Observations from the World Economic Forum

Two weeks ago, I had the pleasure of attending the Annual Meeting of the World Economic Forum in Davos. This year’s theme, ‘Cooperation in a Fragmented World’, struck me: amidst the war in Ukraine, the global cost of living crisis, and oncoming economic uncertainty, the Forum’s theme acted as a reminder to remain optimistic, as did many of the conversations I had on the ground along the promenade and at a dinner hosted by the IDA, which saw the coming together of Irish business and political leaders with our counterparts from across the globe.?

What rang true at the forum is that while it is true that entrepreneurs try mostly to see the positives, we must remain optimistically realistic. There are uncertain economic headwinds, which we have seen with the ample tech layoffs in recent months. Unfortunately, there are many venture-fuelled companies with fundamentally flawed models that in recent times didn't focus on profitable growth models. A lot of companies over invested for growth, and those companies are the ones that needed to cut hard. In a world of zero percent interest rates that we enjoyed, venture capital fuelled growth in innovation, however, it has now been revealed that some of these innovative businesses had no sound economic business model where the focus was on growth at zero profitability.

On the other hand, there are the select few that stuck to innovative business models that were profitable from the outset, and it was clear from the forum that these are the companies that will not only survive, but thrive throughout these headwinds.?

However, no matter the headwinds, economies are fundamentally better prepared for turbulence than before. This sentiment rang true at the forum.?

Companies like CleverCards in the Financial Services sector, which have used technology to bring innovation and disruption to legacy inefficient processes, in particular the payment space, enjoy a stronger future outlook; secular growth is not changing and great companies who focused on performance based profitable economic models with judicious use of capital over the last few years? are the ones that will prosper, offering the best return on capital and the highest levels of innovation.

The technology sector is impacted by over investment in an era of zero interest rates. What comes next is to be discovered, but companies that buy or license existing platforms in this period rather than building new platforms will survive.?

The dominance of payments-related conversations at Davos indicated to me that embedded finance will grow in this period, enabling businesses to differentiate their offerings to their customers and customers to glean the benefits of this innovation. We have already seen a massive increase in adoption of digital over physical in the payments space. I believe that digital will overwhelmingly replace physical in Europe and the Middle East, just as it has in Asia.?

Mark my words: the days of the plastic card are numbered. Contactless phone payments took over the promenade.?

The switch to digital is binary. Data shows that once users use their mobiles to pay they don’t go back to plastic or paper. Digital adoption in the US will accelerate, but will be slower than elsewhere given legacy embedded POS infrastructures.

Globally, financial inclusion will be accelerated as governments play their part in using platforms to issue digital cards to citizens for things such as energy payouts and social welfare payouts, eliminating fraud in the process. This will accelerate digital adoption - I’m confident of this because we saw just how quickly the world pivoted to adopt digital covid certs. Businesses will lead and do it first but Governments that want a comparative advantage need to move faster.

All of this releases much needed Government budgets to go towards healthcare, hospital capacity, reduced waiting lists and social and affordable housing.?

It will not happen overnight: it will take the drive of the business community and the will of governments across the globe. But most importantly, it will take cooperation.?

Given the acceleration of globalisation post-covid, Central Banks are increasingly introducing legislation across the globe to curb anti-money laundering (AML). The theme of this year’s Annual Meeting rings true for the financial services industry: there is undoubtedly fragmentation across markets, which makes it more difficult to curb money laundering. Platforms that are entirely digital can use geo-customised dynamic digital verification irrespective of where an employee or citizen resides or travels to, in this globalised era.

MasterCard, Visa and Amex have begun to operate the global network rail infrastructure better than any national or international railway operator.?

Thanks to these industry luminaries, we now have digital cards ‘riding’ in your mobile wallet that you can use across the world in any store or restaurant or online, however, I can’t get a train from Dublin to London! Rapid innovation has spurred these companies on to become the new leaders of the fourth industrial revolution.?

Businesses, governments , and the financial services industry need to stand up and act; in today's world, distributing rectangular plastic cards and paper vouchers across the globe is about as reductive as posting out plastic CD’s.

From a policy perspective, Governments should introduce a plastic card charge like they did for plastic bags in Ireland. It practically eradicated plastic bags from the country in a matter of months. The conversations driving this year’s WEF showed that 2023 is the year to take responsibility for change because ultimately, in the face of economic uncertainty, we have no choice but to act now, removing waste, saving money, improving controls and reducing fraud.

WEF has long been seen as a stalwart of globalisation. Globalisation is increasingly playing a dominant role in the financial services industry, as every country now has businesses and governments with employees from different nationalities at every level from CEO down to entry-level workers. Central Banks are increasingly introducing new cross-border legislation to curb Anti-money laundering (AML) and to deal with this increasing globalisation, which is likely to dominate the conversation in the payments industry going forward should it wish to thrive.?

The WEF has been through turbulent times before. Each year, the same articles come out following the meeting, questioning WEF’s relevance in the face of uncertainty or political instability. Bringing stakeholders together with divergent opinions geared towards making a more stable, secure, and prosperous economy is a valiant pursuit - one that must be attempted nonetheless, especially at an inflection point like this.?

I look forward to attending the Annual Meeting again and looking back on just how much progress we’ve made.?