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.