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The Art of War
In his famed ancient text ‘The Art of War’, Sun Tzu emphasised the illusion and reality of power. Tzu explained how an army’s opportunity comes from openings in the environment which are created by a weakness of the enemy, and their inability to respond to changes on the battlefield. Translation: strength doesn’t come from size, rather from the ability to see an opportunity that others don’t.
Some 2000 years on, Tzu’s lessons have never been more pronounced than on the battlefield that is the Australian financial services industry.
It wasn’t that long ago that the industry was all playing the same game in a common environment. But then a lot of players got distracted. Financial crisis, misconduct, Hayne, large scale remediation and the illusive quest for ‘trust’. And whilst this was happening the battlefield opened, fueled by the rapid forces of technology and digitisation.
A new game has emerged
And who is dominating the new game? The payments industry. Quite simply because under this new game the currency is data, not deposits.
There are however further, irreversible trends at play that have enabled the spectacular rise of payments and digital assets in Australia.
These accelerating trends are inevitable, and the financial services industry needs to understand and watch them closely to identify opportunities to maintain, and or grow revenue and margins. Some will guard against complacency, whilst others will take a longer term view, prioritise investment and make the change required to ensure future success.
Where are we heading?
Several Senate and Regulatory driven inquiries are currently underway which are seeking to address critical questions, and allow government and regulators to form a “house view” on the future landscape. Critical to the success is the need to define and embed a regulatory framework for the new game, one that promotes Australia as a global leader in innovation in the financial services industry and where Australian consumers are protected.
Our overarching observation of the current landscape – a new game has emerged, and the success of defining the new rules cannot be downplayed as a trend. The role that banks have traditionally played, as the cornerstone of the industry will change. In a world where fiat currency is replaced with a CBDC, and where capital is allocated based on decisions made using data models and artificial intelligence the need for ‘safekeeping’ deposits and allocating loans will be challenged. And whilst many incumbents are waking up to the change and applying new rules, they are ultimately still playing the old game.
More to come…
Caroline is a Partner in Deloitte’s Risk Advisory practice based in Sydney, Australia. She has over 18 years of experience consulting to clients across the financial services industry, specifically banking, wealth management, FinTech’s and the payments industry. Caroline has a strong understanding of the Australian regulatory landscape and best practice risk processes, advising her clients on how these can be enhanced to drive commercial outcomes. Caroline is passionate about delivering risk solutions that leverage technology to surface risks and compliance issues in a much more comprehensive and cost-effective way.