Future winners will embrace trends quickly
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Global financial leader sees a silver lining after a year of upheaval.
In a year characterised by disruption, the 2020 Wits alumni webinar series fittingly closed with a talk by global financial leader Dixit Joshi (BSc 1992) titled “The Future of the Global Financial Industry”. Joshi is the current Group Treasurer of Deutsche Bank, based in London and has extensive executive experience at major global financial institutions. The statistics and actuarial science graduate said that, surprisingly, the events of this year had illuminated what lay ahead for the financial industry. The full talk is available here.
Joshi offered a summary of 2020: an economic shock of unparalleled depth and speed whose consequences will take years to play out; an equally large response through government support packages, which has necessarily pushed public debt to record levels; restrictions on individual freedoms which are unprecedented during peace time; the promise of safe vaccines, which gives some scope to look ahead positively to a post COVID-19 environment.
Moreover, there remained global trends that COVID-19 would not change: geo-political tensions between the US and China for instance; the European Union’s need to redefine its place post Brexit; increased social imbalances as well as increased generational imbalances in which the debt burden – coupled with the prospect of widespread unemployment – will fall largely on younger generations; exacerbated social inequality, evidenced by many white collar jobs being done from home in contrast to manual labour; and the fight against climate change. Joshi stressed that if these challenges were not addressed adequately people would seek solutions at the ballot box. 
He said the pandemic had amplified trends already underway prior to 2020. “The winners in the financial industry of the future, will be those players who embrace and adapt to those trends quickly.”
Joshi outlined these trends to be:
- Interest rates would remain low for longer, which came with several consequences. “The search for yield by investors will continue, particularly as populations age, as investors want yield from high-risk assets, we do need to be prepared for some bouts of volatility in future.”
- The decline of cash would accelerate. “For most of this year, cash was not only unusable, but was actually a health risk. The flu virus can survive 17 days on a bank note.” This trend will have a number of implications: digital alternatives to cash will spread faster, not only as a means of exchange but as a way to store value. “We’ve seen the rise of cryptocurrencies and the risks. We’ve seen spectacular frauds like OneCoin and more completely unregulated shadow banking systems with all the risks.” Joshi said this means policymakers and regulators will face pressure to act faster in integrating digital alternatives into the existing financial system. We’re likely to see more work done on central bank digital technologies.
- As our lives become more digital, more transactions will be online. “Financial service providers will have to deliver more online solutions for customers,” he said. These digital technologies will also provide opportunities for more structural cost saving for the banking industry, which is vital if we are to live with low interest rates for much longer. From machine learning and artificial intelligence we will see more support for tasks and decisions. “We’ll see further migration to the Cloud as financial services firms around the world will face increasing pressure to automate infrastructure processes.”
- It is in this digital era that scale will be more important. “Scale becomes critical not only because of the scale of transformational investment needed, but due to the competitive advantage of monetising returns on investment over larger customer bases. This is particularly important in Europe, where banking and capital markets have remained fragmented and cross-border consolidation has been slow. Of the world’s top 20 banks, by market value, only two are from the Eurozone and nine of the top 10 are US or Chinese. “As Europe defines its place in the increasingly muscular geopolitics of the 21st century, banking and capital market union are more important than ever.”
- The financial industry can be a vital enabler in tackling the global climate emergency. “Most governments in leading economies have made commitments to renewable energy as part of the fight against climate change. These commitments are of such a large scale that they can’t be financed from the public purse alone and are dependent on public-private investment. At a time of regulatory constraints on balance sheets, the capital markets become more critical in helping turn savings globally into capital for investment. Sustainable financing is already a growth area and this will accelerate as governments approach key targets to decrease dependence on fossil fuels – such as phasing out of petrol and diesel engines in the next 10 to 20 years.” Sustainable financing through the green bond market and ESG [environmental, social and governance] investing are likely to become part of the mainstream. Banks will come under increased pressure to scale back or discontinue the financing of fossil fuel energy and other business activity that contributes to global warming.
- Financial inclusion is an historic opportunity. “Around 1,5 billion people, 20% of the human race, remain outside the banking system and that is a fundamental barrier to reducing some the most extreme examples of social inequality,” Joshi said. “One of the priorities for the financial industry in the digital era is to seize opportunities to increase financial inclusion. For example, iris or other recognition and other digital ID services solves the problem of literacy. Online or telephone banking transforms the economics of low-value transactions.” Businesses are increasingly thinking globally, but acting locally (glocalisation). “So for that reason, financial inclusion becomes not just a priority, but a social and a moral duty for the financial industry of the future.”
In the banking industry, business models that relied on certain levels of net interest income need to be re-examined. “Dynamic balance sheet management becomes even more important. As treasurer to one of the industry’s largest balance sheets I’ve witnessed this first-hand.”
A committed and proud alumnus, Joshi has retained a key Wits value, to use one’s professional role to deepen social engagement. He reminded participants: “Combining academic excellence with social engagement is what makes Wits a truly unique institution.” This sentiment was echoed in his summary: “We will become more digital (not only in the way we reach customers but also in the way we manage our core processes front to back); we will become more scalable (as digital solutions increase and industry consolidation gains momentum); we will be more sustainable (and play our part in tackling one of the great challenges facing our world in the 21st century); we will be more inclusive (making our contribution to transforming the lives of some of the most disadvantaged of our fellow human beings).”