5 Sibos Trends: The Future of Finance According to Banks and Institutions
Open banking, blockchain, data, and identity took center stage during a week spent at the heart of the global financial system.
This past week, ConsenSys attended SWIFT’s 41st annual Sibos convention. ConsenSys attended Sibos to announce our Codefi product suite which provides a blockchain operating system for finance and commerce. ConsenSys held multiple panels, discussions, and keynotes to share how blockchain technology will impact the financial industry in the years to come.
With over 300 exhibitors and 600 speakers addressing a crowd of over 10,000 financial experts from London and around the world, this edition of Sibos showcased the industry as technology rapidly transforms traditional financial and commercial markets and blockchain innovation in particular continues to develop its utility.
A conference is a time for large and small institutions to display their research, new products, and grand visions about where they believe the world is heading. Sibos also features leading fintech companies that are using emerging technologies to enhance the current financial system. So let’s examine the major trends of Sibos by looking at where companies are putting their mouths, and more importantly, their money.
Macrotrends in Finance and Banking
Open Banking/Finance is Coming
“Rather than seeing open banking as a threat, we can increasingly see ways to create a seamless end to end integrations”
– Megan Caywood, Managing Director Barclays
There were 12 keynotes or panels that focused on this year’s buzzword — “open banking.” Open banking, or open finance, is the concept that business networks focus on creating network effects. Obviously, banks and financial institutions are still competing, but they are working towards shared transaction data, shared IT infrastructure, and cross-compatible systems.
“The bank that embraces connected banking will increase their revenue, control market share, and increase their product services available.”
–Andrew McFarlane, Managing Director @ Accenture
Open banking is about shared services and creating platforms and ecosystem for users. It’s currently being driven by the use of open APIs, which have increasingly become mainstream topics. More accessible and seamless APIs are becoming popular as integration services and streamlining operations become priorities.
“The unbundling of products is not only happening, but accelerating.”
— Colin Payne VP and Head of NextGen Banking Capgemini Invest
Banking was once a bundling of products and services that could provide users everything they may need. Today, a customer might have 5–10 apps to manage their financial lives. Robinhood, Acorns, Venmo, and an app for every credit card or bank that an individual utilizes. As open banking further unbundles aspects of the financial industry, enterprises will need to adapt to maximize their ability to serve customers and clients.
From the crypto perspective: the view of open finance is much more, well, open. Crypto-native individuals envision a world where lending, borrowing, and other financing activities are conducted in a more distributed fashion. Banks envision open finance as a consortium or ecosystem where more users and companies are connected to provide more efficient services and better experiences.
The two visions, while distinct, share the common goal of creating ecosystems for financial services. Open banking from the finance industry will bring greater benefits to large clients and other enterprises whereas crypto-focused open finance or decentralize finance will focus on individual users and consumers. Both visions will meet in the middle to provide better services and ensure for more efficient markets.
Digital Identities for Banking
Is privacy well and truly deceased, or was it just never fixed properly? Well, put the largest bankers and aspiring technology firms in a room to formulate an answer and their answer comes down to one thing: identity. This highly relevant subject garnered a whole day’s worth of conversations at Sibos.
Identity is at the forefront of importance for digital ecosystems, data control, payments, and is a key issue in the future of finance and technology. Some of the most plausible use cases were verifiable credentials for professionals or improved KYC and AML compliance for clients. ConsenSys-backed uPort — which provides a platform that allows users to manage their ID, keys, and data on an app — announced a partnership with PwC and Onfido to use blockchain technology to combat inefficient client onboarding processes.
“A digital id is the glue that brings an open data ecosystem together.”
– Andrew McFarlane ,Managing Director @ Accenture
With a universal identity or touchpoint that is used for every platform, data provided by digital IDs will prove invaluable for any entity. However, while digital identities will provide greater connection across platforms and more seamless user interfaces, they present opportunities for greater data manipulation.
Banks and institutions are still deciding who should control identities. Users, banks, national registry, or another entity? Should users get paid for their data, or will they still willingly sacrifice their data for free platforms or added features? Major institutions are still dealing with these overarching questions and as of now remain unsure of the correct solution, while blockchain-integrated solutions like uPort are striving towards the era of agency in privacy.
Coopetition over Competition
Coopetition isn’t a new term. However, as technology evolves, it gains a new meaning. Pseudo partnerships or product collaborations are no longer seen as the epoch of collaboration. Banks are realizing that they are unable to innovative at the margins, or satisfy edge cases for B2B and especially B2C consumers. Now, multinational banks and financial institutions continuously advocated for partnering with leading Fintechs and other companies to create ecosystem networks. With the increasing belief that customers care more about experiences, large firms are seeking for opportunities to partner with startups and other institutions to provide the best experiences for their customers.
“There’s a symbiotic relationship that can be had between Fintechs and banking that can improve the services for customers. “
— Megan Caywood, Managing Director at Barclays
Network effects are the main priority. Apple’s entrance and Facebook’s attempted penetration into the financial payments world is making other banks and payments companies nervous. It’s painfully obvious that, at the consumer level, banks and financial institutions need to innovate or risk losing a significant portion of their business. The best way to develop networks ecosystems for banks is to create networks where enterprises meet the various needs of their users.
Consortia are a typical solution or mechanism for building ecosystems where enterprises can leverage their collective power to control the market. As with all network effects there can only be so many winners. The banks and financial institutions that develop the strongest consortium will ensure the longevity of their businesses.
