Book Review: The Technological Revolution in Financial Services

Technological Revolution in Financial Services: How Banks, Fintech and Customers Win Together. 2020. Edited by Michael R. King, CFA and Richard W. Nesbitt. University of Toronto Press.

Technological Revolution in Financial Services: How Banks, Fintech and Customers Win TogetherEdited by Michael R. King, CFA, Lansdowne Chair at the Gustavson School of Business at the University of Victoria and Richard W. Nesbitt, professor and executive at the residence of the Rotman School of Management in Toronto, form a valuable asset. For practitioners to have a more in-depth understanding of the growing financial industry.

Changes in banking and financial services are a constant issue. This book outlines the strategic implications of financial services companies in North America, Europe and other developed economies. The editors claim that traditional banks, asset managers and insurers (i.e. current officials) will dominate financial services. However, the most successful executives will partner with financial technology companies to provide improved and more innovative services to low-cost retail customers and small businesses. This technological revolution will benefit consumers and lead to a more open and inclusive financial system.

The book provides a roadmap for how the financial industry will evolve in response to three structural forces that are driving the transformation of global financial services:

  1. Higher regulation in the wake of the Global Financial Crisis (GFC).
  2. Innovated by new technologies, including FinTech (.0 (starting in 200)), allowing start-ups and new entrants to deliver financial products and services directly to retail customers and businesses.
  3. Demographic changes, including millennium professional improvements and the retirement of baby boomers.
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In my view, regulatory responses to GFCs had an unexpected consequence that they facilitated a wave of innovation and technological disruption inside and outside the financial industry. National regulations, such as the US Dodd-Frank Act (2010) and the UK Banking Reform Act (2013), have made the financial sector safer and more stable than ever before. However, these regulatory reforms have made the financial sector less profitable, less liquid and more fragmented. Competition has intensified from shadow banking and other regulated players.

An early source of disruption was industry insiders who left existing companies to launch entrepreneurial start-ups that drained the industry’s profit pool. In addition, according to contributor Tiff McCallum, the current Dean of the Rotman School of Management at the University of Toronto, GFC, and later business schools and bankers are forced to expand financial education opportunities. This expansion includes a renewed focus on culture and ethics, as well as considering “non-financial” risks such as employee behavior, technological disruptions and climate change. Market participants, including boards and regulators, have come to recognize the importance of culture in creating social policies that influence what people do when no one is watching. As an Assistant Associate Professor of Finance at the NYU Stern School of Business, I strongly feel that universities can offer more simulation-based experimental learning as they move the curriculum into risk management beyond traditional thematic finance subjects.

McClellan describes two mega-forces that affect the economy, economy and society য namely, technological disruption and climate change. New technologies, including artificial intelligence and blockchain, are creating new opportunities, but there should also be ways to commercialize innovation and equip start-ups with the business decisions needed for successful business. A successful example is Rotman’s Creative Destruction Lab, which helps seed-based science-based enterprises raise capital, scale their businesses, and solve market failures for business trials.

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As an avid advocate for the risks of climate change, I agree with McClellan that sustainable financing needs to move beyond its niche in the financial markets to the mainstream. This change is necessary because more extreme weather events associated with climate change are frequently creating extreme damage events. The financial sector has an important role to play in making savings more sustainable investments and in addressing new climate risks to families and businesses.

The final part of the book outlines what senior leaders in the financial sector need to do to succeed in the fintech area. Improving gender diversity is one of those tasks. According to CFA Brenda Trenoden, the former global chair of the 30% club, gender balance is not just a social issue in business, it is also a matter of performance. He summarizes a huge body of research combining gender diversity with improved financial performance as measured by accounting metrics and market returns.

In addition to listing the financial benefits, Trenoden explains how gender diversity enhances talent attraction and retention, innovation, productivity, and customer engagement. He can then ask senior leaders to take six specific steps to increase gender diversity in their organization:

  1. Identify and address hidden biases.
  2. Identify problems and set measurable goals.
  3. Provide details of gender neutral work.
  4. Change the recruitment procedure.
  5. Match women with senior sponsors.
  6. Provide female role models.

As a firm employee where 0% of the workers are women or minorities, I totally agree with Trenoden’s feelings about the importance of gender diversity, as evidenced by the improvement in financial performance.

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In short, this book will help pave the way for both incumbents and new entrants in the coming decade as the financial industry tries to put the customer first. The long-term impact of the technological revolution in banking will be enhanced customer experience. Successful financial intermediaries of the next decade will focus on customer needs, acknowledging that the industry exists to serve them.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.

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Mark K. Vasin, CFA

Mark K. Vasin, Senior Vice President, CFA, BASIS Investment Group, LLC, and Assistant Associate Professor at the NYU Stern School of Business in New York City.

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