Financial services leaders from across the Channel Islands on the issues at the top of their transformation agendas
One of the major challenges facing financial services organisations is not only how to adapt to meet the rapid pace of change happening before them – but exactly which disruptions to prioritise and the extent of investment they should make in them.
Often, these businesses will call on the abilities of futurists, who make their living from forecasting the important trends bubbling over the horizon and teasing out their implications.
Of course, the exact extent to which some disruptors will impact the industry is often unpredictable and hard to gauge. Many have heard the famous case of Kodak, a business that knew digital cameras were coming – not least because digital cameras were developed by one of its own people – but underestimated the impact it would have and the threat it posed to its business model.
The pandemic is another good example of the unpredictability of disruption: pandemics in general were on the radar of many futurists; the type of pandemic and the impact, for many, were not.
So, what are the big issues that will shape the financial services sector over the coming years? And what will their impact be? We asked a selection of Channel Islands business leaders about their main areas of focus right now.
Rise of the robots
Few topics are seen as being more synonymous with the future than the growing influence of technology in our lives – whether that be under the heading of artificial intelligence (AI), robotics, machine learning or automation.
The financial sector already uses automation in multiple guises – from chatbots that can answer questions from the customer, to algorithms that make lending decisions.
And the scope of what automation delivers to the sector is expected to step up sharply in coming years.
Martin Keelagher, CEO of Agile Automations and an Ambassador at Digital Jersey, predicts: “As we go forward, all the evidence suggests that how businesses automate everyday business processes within their organisations is going to be one of the biggest growth areas.”
In the financial sector, increased adoption will come as much from traditional players as it does from fintech start-ups and challenger banks built on a tech platform, Keelagher believes.
“We’ve already seen a prime example of that with how traditional banks dealt with business bounce-back loans and other government initiatives that had to be put out very quickly,” he says. “A lot of that was actually built around automating due diligence and other checks.”
Automation will also free up people in the sector to do more valuable work, says Keelagher.
“Over the past 10 years, an increasing amount of time has been taken up with questions around compliance, risk and governance. But automation can remove that from your workflow – and that time could be spent working with a client to understand their needs better and to form a more personal relationship with them.”
In wealth management particularly, says Keelagher, automation in the form of bots will be used to routinely value portfolios across a much wider range of assets than is done at present.
Jersey Finance has identified five distinct areas in which it believes technology and automation will furnish opportunities: digital assets and distributed ledger technology; fintech to solve problems through innovation; regtech, using technology to help with regulatory challenges and reporting; wealth tech, catering for the private wealth industry; and cyber security.
Amy Bryant, Deputy CEO at Jersey Finance, sees the change as somewhat generational. “Generations growing up now have always had this technology and aren’t prepared to put up with getting a paper statement once a year. So they have completely different expectations,” she says.
The death of cash
One of the most significant trends financial services companies will have to deal with over the coming years is a giant leap forward in the volume and pervasiveness of electronic payments.
Keelagher sees this as part of a bigger picture – the integration of money with other services. “Financial services and products have tended to be a standalone proposition, whereas there’s an opportunity that they could be integrated into much more of an everyday role.”
That’s already happening with the way Apple Pay and other electronic payments are built into other services. Keelagher says: “I think in the next five to 10 years, it will be unusual to carry a credit card or a piece of plastic at all.”
The increasing adoption of contactless during the pandemic has made people more comfortable with this approach. And financial institutions will also see that not issuing plastic is much greener, he adds.
Crypto and digital assets
Richard Field, Partner at Appleby in Guernsey, sees the acceptance of digital currencies as increasingly likely as we move forward. “Humans have had mechanisms of value exchange since time began – whether that was a stone you could exchange for a goat or physical money.”
Use of physical cash has diminished rapidly, he points out, and it’s only a matter of time before financial services businesses have to consider accepting Bitcoin, Ether and other crypto currencies.
One of the biggest issues they will have to face in doing so, he says, is risk-based: finding a way to become assured of the value of instruments that can be extremely volatile in pricing, and for which there is no long trail of historic data.
Another is regulatory. “Who is sitting behind these currencies and who is buying them and selling them?” he asks.
Despite those concerns, Field says the rise of crypto currencies is part of an even bigger picture: the growing acceptance of the value residing in digital assets more generally. “You can buy a digital token that represents a share in a house in Los Angeles, for example,” he says.
“And Jack Dorsey, founder of Twitter, recently sold off the first tweet that was ever sent, for more than $2.9m, in the form of an NFT [non-fungible token]. With these kinds of assets now on the market, who is going to provide the expert valuation that would say: we can lend against that?”
Climate change and ethics
Climate change is arguably the biggest single challenge the world faces, and ESG (environmental, social and governance) considerations have become a key factor driving investment across business. So how will these issues affect financial services going forward?
“Previously, an ESG policy might have been a nice-to-have, but it’s now a core component of business objectives and strategies,” says Helen Wyatt, Corporate Partner at law firm Mourant.
“Society expects it, and regulators are focused on it. In Guernsey, the spotlight has been on environmental issues, with the Guernsey Financial Services Commission adopting a thorough green approach and stating its own aim to become one of the first carbon-neutral regulators in the world.”
At Jersey Finance, Amy Bryant expresses similar sentiments. “Sustainable finance is not a trend, it’s here to stay. It’s not something you have a separate conversation on, it’s part and parcel of running a business.”
What this means in practice, she says, is that the financial sector will have to focus on developing products and services that support the transition to a greener future. That’s partly a question of meeting the needs of investors, and partly one of ensuring from a corporate point of view that the Jersey finance community has an ethos and approach that is aligned with the principles of ESG.
The impetus for sustainable finance will continue to come from a range of directions – civil society’s climate awareness, global political initiatives and investors, to name but three.
But one significant change will be the transfer of wealth to the next generation, believes Bryant. “We’re at a stage where we are seeing a massive transfer from the founder generation to millennials and gen-X-ers,” she says, “and that’s linked to a change in investor preference around their values.”
As for another part of this picture, Field says that putting purpose before profit will be a hallmark of business going forward, and financial services firms will have to accommodate that. This will particularly be a hallmark of innovation in the sector and new businesses coming through, he says. “I think there’ll be much less of a focus on pure profit or money-making than there has been in the past.”
Post-pandemic expectations
It’s early days when it comes to talking about the post-pandemic world, but it seems inevitable that Covid-19 will have longlasting repercussions for financial services businesses. The most obvious of these, perhaps, is how banks and other institutions will expect their people to work, with an increased focus on work-life balance.
“The Covid-19 pandemic has changed the way we interact, forcing many financial services businesses to equip their workforces for working from home,” says Helen Wyatt at Mourant. “The pandemic has also – quite rightly – refocused the corporate lens, and wellbeing is far higher up the agenda.”
The fact that you can do the work from anywhere could have an unexpected consequence in the shape of a more diverse workforce, adds Bryant.
“If workplaces are more accommodating in terms of where people can do their work and the hours they work, that might attract talent that couldn’t previously participate in the workforce because it couldn’t do a nine-to-five day in the office,” she says.
From a customer perspective, Field believes the pandemic has accelerated a trend towards virtual engagement. Customers will be less expectant of having personal relationships with their financial institutions, and those institutions will have to increasingly cultivate those relationships – and find new customers – by harnessing technology.