19.01.2017

WHO WILL DOMINATE IN THE FUTURE OF FINANCE?

The penultimate discussion of Caspian Week 2017 addressed the challenges facing the finance world today, and the opportunities it can grasp tomorrow.
Caspian Week Conference: Day Three (Davos, 2017)
New technologies can make financial services more efficient and effective, but also threaten to disrupt the existing system. With many parts of the world still reeling from the Great Recession of 2008, what is the way forward?

Kaspar Bänziger chaired a panel of financial experts, including Stephan Murer, former CTO of global Bank, Adriano Lucatelli, the founder of Descartes Finance, Eric Knight, CEO of Knight Vinke, Pierre-Edouard Wahl, the director of blockchain research at Credit Suisse, and Rehan Chaudhri, retired partner of Altrinsic Capital. Kaspar began the debate by asking about reforming the financial services industry. The panellists offered differing views on who holds the power in the finance world and what must be done to democratise it. Rehan Chaudhri predicted that developing countries would start to boom due to energy innovations, and that as a result the traditional financial centres would disappear. Pierre-Edouard Wahl said blockchain and other new technologies would be at the heart of a new finance revolution. This technology, he said, can make the finance sector "more libertarian, emancipate it, give individuals more control over their lives", thereby upending the current system. Such a revolution is greatly needed, according to Adriano Lucatelli, as the current financial system is "broken". Stephan Murer said that technology could replace the fundamental functions of finance in the same way it has in the entertainment and media industries – industries that have been completely transformed by technological progress. In future, he said, new players like Google and Facebook might become big names in finance, and although predictions were hard to make, he expected structural changes.

Eric Knight then gave a long, captivating talk on his experience in the finance industry. He saw companies such as EON declining dramatically because they couldn't deal with the new realities in the financial system. Many other companies needed restructuring and were in danger of going bust. According to Eric, a solution would be to move away from the existing asset allocation paradigm. Many banks, he said, were operating as though everything was still the same as in the 1990s. Eric believes the finance sector actually needs to get bigger, not smaller, as banks were in the process of scaling themselves down and out of existence. "It's an industry that thrives on size". Despite promising technological advances, he stated that he was a great believer in good management, and would take that over robots any day.
Other panellists then discussed the impact technology could have. Rehan Chaudhri said that female education has been proved to have a bigger impact on growth than technological advances. He added: "I think technology might make us more efficient, but will also make us more vulnerable. After the crisis we printed so much money, active management has to be there. We won't make money where money has previously been made, so we need to look at new opportunities." Stephan Murer thought technology would make a difference on a micro level, but would have little visible effect on the macro level. Eric Knight agreed that technology would influence certain sectors, "like Uber has destroyed the taxi industry and Airbnb is destroying the hospitality industry", but he wasn't expecting a new miracolo italiano or trente glorieuses any time soon.

During the questions segment, Martin Roed of Maxi Shipping asked about how changes to the investment system could help lift developing countries out of poverty and encourage peace. Pierre-Edouard Wahl answered that technological advances could assist in distributing wealth more effectively. Stephan Murer said that blockchain was a good example, as one of its first uses was in sending remittances back to migrants' countries of origin. The future of finance is unclear, and there are challenges on the road ahead, but the disruptive influence of new technology might be just the shot in the arm the finance world needs.
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