As the global financial markets continue to suffer, a
number of demands are being placed on technology, the financial
community and wider society to hasten the end of the financial
crisis, writes Ken Yeadon, CEO of
Thematic Capital.
Failures in communication are perhaps partly to blame for the
situation we find ourselves in, with market participants being
unable or unwilling to communicate the true nature of financial
risk that was being traded. This begs the question can new methods
of social communication aid financial services in the future?
The demographics of social media are compelling. A generation
immersed in online social communication will expect to be able to
access those new communication paradigms when they enter the
workplace. They have an intuitive feel for how to exploit these
technologies, and finance has to embrace them to remain relevant.
Traditional models of communication and social connection will look
quaint and anachronistic to the
Facebook generation.
Ultimately, finance must be a mirror to the society it serves -
the growth of social media reflects a revolution in how humans
communicate, and impacts the capacity of "boutique" suppliers to
participate. The proliferation of user-contributed content
represents an opportunity to empower a plethora of niche suppliers
of expertise, tools and services. The finance industry needs to
embrace that or risk being marginalised.
There is a good opportunity for whole new roles to be created as
social communication depends on the availability of pundits,
specialists, and domain experts as part of the process of social
filtering, referral and recommendation of content. Examples of
sectors that have witnessed this development include the music and
media industries. Investors will expect that level of disclosure,
peer review and transparency in their financial services
providers.
This will prove to be vitally important as new modes of social
interaction intersect with regulatory demands for transparency to
form essential strands of the current zeitgeist. Recent failures in
transparency, such as the
Madoff scandal, will be challenged more robustly at an earlier
stage, as investor decisions will be predicated on better practice,
better communication and wholesale revision of the industry's cost
structure.
So after all this, is the time right for social technologies in
financial services? Perhaps there couldn't be a better time. The
disruption to established finance industry employment and
institutional structure represents an opportunity to embrace the
capabilities of social technology. There is a significant potential
for the industry diaspora to reform around a different model of
supply for financial services, and for the various investment tools
and operational processes it uses. This has potential to radically
reduce costs, improve flexibility and deliver the various services
required to a broader base of users, whilst mitigating the scale of
investment required.
Arguably, some of these new modes of delivery are already laying
a firm foundation for these changes.
Software as a service,
virtualisation, and
cloud computing are just a few examples of new services that
have started to change the face of technology in financial services
and can already be found in the funds administration, custody,
disclosure and investor relations fields.
Where social media will take these new modes of delivery forward
is through representing a method by which these services can be
designed, discussed, discovered and delivered, making such
capabilities available to niche participants, whilst still
attaining the ever higher standards regulators and investors will
require, and avoiding a repeat of the mistakes of the past. A
diverse universe of small providers is, after all, inherently more
fault-tolerant and less exposed to systemic shock than massive
institutions with broad capability, concentrated risk, complex
organisational and operational risks, and less strategic and
technical agility.
The stage then, is set for an evolution in financial services,
it can't be long before the lead roles are assigned and the play
commences.