Chairman’s Review: Banking – Growing with Disruption
For centuries, banking has historically been one of the few business sectors that has been resistant to disruption by technology. This is due in part, to a high level of inertia with respect to financial services by consumers who are hesitant to change financial services providers and regulations which in some cases created barriers to entry. In most markets, consumers are likely to rely on the established brands in banking and insurance which provides them with a sense of security and stability even in times of turbulence which created industries with an almost unassailable business model.
Times have changed, however. Firstly, the financial crisis had a lasting and negative impact on trust in the banking system. Secondly, the pervasiveness of mobile devices has undercut the advantages of the distribution networks that banks have built up over time. Smartphones have enabled a global payment ecosystem which has been aided by the massive increase in the availability of data and the significant decrease in the cost of computing power. There has also been a significant demographic shift whereby, millions of millennials all digital natives, are coming of age, and they are significantly more open to considering a ‘new kid on the block’ financial services provider. Lastly, and perhaps most importantly, consumers are demanding relationships and financial services that are personalized and available on demand. FinTech players now have an opportunity for customer disintermediation in ways that have not been previously possible.
Technology has always been a valuable tool for the provision of financial services; after all the abacus, the calculator, wire transfers and locally, the LINX network are all examples of how technology has changed the landscape of financial services over time. However, in today’s world, technology has made financial services particularly vulnerable to disruption in major banking business lines, such as consumer and SME financing, mortgages, retail payments and wealth management.
The advancements in technology that led to FinTech have not been lost on our leaders at home. Prime Minister, The Hon. Dr. Keith Christopher Rowley in his 2019 Labour Day message said ‘Today, technological developments are presenting complex challenges, not only to the traditional working conditions but to the nature of societies worldwide.’ Internationally; Mr. Tony Blair, former Prime Minister of Britain, speaking at the 2019 World Economic Forum, commented that countries must act and move themselves forward in today’s world by embracing the technology which is integrated into every aspect of life. He warned that any country which does not adopt technology will find itself in the aptly named ‘Digital Divide’ – separated from the rest of the world. He added that citizens of a country must themselves also embrace technology or face being divided from those who have adopted.
Trinidad and Tobago, which is still the leader in financial services within CARICOM, with the most robust infrastructure and a large pool of highly skilled talent (facilitated by GATE) must act decisively to maintain its leadership position. Our neighbours, have taken various steps to embrace FinTech and in response, we must leverage our experience, human resources and infrastructure in financial services to avoid finding ourselves being digitally divided from them. This provides the impetus and opportunity for us to expedite the integration of technology into the public and private sectors across the country.
A recently conducted assessment of the FinTech ecosystem in Trinidad and Tobago highlighted some gaps in our business and regulatory environment, which has hindered a greater level of FinTech adoption. The absence of the required policies with an uncertain time frame for the publication and implementation of such, has hindered emerging firms entering the market to provide new digital payment systems. A preference for cash transactions among individuals and some businesses, low customer migration to online and mobile banking and limited avenues to utilise electronic and digital payment channels for Government services has suppressed demand for FinTech services. Worsening performance in ease of doing business and innovation related indices, coupled with limited access to financing creates a challenging environment for FinTech firms are some of the areas identified for improvement in the assessment.
Developing a FinTech hub will open the door to many opportunities for Trinidad and Tobago. Increasingly, the efficiency and cost reduction of delivering financial services will improve our ease of doing business rankings and enhance the business environment which will make Trinidad and Tobago a more attractive location for foreign direct investments, thereby contributing to the elusive dream of economic diversification.
The building blocks to create a technology enabled society already exist, so now is the time for collaboration amongst stakeholders, in the public and private sectors such as the Government, regulators, banks, insurance and technology companies and merchants, so that we can grasp this moment and leverage it successfully.
The 4th Industrial Revolution is here and as a country we must embrace, not resist change, despite how confusing and frightening it might be at times. This of course is easier said than done. It requires a strong and focused commitment to the advancement of the society. Changes to our culture, mindset, priorities, education curriculum, business processes and other facets of life must become a reality.
At the Trinidad and Tobago International Financial Centre (T&T IFC) we stand ready to work with the financial services sector to transform the nation, making it digitally-enabled for the benefit of all citizens, so that together we can build bridges and reduce the gaps that threaten to divide us from the world.