Interviewed By The Asian Banker
The founder of The Asian Banker, Emmanuel Daniel, outlined new criteria by which the banking industry will be assessed after the pandemic, including being able to help rebuild society in a sustainable manner.
Here is the transcript:
What if the pandemic that is raging around the world right now ends suddenly? Most of us will go back to the work and the life that we are familiar with, the people we are familiar with, the jobs that we’d been doing before the crisis. We might even forget some of the things that we’ve been learning in the last few months.
But life is not ever going to be the same again. Just as from the days of the bubonic plague in the 14th century, this pandemic is going to result in entire societies being transformed in the years ahead.
My name is Emmanuel Daniel. I’m the founder of The Asian Banker.
Since 1996, we’ve been in the business of evaluating the financial services industry. We take stock of how they’re run as businesses and how they’re responding to the challenges facing the industry.
Every year at about this time in April, we run rankings and we publish our rankings in our website in a very transparent manner that takes a look as to which institutions are being competitive and being responsive to their customers’ needs.
Traditionally, we take a look at the management quality, the vision and the integrity of the management team. We take a look at the operations and technology of the respective institutions, how they are run at the backend. We take a look at their people and their people management strategies. We take a look at their risk management strategies, and a number of other elements that you will find on our website.
We also take into account what customers say about their respective institutions. We have a website called BankQuality.com where we invite customers of banks from around the world to talk about their local bank.
From the compliments and complaints that you publish on our website, we get a lot of data that we are able to use to assess the individual institutions. Over time, we’ve been able to follow and track how the industry has been transformed already.
For example, in the area of technology, when we say technology, we used to mean a huge physical mainframe that’s set in the middle of the bank, surrounded by thousands of employees, building code that became products and services to its customers. But going forward, when we say technology today, what we mean is the technology that sits in the hands of you and me as consumers, as customers that the banking industry now needs to plug into.
We also mean the technology that is developed by armies of independent developers who now no longer work for individual banks, but whose networking effect in the ecosystem is something that the banking industry has to plug into.
In other words, just on the infrastructure element alone, the industry has started to look very different. It has become more dependent on the society that it serves.
To be fair to the industry, it has been undergoing tremendous stress – unprecedented in its history – just on the business front.
In the first two months of this year, it underwent a liquidity crisis, which was averted by central banks providing liquidity in the major market places. Right now, it’s undergoing a markets crisis, where the valuation of the assets that it owns on its books have been devalued dramatically and will continue to be so for the foreseeable future. And then there is a credit crisis coming up as customers are unable to meet their obligations.
But there is a far more fundamental transformation taking place, which I want to spend time on. As a result of the pandemic, rebuilding entire economies is going to take the efforts of the entire society working together in an organic manner. For that reason, the financial services industry cannot be a for-profit, standalone institution in its own right, deriving its profits at the expense of society. It needs to have a model by which it is part of the community that it serves.
For these reasons, we are now putting in place four new criteria by which we will assess the financial services industry.
Firstly, we want to see the level of digitisation. I know that many banks around the world are very proud of the amount of technology that they have put in place to become digital institutions.
But, all of us know that the industry was found wanting during this crisis. From London to Singapore, from Australia to Japan, from South Africa to parts of Europe, we were hearing anecdotal stories of how individual banks were deploying delivery boys running around town to be able to complete transactions in an era where digital identity and digital certification already exist.
So, the digital agenda cannot be one where the industry dictates to the rest of society what it’s entitled to. It’s the other way around. The rest of society has to dictate to the financial services industry how it needs to deploy and service society in a digital format.
Secondly, we want to take stock of the ways in which the whole idea of risk management evolves in the banking industry in a way that the financial services industry derives its risk management profile from the communities that it serves.
Today, banks get their credit risk modelling, for example, from traditional credit bureaus that are both historical and static, when new models already exist to be able to assess small businesses, for example, in the context of their supply chains that they serve, as well as individuals in the context of the communities that we belong to. The whole risk management modelling of financial services has to change over time.
Thirdly, we want to see the financial services industry deploy more of its own funds in a manner that is relevant to the society that it serves – its own funds, not the funds that it redeploys as a result of government backstops and government guarantees, which are essentially taxpayers’ money being redeployed to the financial services industry in a way that it can profit from. The banking industry needs to demonstrate skill sets as well as commitment of its own resources to society.
Fourthly, we want to include the dimension of social capital. Social capital is the means by which businesses start to derive their own value by the value they generate in the communities that they serve. We don’t know yet what the ingredients of this social capital will need to be, that we can monitor in a quantifiable manner, but this is an entire new dimension that needs to be built over time.
The global pandemic also puts regulators to be scrutinised more closely. We need to ask if regulators are guilty of having overregulated a number of new innovations that are coming into place in such a manner to make them look more like the traditional banks that they are familiar with.
In fact, I would even encourage those who want to think about innovation in finance not to start from the financial services industry because you will almost immediately be regulated, but to build financial services on the back of other innovations taking place in society and then reconstructing how finance should be part of that.
We now already see in areas like gaming and entertainment entire communities and transactions and values being generated, that eventually can find their way back to financial services in a way that will not be overregulated. Even those who say that their jobs have been to promote the future of financial services industry and greater liberalisation will need to come under scrutiny.
The entire fintech phenomenon has lost its way. The fintech industry has become a subset of the traditional banking industry – a productivity tool and nothing more. In fact, the fintech industry spends more of its time constructing itself as an investable asset for the venture capital players than it does reconstructing prices, costs, processes, and making financial services more inclusive.
You might actually work in a bank right now and wonder what your jobs are going to look like going into the future. In fact, you might actually be working from home and thinking what your skill set should look like when your institution starts to acquire your skill set in new and different ways. You are probably going to be more valuable working in a network of skill sets than in being loyal to any one institution. This remains to be seen, but that whole transformation is already underway.
In fact, your children or your grandchildren, or your nephews and nieces might be asking you, what is it that you do in a transaction between two parties that could not be reduced to a line of code? With all of these transformations coming into place, we need to put in place new criteria to evaluate the industry, new standards by which to hold it to account.
There will be great tension between the traditional players and the transformation that needs to take place. There will be great resistance in the traditional players. They would want to be able to define those changes in their terms. And yet, society will need financial services to become an organic part of the process of rebuilding that will need to take place going into the future.