Finance themes for the future

Finance themes for the future

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KUALA LUMPUR: The democratisation of finance, the importance of data and shifts in consumer needs and expectations are just some of the things finance practitioners and regulators may have to prepare for, says Datuk Muhammad bin Ibrahim, Governor of Bank Negara Malaysia.

He shared his observations on what might affect the future of finance during a speech at a Harvard Petronas Alumni event on Friday.

Muhammad said competitive advantages will go to those who can harness the power of technology and innovation, such as robo-advisory businesses and payment technology companies that offer more efficient services.

He said regulators around the globe are willing to go beyond the traditional banking system to  take calculated risks on innovative ventures

“There is thus, a more level-playing field and more business opportunities for non-traditional companies that are responsive and effective in meeting the financial services needs of consumers,” he said.

Data will also be critical in the future as companies control and leverage data to deliver better customer experiences, potentially changing the mantra from “cash is king” to “data is king”, he said.

The future of finance may also be less forgiving as digital market leaders take up the lion’s share of the market owing to “network effects”, where a service becomes more valuable when it has more users.

However, Muhammad believes that a “winner takes all” outcome is not ideal as there will be concentration risks.

“The only consolation I can think of is that “network effects” in the digital economy are not as durable as those found in traditional sectors such as railway networks and power grids. Google and Facebook may be at the top of their industry now, but remember there was Yahoo, MySpace and Friendster,” he said.

Finance and business models, however, will need to be redeveloped around changing consumer lifestyles and expectations.

“The transformation of finance and technology will also usher in an era of increasingly educated, empowered and activist consumers, who will scout for the best prices and services,” he added.

Lastly, Muhammad believes that technology could help to create a more socially equitable society by finding new ways to cater for the underserved groups.

“However, the evolution of finance must also be managed appropriately to avoid displacement and exclusion. This would include underserved groups and segments that are currently deemed too ‘risky’ by traditional risks metrics,” he said.