by Simeon Moss, Jersey Advisory and Consulting Lead, Deloitte LLP
“Technologies are no longer just the brainchild of innovative new disruptive start-ups, as disruption from the inside – ‘intrapreneurship’ – is becoming well established, supported through evolving ecosystems and maturing and emerging technologies”
By way of introduction, I want to start with a definition of what fintech now stands for. Fintech in its current guise really started after the 2008 financial crisis and, in many people’s eyes, focused on innovative new start-up banks and the emergence of crypto currencies such as Bitcoin, established in 2009.
Simply put, fintech could be described as the technology designed to improve the delivery of financial services.
It is true that fintech companies have influenced the direction, shape and speed at which technology change has influenced every banking subsector.
However, I now hear fintech being spoken about more broadly, with the term generally being synonymous as a collective description for a range of disruptive solutions – fintech, regtech, invest-tech, insurtech and emerging ESGtech.
Furthermore, these technologies are no longer just the brainchild of innovative disruptive start-ups. Disruption from the inside – ‘intrapreneurship’ – is becoming well established, supported through evolving ecosystems and maturing and emerging technologies. With this in mind, I truly think that fintech is entering its next era.
Blurring at the edges
I would suggest that many aspects of fintech and digital transformation are now simply interchangeable. Whether disruption is an external force or one of an internal mindset shift to innovation, the rapid pace of convergence across maturing technologies is leaving financial services executives with a vast array of choices on how to meet strategic priorities and where to invest.
Technologies such as cloud computing and robotic process automation are established and maturing, while an array of emerging technologies – artificial intelligence (AI), Internet of Things (IoT), distributed ledger technologies and eventually quantum computing – will move the dial again.
Cloud-enabled infrastructure service (Iaas), software as a service (SaaS) and platform as a service (PaaS) have opened up opportunities, not only for organisations to shift from capital outlay to consumption-based operational expenditure, but also, more importantly, to redirect IT roles away from operational activities and towards developing new capabilities, increasingly in collaboration with fintech and other third parties.
Deloitte’s work with the World Economic Forum, The Multiplier Effect, sought perspectives on new capabilities enabled by existing and emerging technologies, and the multiplicative impacts they will unlock across different sectors of the industry.
In summary, the report categorised the findings into four themes:
• Establishing ecosystems beyond finance – we will see growth in the combination of financial and non-financial services offerings built round ecosystem partner relationships.
• Reorienting transaction flows – modern data architecture and enabling techniques will be used to automate the digital flow of assets and funds between participants.
• Integrating digital and physical processes – data will be embedded, related to physical processes, into financial products to improve risk and value assessment, assure identity of transaction initiators and validate the provenance of physical information while optimising product distribution.
• Reimagining core functions – organisations will perform more granular, accurate and robust calculations by tapping into leading-edge analysis methods, improving cross-enterprise data organisation.
These new technologies will help organisations overcome traditional industry legacy issues, such as understanding customer habits, attitudes and goals. They will use data to hyper-personalise product offerings and scale proactive relationships.
Addressing data fragmentation and providing a true 360° view of clients will also be enabled through increased trust and democratisation.
Converging technologies
With the opportunities offered by converging technologies, and the digital awakening Covid-19 has accelerated, now is the time to further enable your strategic thinking and conversations.
Deloitte is observing that clients who made strategic investments in emerging technology in recent years have shown resilience against new sources of competition, margin compression and volatility, and are better able to integrate acquisitions.
Few strategic decisions will be made without understanding the technology enablers to execute the strategy. Increasingly, boards are becoming digitally aware, with an innovative mindset.
So what does this mean in practice and where does fintech fit in? Increased collaboration holds the answer, supported by stronger ecosystems and regulation.
Overcoming barriers
It is sounding good so far, right? But what are the barriers to enabling the islands’ organisations to take advantage of emerging technologies? And what role must the traditional financial services firm now play?
Existing financial organisations still hold the most valuable asset in this debate – data – and they best understand the regulatory environment in which it operates, particularly when operating across multiple jurisdictions and servicing a global client base.
So traditional organisations can be instrumental in combining emerging technology, digital talent and data to build their capabilities.
These capabilities will be needed to evolve service offerings at pace and scale, and to embed and drive trusted relationships with clients, employees and investors. In support of this, the surrounding ecosystem will need to manage partnerships across many types of organisation.
The Kalifa Review of UK Fintech, which Deloitte supported in the UK, made recommendations on developing the ecosystem. But what struck me most was the sentiment that there was a lack of coordination, with not everyone pulling in the same direction.
Jersey and Guernsey are well under way in developing their own ecosystems, with great progress made, particularly on building a digital talent pool, and the Isle of Man has recently launched an insurtech initiative.
Given that so many firms operate across jurisdictions, would closer regulatory alignment on fintech deliver greater value and permit firms to invest more?
Fintech prides itself on driving customer connectivity, navigating market trends with more agility, and disrupting for the benefit of society – and this does drive competition. Regulators need to support this innovation growth and ensure that compliance is built in to protect those very same customers and investors.
Balancing the desire to innovate with regulatory certainty will always be needed, and the local sectors are continuing to gain momentum. Fintech enquiries at the Jersey Financial Services Commission’s Innovation Hub – set up to help business models and technology firms navigate Jersey’s regulatory regime – grew 24% in 2020.
Risks and ethics
New digital risks are evolving as fast as technology, as are emerging ethical concerns. Firms must recognise this – and risk frameworks and the supporting controls, processes and operational data need to be dynamic and agile in response.
Managing new digital risks, where malicious actors have access to the same technologies, could expose new capabilities to attack through the development of advanced decryption techniques, manipulation of IoT devices or sophisticated social engineering.
A focus on operational security and resilience will be required, particularly to address the ‘human’ risk factor.Ethical, social and environmental challenges also need to be addressed, particularly in understanding how machine-led systems and AI might incorporate bias, compounded by this being perceived as unexplainable.
Development of AI must address new risks of bias, sources of systemic risk, the unintentional risk of collusion and meeting fiduciary responsibilities as further customer-facing responsibilities are performed through AI.
The many established approaches to governance and regulation may not yet be suited to wide-scale deployment, despite the benefits and momentum.
My concluding thoughts are of fintech becoming an organisation’s friend rather than a competitor, and that we are just at the start of the digital age. Regtech and invest-tech will see strong growth across the Crown Dependencies and amplify the jurisdictions’ reputation for regulation and compliance, while reducing the cost to serve and empowering talent to build out new customer propositions.
Supporting ecosystems and regulatory adaption will need to continue to evolve for this to happen.
Additional information
Initiatives by the World Economic Forum and Deloitte Global: www2.deloitte.com/global/en/pages/about-deloitte/articles/worldeconomicforum.html
• This article was published in the Future View supplement included with the May-July issue of Businesslife