Data as a Battleground
It’s official: data is the next battleground for enterprises. Data is becoming an issue between exchanges and the user base. Clearing fees and trading fees have been the most recent battleground, as evidenced by the success of companies like Robinhood. The next battleground will be asset pricing.
David Schwimmer, CEO of London Stock Exchange Group said as much during his fireside chat, stating that “LSE is a consumer and producer of data, and there are attractive synergies across capital markets and data.”
Schwimmer also laid out the five types of data distribution channels for the financial sector:
- Desktop terminals(humans),
- Electronic feeds
- Cloud
- Third-party
- On press/on location
LSE purchased financial market data and analytics company Refinitiv for 27 billion in August of 2019. Exchanges are focused on taking back their data from the likes of Bloomberg and Reuters. Fortuitously, ConsenSys-backed DrumG also announced the live launch of its Titanium Network for pricing fx markets.
Data has often been compared to oil, and is often touted as the most valuable asset. More broadly, stated data is becoming money. If a company isn’t handling or using data, then it is leaving money on the table. Banks and financial institutions never leave money on the table. Expect to see them try to acquire or partner with data and analytics companies to remain competitive.
As enterprises seek to harness the power of data, many also understand the liability that holding data brings. Large firms are recognizing the important steps to manage customer data, such as establishing data rights, determining the role of user consent, creating effective liability models, developing legal and regulatory frameworks, and finally actual implementation.
“We will see a clear difference between countries that have established data rights and those who haven’t” — Gavin Littlejohn, Chairman of Global Trade Association on Open Finance
Blockchain Buy-In
“The financial industry is undergoing an extraordinary change, because of new entrants like Facebook’s Libra and the emergence of technologies like crypto-assets.”
- Yawar Shah Chairman, Board Member at Swift
Unsurprisingly to anyone familiar with ConsenSys and the emergent blockchain ecosystem, the financial industry (finally) understands that blockchain technology presents various potential benefits to businesses including cost reduction from streamlining backend processes, as well as new revenue through innovative business models. The most exciting implication of blockchain technology comes in the form of digital markets via tokenized financial instruments. While Societe Generale and Santander were the only two organizations that can claim having used public Ethereum for bond issuance, other discussions, panels, and events focused on the potential for greater asset tokenization.
Hyperledger was in full force with its newly announced Hyperledger Besu, which runs on mainnet Ethereum, private, and permissioned blockchains. As companies like Santander test technological limits with public Ethereum, other firms such as SWIFT are looking into permissioned chains to enhance its underlying technology and further cement ecosystems or consortia.
The Sibos hackathon had a total of 5 teams comprised of individuals from various institutions and startups present at the conference. Interestingly, 4 of the 5 teams decided to focus their solutions utilizing blockchain technology — specifically for identity and payments.
Regulators are Building Sandboxes
We are all now well aware of complaints that regulations stall new products and services from getting to market. Thankfully, trends suggest that governments and regulators are finished with being the fall-guy and are providing more clarity, or at least striving to help foster innovative environments.
During his keynote, Sir Geoffery Vos explored smart contracts and their relationship to legal frameworks and potential future disputes:
“We should commission a legal statement with definitive guidance for crypto-assets under English law. “I want to persuade the tech and financial community to build into transactional designs a simple dispute resolution clause.” — Sir Geoffery Vos, Chancellor of the High Court of England and Wales
Enterprises and governments are utilizing sandboxes to harness the power of innovation. There are a few types of sandboxes that governments are providing to support a company’s ability to test out its new technologies. Product sandboxes are helpful for new products that may utilize emerging technologies or need market testing before becoming fully licensed. Policy sandboxes are helping governments and enterprises share a seat at the table to decide what is best, not only to protect consumers but to provide them with the best services and products possible.
The last type of regulatory sandbox is jurisdictional or cross border, which tends to be the most difficult to implement as it requires communication across multiple countries and governmental bodies. However, these also have the potential to bring the greatest benefit to creating new networks and business models for millions of users around the world.
The Future of Finance and Banking
After eating and breathing finance and fintech for an entire week of keynotes, panels, and discussion, it’s exciting to see where enterprises are focusing. Overall, as society drifts towards more open and ecosystem solutions, enterprises will seek to capture value where possible. Identity, data, and customer experiences will likely become some of the most competitive battlegrounds with large enterprises partnering with startups utilizing emerging technologies to meet win revenue and market share.
Emerging technologies around blockchain and artificial intelligence were hotly debated subjects, and will continue to garner demand as the technologies develop. But despite current trends becoming more clear, it remains impossible to predict the totality of the future. Twenty years ago, nobody would have ever suggested that users would be able to control their financial lives from a phone. In another twenty years, who knows what society will accomplish? However, it does seem clear that blockchain and decentralized, democratized technologies and philosophies will have a huge role to play in the finance of tomorrow.
Disclaimer. The views, information, and opinions expressed are solely those by the author above do not necessarily represent the views of Consensys AG. They are meant for informational purposes only, are not intended to serve as a recommendation or investment advice to buy or sell any securities, cryptoassets, or other financial products.
Any reference in this article to any person, organization, activity, products, or services does not constitute an endorsement or recommendation of ConsenSys. This article does not constitute legal or other professional advice or services. ConsenSys is a decentralized community with ConsenSys Media being a platform for members to freely express their diverse ideas and perspectives. To learn more about ConsenSys and Ethereum, please visit our website.
