Paving the way for Financial Markets 3.0; reflections from SFF

PAVING the way for Financial Markets 3.0 - is blockchain the answer? Artificial intelligence? Internet of Things? 5G? Multiexperience? The future of digitised financial markets, we heard at the Singapore FinTech Festival (SFF) last week, is human, and it hinges on collaborations deeper veined than those that have gone before.

Marketnode was pleased to host a workshop featuring representatives from a multilateral, an asset owner and a financial institution on the subject. Deliberately designed to bring diverse perspectives to the fore, it was remarkable how their depth of experience and expectations of the future led our panellists to align to the same key tenets for the future of financial markets: identity, trust and interoperability. Interoperability not just of technology, but also of talent, to allow innovation to thrive.

Debunking the premise that legacy traditional finance firms lack an innovative spirit, the panel considered the incentives and expectations that many of these organisations may operate under - after years of innovation by iteration, habits may have formed of seeking complementary products with which to grow, rather than to expose clients to complexity and disruption. These practices, that for so long have underpinned bank growth, no longer serve them. It is time to design with the end user, not the industry, in mind.

This was the circumstance under which embedded finance, an ecosystem innovation, emerged - Temasek pointed out that these organisations blossomed from a desire to allow users a digital alternative to bricks and mortar experiences. This won them a captive audience to whom these providers could then offer an extended suite of services, even if these were outside of traditional sector or product lines.

The practice of pivoting projects to meet user needs as they are discovered underpins a responsive, relevant firm for the future, and highlights the importance of bifurcating from existing industry norms. The sentiment was echoed by Standard Chartered Ventures, who went further in championing the benefits of bringing together trans-disciplinary resources, allowing technologists, bankers, marketeers and other voices of mixed experience at the table.

The question was asked - whose job is it to innovate anyway? The markets have traditionally rewarded institutions for offering stability, not innovation and risk. Should financial institutions be investing in innovation, or leaving this to ventures who are rewarded for their experimentation? This is not a challenge unique to finance - many industries are being disrupted, and if a firm intends to survive, it has to innovate to continue. Established institutions may seek partnerships and other ways to develop new models, faced with competition not just from fintechs and finance startups, but also from Big Tech players whose customers may overlap with their own.

This begged the question of whether there were diseconomies of scale for large firms, who face greater regulatory scrutiny than emerging startups. The International Finance Corporation (IFC) shared their perspectives of some best practices employed by regulators, such as industry sandboxes, highlighting that the real and financial sectors were no longer as distinct as they once were. In middle-income countries especially, there is a strong desire by government to engage the private sector early on, resulting in increased experimentation and consultation with private organisations, as regulators focus on potential risks and are careful not to inadvertently suppress innovation.

NO LONGER SENSIBLE TO WORK IN SILOS

Critical then, in the minds of our panellists was support for the "interoperability of talent", allowing creative minds, no matter where they are in the world, to come together. This requires an alignment of interests to allow good products to be rewarded and to thrive, rather than subsumed. Historically, product creation has been associated with the startup environment, where scale requires fundraising, which can then lead to pressure to deliver returns. In today's context, this has sometimes proved deficient in aligning long-term interests.

How can financial institutions, or indeed Big Tech, break away from innovating to capture the user base that they have, and move towards enabling the best products to succeed, even if this is outside of their own ecosystem?

There are acknowledged contradictions - for example, with commercialisation and monetisation held in tension with sustainability. However, it is inappropriate to decouple the two. Without a business model that can sustain itself, sustainable initiatives become marketing endeavours. The IFC noted that this tension has created exciting opportunities to bridge development challenges and their solutions with commercial returns.

Different ways of engaging with the market, focused not just on commercialisation but also on social good, are gaining traction. Many firms, like Marketnode and Standard Chartered Ventures, are choosing to engage through collaboration with industry players, and even between those who would once have been seen as competitors. It is no longer sensible to work in silos. This sentiment was shared by the IFC, who gave the example of supply chain finance, where relationships have moved beyond financier and supplier, to a seamless integration all the way through to the end user.

How then, can we push the boundaries on collaboration across industries? Marketnode believes that the way forward is through active listening. Each ecosystem participant has an important role to play - for example, financial markets infrastructure providers such as Marketnode serve as conduits to bring regulators, clients, and solution providers together to solve pain points.

The time is ripe for tighter collaboration than ever, given technology's ability to accelerate development cycles and offer exciting possibilities in both traditional and digital markets. Countries like Singapore, which behave as hubs for innovators to encounter each other and experiment in, can serve as gateways to sustainable national, regional and global growth, providing the much-needed bridge for the interoperability of talent.

• The writer is head of partnerships at Marketnode, a digital asset joint venture of Singapore Exchange (SGX) and Temasek.