I had the opportunity to attend SIBOS in Sydney last week. SIBOS is the biggest global event dedicated to banking and financial services. It sounds big, and it really was. I have been to a lot of events, but this one was impressive in terms of size, organisation, content and attendance. Because I was lucky enough to attend, I thought I would share some of my takeaways on the main issues the BFS industry is currently facing.
Now, there was almost 400 hours of content at SIBOS so don't take the below as an exhaustive recap, but in the era of digital, I think it is a good overview of the most pressing issues.
My general observation is that it's not the best time for traditional BFS players, especially for banks. They have three main challenges to deal with: the loss of customers’ trust in their practices, ethics, and services, the increasing competition from fintechs, and the need, mostly caused by the above, to digitally transform and do it quickly. Surprise surprise, the main theme for this year was 'Enabling the Digital Economy,' and here is what the industry had to say.
Open banking: fintechs are partners, not competitors Many talks were dedicated to open banking, and it is indeed a huge opportunity for the industry. Like Apple opening its API for external developers to build new apps and services its users would eventually benefit from, banks should enable external stakeholders (developers, fintechs, etc.) to plug their innovations into traditional banks. Some fintechs excel in specific areas and instead of fighting them, banks have an opportunity to integrate them. It is a win-win situation for everyone: 1) banks can integrate new cool services very fast without needing to spend the resources to develop their own 2) they mitigate the competitive effect of fintechs 3) fintechs thrive, benefiting from new business, and 4) in the end, the customer has access to a wider range and better level of service.
The increasing influence of tech giants in finance and banking. Tech giants are making inroads in many industries, and BFS is no exception. Google Pay, Apple Pay...they are attracting an increasing number of consumers, and it is only the beginning. Their key differentiators with banks are: they have a technology and innovation-based DNA, usually offer better user experiences, and have large user bases using their services every day that they can tap into.
Transforming legacy systems into opportunities. Traditional BFS actors are wondering what they should do with their legacy systems. Should they just get rid of them and replace them with brand new shiny systems that would be more efficient in the digital world? But you don't have to move just because your house looks old. When spring comes, you can clean it and change the interior, it will probably look as attractive as those new houses around the block. It is the same with digital transformation. BFS should keep the core of their systems, and clean them, which implies reconciling all the data often scattered throughout their business, and assess which applications or parts of their systems are obsolete before removing them. When the cleaning is done, it is usually easier to move forward.
Embrace AI, but beware of biases. The potential of AI in BFS is not fundamentally different from other industries. Analysing customers' behaviours to better engage with them, analysing transactions to prevent fraud, automating security alerts and sometimes reactive protocols, are just some of its applications. The engines digesting all this data improve autonomously as they digest more and more data over time. This is what we call machine learning, and it make machines generate more accurate and relevant responses depending on a situation / behaviour.
However, companies willing to start an AI project should avoid one thing: bias.
Algorithms are the mathematical input that will tell the machine how to work, what to analyse, how to react and what they should learn. The issue is that the algorithm could include its creator’s bias. Such instances have led to malfunctions in recent innovations, like a voice command software in cars struggling to understand females. Now think of an algorithm designed for risk assessment in insurance that would evaluate people differently because of their gender or race. Yes, BFS should embrace AI, but the industry need to be careful with biases. One of the remedies for biases, most speakers at SIBOS agreed, was team diversity. If companies bring people from diverse backgrounds with diverse perspectives to the teams building algorithms, it should reduce the chance for bias to occur.
The human factor in an AI world. We read this everywhere: the downside of AI and automation is the risk of job loss. Some of the conversations at SIBOS tackled the importance for organisations of reskilling existing employees instead of replacing them when planning AI/machine/robot-related implementations. The thinking process should also include how to best prepare employees for the change. They don’t necessarily know what their new role will entail and how their daily routine at work will change. Organisations should invest enough resources in clarifying those elements. They should also carefully plan their change management strategies and consider how they will provide psychological support for the impacted employees.
The potential of blockchain. Blockchain wasn’t discussed as much as I was expecting. Maybe because its potential for the industry has already been widely discussed in the past few years. There are many complex operations and processes that are foundational to the BFS industry that blockchain could either simplify, automate or secure. Blockchain can also bring more transparency in the BFS world, helping with regulations and compliance in a context of increasing scrutiny from regulators and customers over the industry's practices.
We bring the curtain down for another year