutions, EMEA, Citi said? With a half decade spent recovering from the financial crisis, banks now face new challenges related to regulators constantly raising the bar and new technology developments disrupting the traditional banking models.
Well, we’ve been preaching this last year at Sibos Osaka, when we said that change has become mandatory, as competition is fierce and more agile players are emerging, capturing niche markets and posing a threat on more traditional lines of business. The challenges the financial industry is facing are, in the words of Brett King, that “the bank of today is gone tomorrow; banking is no longer a place you go, it becomes something you do”. Thus new players are changing the consumer experience. We said that when announcing Allevo’s strategy to drastically change its business model, stepping away from the traditional habits of owning and controlling and turning to open & freely distributed solutions. A big cultural leap ahead and a complete change in values which affects us, as well as our customers, the banks and the financial institutions. This is all about sharing and creating a collaborative environment where ideas are born & nurtured. That leaves differentiation on services & product offer towards the end-customers rather than technical features & IT systems.
We said back then and we still believe that banks need to change their mind-set as well and start sharing their issues and trying to solve them together. This is not only about evolving on the technology scale, this is also about the way we can address rapidly changing end users requirements today and tomorrow.
Differentiation through services and enhanced customer experience is what in fact matters. Back offices are neither sexy, nor visible to customers. This is why collaboration at plumbing level allows reallocating resources, both financial and human, to creating services perceived of value by customers. So, if back-offices are not a customer honey-pot, then what would happen if these were actually the same? What if there would be a tool that would allow creating a certain level of standardization in the IT layer of financial institutions? We believe open solutions are fit for this particular setting. And that’s why we are so involved in our FinTP project, developing the first open source platform for financial transactions processing and building a community around it.
What else have we learned at Sibos? That we should think more about financial inclusion and that banking cannot be global while half the world’s population remains unbanked?
Modesty aside, we already addressed this topic at Sibos Osaka in our community session Agile Financial Inclusion. So we raised the issue of “banking the unbanked” even before the topic got hot at Sibos this year. We believe that cost for service is a true barrier to get into this area and it therefore needs to run on a different business model than a traditional “brick and mortar bank” within walking distance. This is where banks need to become creative in inventing new distribution channels. Easiest to think of is existing networks, such as gas stations, supermarkets, retail stores, mobile operators and so on.
And we also addressed the matter this year, in the Innotribe tunnel, talking about Gen Z Banking for People. What prevents people from being truly financially included is that the existing technology that can help solve the problem is not widely adopted. It already exists in the hands on Generation Z, but it is not used by banks and financial institutions to serve the best interest of the people. We even proposed a solution: a multi-component tool that can help banks make people send and receive virtual money from one to the other at a much lower cost than that of money transfer operators. The first is a tool that can centrally process all financial transactions, whereas the other two are used to connect all distribution points to achieve one consolidated flow. The front office component is an application that can be operated by representatives of MMTs, agents of the bank (gas stations, post offices, etc), other banks or branches of the same bank, ATMs. The payments initiated by all front offices are centrally collected and processed in the headquarters of the bank by the central back-office component.
We are aware that leveraging mobile technology will be vital to extending financial inclusion to the world’s poor and underprivileged. And the potential is to introduce as many as 2.5 billion ‘unbanked’ people to financial services. As Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation said, “Payments are the connective tissue that can help onboard the world’s poor into other financial services. Banks looking to extend their reach into emerging markets should be looking to leverage existing technology infrastructure to drive down costs and increase access. Tapping into mobile phone technology, which has become ubiquitous across the developed and developing world in the past decade, should form the backbone of any strategy to extend financial services to the unbanked. The technology is already there and it is advanced, mobile technology offers many possibilities through smartphone apps and eWallet services to bring payments services to people in remote communities who have never had a bank account before.”
Voorhies also mentioned M-pesa as enabling cost-effective and easy access for deposits, bill payments and sending money. Allevo empowers the systems that allow the microfinance institution Musoni to give loans in Kenya via M-PESA and in Uganda via MTN.
What we can definitely learn is that financial services play a major role in bringing people out of poverty, by providing opportunities and buffering people against risks that can change lives for the better.
This reminds me of an Innotribe session at Sibos last year that really went to my heart: “The Future of Doing Good” and the paradox the prof. Yunus brought out, that of the “banks landing money to those who already have money, instead of those who really need it”.
Food for thought? Finding ways to “enforce” social responsibility into the banking industry might be a start. Because social business is not about charity, but about expanding business models in order to actually solve social problems. About a more human centered banking approach. About making banks and their services people worthy. And we, at Allevo, are willing and trying to take this path, by offering solutions for banks to be more for the people.
Food for thought no. 2? Maybe at Sibos next year organizers will have a big session on Financial Tribes of the Future :).