Banks must still act global and think smart
Banks must not be derailed by anti-globalisation forces, writes Brian Caplen. The long-term trend is for interconnected smart cities, many of which are located in Asia.
Bankers can be forgiven for being so focused on the detail that they lose sight of the bigger picture. The trend for more national regulations is leading to a balkanisation of banking and the political narrative – Donald Trump’s election and Brexit – suggests that the world is turning in on itself.
The statistics tell a completely different story. This is one of more urbanisation, massive technological advancements and the rise of smart cities able to communicate with everything (the Internet of Things) and everybody (social media). Many of these cities will be in emerging markets, especially China.
The challenge for banks will be to ensure they can operate in such a technologically sophisticated environment and have the right products for every demographic. The over-65s will have huge buying power in these future cities.
A Bank of America Merrill Lynch global research report on 21st century cities says that for the first time in history, there are more people living in urban than rural areas.
“Some 55% of the world's population lives in cities, a number that will grow to an estimated 70% by 2050, including 86% in developed markets. Cities have become the engines of global economic growth, with economic activity of about $62tn per annum (approximately 85% of global GDP), rising to an estimated $115tn by 2030,” says the report.
Of course there is a nightmare scenario in all this – of overcrowded, crime-ridden urban sprawls with creaking infrastructure and social breakdown. But there is also the potential to transform the environment bringing together the full range of artificial intelligence and robotic technologies.
Don’t assume that the past century’s winners (the US and Europe) will be the winners in the smart city race, however. Many of these cities will be in Asia in places most of us have never heard of. In Yinchuan in China’s northern Ningxia province, for example, facial recognition is already the way to pay for a bus fare and passengers faces are linked to their bank accounts, according to a report by CNN. This is one of 200 smart city projects in China.
In the book No Ordinary Disruption from the McKinsey Global Institute, the authors picked four big global trends – urbanisation, technology, ageing and global connections through trade, people, finance and data. Whether to put your headquarters in London or Frankfurt due to Brexit becomes irrelevant under this scenario – it should be in Shanghai or Kolkata.
The authors write: “By 2025, when China will be home to more large companies than either the US or Europe, we expect nearly half of the world’s large companies – defined as those with revenue of $1bn or more – to be headquartered in emerging markets.
For banks faced with more national regulations, taking advantage of these trends is going to be tough. But banks that only concentrate on Basel III and MiFID II are in danger of missing the big picture.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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