Technology to the rescue?

In my previous blog on the BIS (Bank for International Settlements) report, I examined how in the years following 2008, monetary policy had contributed in bringing the financial industry away from the brink of collapse. I concluded that we need – now more than ever - to do more and co-operate, especially in the face of adversity.

As the BIS's report picked up, there are events beyond the control of the financial sector, firstly the changing political global landscape and secondly new technology as a way of driving efficiency and profitability in financial markets. As I'm sure you know, return on equity for banks has taken a major hit since the financial crisis, particularly in Europe.

Technology may be one way of addressing some of this drop while at the same time ensuring that the business models of banks do not necessarily return to the levels of risk we witnessed on the run up to 2008. This is obviously a topic that both I and my colleagues have talked about at length before, and so I don't want to go into too much detail about specific implementations here; however it's worth noting that technology is not solely a way of generating efficiencies for existing players but also a way of creating entries for new entrants.

For instance, a recent whitepaper by the World Economic Forum makes a valid point advocating granting third party entrants access to otherwise well-established sectors. Regulations such as PSD2 will act as significant drivers, promoting competition in the financial industry as new entrants seek ways to foster disruption and innovation. By opening the sector to new entrants, you bring in with it fresh blood and fresh ideas. After all, sometimes all one needs to improve an otherwise stable and well-established sector is a new view on it, a new set of eyes. The right kind of technological input has the potential to completely transform the financial sector as we know it (while addressing the drop of return on equity).

While technology and new entrants have the potential to right some of the events that are beyond our control, they should not be considered holy grails. In the past, we've made the experience that it is the joint effort that ultimately advances a cause for the benefit of all, and this should be no different.