In cooperation with the Frankfurt School of Finance & Management, the Capco Institute hosted the Financial Transformation Forum in Frankfurt to facilitate knowledge exchange between renowned members of the scientific community and senior financial practitioners. Over 200 participants gathered to analyse and debate the digital challenges of the financial services industry. The event was hosted by Bodo Schaefer, Managing Director, Capco Germany, Austria and Poland.
Information revolution is older than you think
Digital strategies are on every bank’s agenda. The need for these is particularly intensified by the pressures from increasing regulation, agile competitors and fast-evolving technology. But none of it is new, according to Joe Peppard, Principal Research Scientist, Center for Information Systems Research, MIT.
As early as 1985, star economist Michael Porter saw the world at the beginning of the information revolution. Even then the world was facing unprecedented challenges. What’s different today is that we have better tools, thanks to digitization.
What role will banks play in the future financial ecosystem? Our experts were sceptical about whether incumbents had the skills to drive and manage these ecosystems. Digital native firms have a clear advantage here, and the most innovative companies of our time are starting to position themselves as platform providers (e.g. Facebook and Alibaba).
Nevertheless, established financial institutions could do more. They should not let themselves be downgraded to the role of purely product providers. Nor should digital innovation be used for stand-alone solutions, as it is largely done today. Holistic and joined-up digital strategies are required as well as the courage to embrace the cultural change.
Artificial intelligence – not a substitute for human intelligence
Fewer topics spur more interest and fantasy in business today than artificial intelligence and machine learning. Gregory Wheeler, Professor of Philosophy and Computer Science and Director of the Centre for Human and Machine Intelligence, traced the development of the technology from optimized online adverts more than a decade ago, through to self-learning algorithms that are making an ever-increasing contribution to our daily lives.
Although artificial intelligence is not new, the time may have finally come for a breakthrough. Today we have the necessary data, the right computational tools and the algorithms to use the technology efficiently.
Many companies are already using AI. However, it must always be regarded as a complement to human intelligence, not a substitute. It’s easy to overestimate the possibilities. Mature AI can support employees in complex, recurring tasks, for example, while also offering potential for new business models. It can free up human workforce and greatly improve results. But humans will still maintain the monopoly in creative thinking.
Successfully into the future - but how?
Successful companies find a balance between exploration and exploitation. Nils Stieglitz, President of the Frankfurt School of Finance & Management, emphasised that while companies can function on established business models and short-term profits, they must never forget to explore new developments and promote innovation. 15 years ago, Microsoft was still the non plus ultra in software, but the company has relied on existing products for too long and its business areas are now under a threat from competitors.
The banking industry has no time to rest. Future-oriented decisions are vital and firms must never let the long-term horizon out of sight. In addition, the most successful companies of our time are distinguished by a culture that embraces failure.
Our experts argued that a failure culture in an industry entrusted with customers’ money is undesirable. Nevertheless, the financial industry needs to dare new things. In times of ever-shorter innovation cycles, hesitation is dangerous. As for future leaders, success will come from an even stronger understanding of technology, but personal enthusiasm and charisma are more important than ever.
The Capco Institute delivers thought leadership to advance the field of applied finance by bringing together leading thinkers from both academia and the industry.