October 23 by Cory Haynes
The Finance World Loves Two Things: Control and Stability
Geopolitical risk, or global political instability—strips both away. It’s like riding a bicycle without wheels: you’re going nowhere fast. Geopolitical risk was the theme here at Sibos Conference (Oct 16-19) , held this year in Toronto Canada. What is Sibos: Sibos (Swift International Banking Operations Seminar), is an annual banking and financial conference organized by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) that takes place annually in various cities around the world. SWIFT is a cooperative society organized under Belgian law, owned by its member financial institutions with offices around the world. SWIFT provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment. As of 2015, SWIFT linked more than 11,000 financial institutions in more than 200 countries and territories, who were exchanging an average of over 15 million messages per day (compared to an average of 2.4 million daily messages in 1995). SWIFT transports financial messages in a highly secure way but does not hold accounts for its members and does not perform account clearing or settlement in any manner.
I don’t want you to think the conference was a downer, quite the opposite
The gale force winds of geopolitical risk only heighten the need for new ideas and new technologies. The prospect of technology playing the hero is quite exciting! The traditional institutions and status quo processes of the past are being supplanted by automation and artificial intelligence. A highly educated portfolio manager with impeccable financial experience earning $4MM annually is being replaced by a more efficient higher performing machine learning bot that costs pennies to run, after an initial quarter of million dollar investment. An ICO (initial coin offerings) uses of cryptocurrencies to raise capital for startups, as an alternative to the traditional fund raising through VCs or an IPO ( initial public offering)—eliminating intermediaries like lead banks and underwriters, which get millions in fees and equity.
Another technology disrupting the status quo are smart contracts, which use distributed ledger on the blockchain to allow immutable and auto-executing contracts to eliminate counterparty risk. Essentially, the smart contract converts terms and conditions into immutable self-executing code. For example, if the derivatives forward (Futures) contract for commodities called for a certain performance of a security then the contract automatically fulfills upon the price of the commodity meeting or exceeding a certain price, counterparty risk can be reduced because the monies collected or services rendered can be executed instantaneously through triggers. As an example, pork bellies are delivered at said address if price drops, OR $500M is wired immediately into an account if price exceeds pre-determined contractual price, OR MBS (Mortgage Backed Security) is automatically repurchased and deleted form the tranche, if a loan default occurs—based on the code written at a block on the distributed ledger—the contract is distributed globally on thousands or millions blocks, so its immutable and auto executable.
Technology Has No Borders or Walls
The advances in technology seem to transcend borders and even politics. The ability to transact business without government intermediaries is a way to leapfrog geopolitical instability. Technology can make the dissolution of regional treaties and regional conflicts mere dust-ups without any significant impact on commerce and trade. The desire for people to collaborate, interact and trade, far exceeds the fear and isolation. For example, take mPesa, sub-Saharan Africa’s mobile banking platform. mPesa is particularly popular in Kenya where there has been civil unrest over the past year, many banks have shuttered, and yet GDP (gross domestic product) growth exceeds 6% as more and more Kenyans use mPesa, mobile based payments for local commerce and intentional trade. Regardless who’s in power, people are still buying and selling. Another example is in South America, where even some of the largest growth nations like Brazil have assailed corruption charges in the last 3 presidents consecutively. New cloud based technologies in AML (Anti-Money Laundering) and Artificial Intelligence (AI) can calculated petabytes of data to detect patterns and predict behaviors giving assurances to banks and reigniting global lending in the region, because the technology is precise and exact. The World Bank projected economic growth at 2.5% for Colombia in 2017 in its semi-annual Global Economic Prospects report released in June 2017. The projection is over double the 1.2% growth rate forecast for the Latin America and the Caribbean (LAC) region as a whole.
Finally, here in the United States, FinTechs are no longer demonized. In fact, they are being courted and embraced by large global banks for their speed and technology, while banks offering the customer experience governed by regulatory bodies, are also bringing new technologies and younger talent into the retail and commercial business banking eco-system. In the US, the low margin environment is forcing bank CEOs create a new role, the Chief Digital Officer (CDO), whose sole mission is to eliminate inefficiencies in the organization and grow the business through digitization. At Sibos, the CDO of a major global bank stated that she was even looking to digitize their contract management for commercial client on-boarding, legal, and procurement because they wasted of 23% of their time reviewing and redlining contracts. You bet I am following up on that lead!
As Apttus drives more and more into partnering with global financial powers to solve financial problems, conference like SIBOS bring us into closer to the C-Suite conversation empowering them with real digital transformation and positioning Apttus to be a valued added technology partner, offering a bright ray of hope and stability, in times where hope and stability are so desperately needed.