Smart finance technology takes shape at Sibos – but will banks be allowed to fail?

News | 27 September 2016

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 At a Sibos where the potential ‘Uberisation’ of financial services was dominating much of the conversation and conference sessions, its location in Geneva for 2016 was ironic. Not not a single Uber cab got anywhere near the Palexpo conference hall – only approved vehicles such as licensed taxis where you could not get downtown to any of the parties for less than CHF30 each way. So if you missed the Sibos shuttle, we all got to know the Number 10 tram and Number 28 bus rather well...

“The financial sector is experiencing a surge of innovation”, declared opening plenary guest speaker, Thomas J. Jordan, chairman of the Swiss National Bank (SNB) on 26 September (pictured below). He should know – apparently you can pay for public services in cryptocurrencies in neighbouring Zug and get cash from ATMs with a smartphone (we were struggling with the dearth of ordinary ones in the convention centre).

Striking the right balance between maintaining the haven of stability Switzerland is known for and promoting useful innovation is a task the SNB is taking very seriously. “New technologies are paving the way or new financial services”, said Jordan. While it is important, he said, to recognise that many of the financial industry’s core functions will remain unchanged, he predicted, “we may well see conventional and new technologies co-existing and blending – you could see securities settled via distributed ledger technology (DLT).”

The role of central banks in shaping how new technology would deliver better outcomes for banks and their customers was a common theme in some of the compliance sessions. Correspondent banking has been under threat as banks de-risk and retrench, but, said Alexander Karrer of the Swiss Finance Ministry, “technology can save costs but will not by itself solve the issue”. Confidence in the financial system is about state of the art risk management and banking supervision, he explained. “Capacity building is key in countries where correspondent banks don’t have access to this”.

Too scared to fail?

In an intriguing breakfast briefing from Standard Chartered, Brad Garlinghouse, COO and president of Ripple said that innovation had to be in the DNA of a business and not outside it, hived off into some sort of innovation lab outside business as usual. He pointed to the antithetical issue facing banks when it comes to experimenting. “If you are intolerant of failure, you will not get innovation”.  A visit to the washrooms was a reminder of how the UK’s James Dyson, inventor of cyclone technology-based vacuum cleaner (along with the hand drier) is completely comfortable with failure – his 5127 prototypes before hitting the jackpot being a testament to his persistence. It seems unlikely this degree of entrepreneurial tolerance would wash in a globally systemic bank.

A year ago, there were rumblings about fintechs out to “eat the banks’ lunch”, but as the DLT traction has built, there is far more focus on how regulators, banks, technology providers and corporates (keeping sight of the customer journey was a recurring theme at Sibos) can work in partnership to come up with something that actually delivers some benefit to users. If there was any danger of banks and fintechs getting too carried away with the hype, a chance remark from Deutsche Bundesbank’s Jochen Metzger that transactional reality was unlikely without regulator engagement was pretty grounding.

In the trade finance space, an example of this was the announcement from Microsoft and Bank of America Merrill Lynch that they would build and test technology, create frameworks and establish best practices for blockchain-powered exchanges between businesses and their customers and banks.

“By working with Bank of America Merrill Lynch on cloud-based blockchain technology, we aim to increase efficiency and reduce risk in our own treasury operations,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “Businesses across the globe – including Microsoft – are undergoing digital transformation to grow, compete, and be more agile, and we see significant potential for blockchain to drive this transformation.”

Not bad for Day 2.

Clarissa Dann is editor in chief of TFR and a media partner of Sibos. See her article on Switzerland,Swiss precision.

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