Remember the Pony Express?
It linked the American West, town by town, horse by horse. Well, the Pony Express went bust on 26 October 1861, just two days after the telegraph opened up U.S. communications from coast to coast.
Speaking to a group of Australian superannuation representatives in New York last month, Brett King – the Australian founder and New York-based CEO of the mobile banking start-up – Moven, used this story to make the case that financial services were at the same critical point in their history, and that companies needed to work out what their ‘telegraph’ would be.
Travelling across the US as part of an AIST data and technology tour, we saw the impact of disruptive technology as a reality – as a clear and present threat to the existing ways of doing business, not as some hypothetical that we’ll have to deal with some day.
The financial conglomerates we visited are responding to this by making huge investments in people, technologies and agile structures that recognise the increased importance of data, technology and cyber security. It was a wake-up call for me – as well as others on the trip.
Even the very biggest financial institutions – pension funds and banks – recognise that their existing business models are going to be transformed, and that most of the change is still ahead of us. Everyone is very conscious that the digital changes that overwhelmed traditional newspapers, magazines and the music industry are going to hit financial services with a vengeance. Just as the consumer was generally the winner there, so the focus in financial services will be in meeting the rapidly developing requirements of consumers.
A key takeaway from our visits to both leading pension funds and major US banks was the increasing use of multiparty cooperative ventures. There was reduced reliance on one or two technology vendors, and even the very largest financial institutions were looking to technology start-ups for innovation.
The impact of this change on the structure and operations of Australian super funds and their relationships with outsourced providers will be profound. The IT revolution is also highlighting regulatory challenges that are being felt across the globe. In Australia there are many examples where regulations lag behind a best practice enabled by technology.
Member statements sent by snail mail are still the default requirement; many electronic disclosure requirements are still a work in progress; some forms still have to be submitted in paper form to regulators, and there is much there could be done to streamline electronic reporting to regulators.
Meanwhile, issues of data residency, privacy and security complicate the use of cloud-based computing solutions, which are increasingly being deployed by Australian funds. APRA has issued guidance (which we understand will soon be updated) that has to be followed by Australian super funds. This guidance is regarded as reasonably onerous but it doesn’t provide hurdles that are as high as Germany’s.
The German government requires cloud solution providers entering into contracts with its agencies to provide “no spy guarantees” – so that no data will not be shared with unauthorized third parties, regardless of where the data resides.
At least one company we met with in the US was unable to provide cloud services in Germany because of this requirement! Australia’s recent Financial System Inquiry recommended the dismantling of regulatory obstacles to technological innovation. Our trip to the US highlighted just how important it is for our government to act on this.
In all areas of running a super fund, business decisions are increasingly IT decisions. Bringing together different systems and applications in a coordinated way – systems integration – will be a major challenge for super funds. So too will be keeping up with the demands of an increasingly tech-savvy customer-base.
Expect to see even more data, information and technology experts in the super C-suite.