The pace of change has never felt faster than it is now. Forget leaps and bounds; it’s an endless sprint without a finish line. Products that we purchase are out-of-date soon after and obsolete within a year. The drive for improvement, access to big data, and an understanding of changing behavioural traits and possibly the shorter attention spans of consumers have led to profits for businesses and investors adopting ‘disruptive technology’.
Defined as displacing an established technology or a ground-breaking product that creates a completely new industry, disruptive technologies have redefined the world in which we live in; Wi-fi, email, cloud storage, solar power, Uber and Amazon are prime examples of changes in technology and business models that led to massive repercussions for the world-wide economy and the triple bottom line.
Transport and energy are also likely to see major transformations in the future. Tony Seba, Lecturer in Entrepreneurship, Disruption and Clean Energy at Stanford University, forecasts a complete shift to solar power and electric vehicles within ten years. Property may also be impacted as businesses look to lease desk space as needed without incurring sizeable costs for floor space that may lay waste during quiet periods.
Echoing this belief is Elon Musk, CEO of Tesla and CEO of SpaceX and seemingly the poster boy of disruptive technology. He recently wrote a blog piece on his original ten year master plan. Having almost reached his goal of an affordable high volume car and solar power, part two of his plan is to improve solar panels, expand the electric vehicle product line, enable self-driving capacity, and inspect ways for customers to earn money from vehicles not in use. With Australia as the trial for Tesla’s solar powered Powerwall, we are at the forefront of this new disruptive frontier.
The financial services sector is not immune from disruptive technology. In Australia, financial technology (FinTech) spans across financial advice, wealth management, peer-to-peer lending, payments, digital currency, and has the potential to reduce complexity and improve efficiencies and outcomes.
Online financial applications have not gone unnoticed by Australia’s policy makers. Recently, the Australian Securities and Investments Commission (ASIC) in partnership with the Monetary Authority of Singapore (MAS) is encouraging Financial Technology startups from both countries by providing a “regulatory sandbox” for startups to test their ideas with real-world customers without having to hold a financial services licence. It also offers the governments of Singapore and Australia insight into emerging technologies and building suitable and flexible regulations in which for them to operate.
One of the biggest additions by FinTech to the finance sector is Bitcoin. Bitcoin is a digital currency that is not owned or sponsored by any country’s central bank or government. The advantage of using Bitcoin over traditional currency is anonymity (making it the currency of choice for online blackmarket places). That is not to say that it is without financial control. Blockchain, another FinTech innovation, is a digital ledger that lists all transactions made with Bitcoin, and is supported by Bitcoin exchanges that allow for the transfer of physical dollars into Bitcoins. While this may have streamlined the process for digital currencies, as all things digital they are exposed to hacking, as shown recently when BitFinex, a Hong-Kong based bitcoin exchange lost $72.3 million in a recent hack. Chief Executive and Founder of cryptocurrency comparison website CryptoCompare (via CNBC) believes “events of this nature will spook potential investors.”
The disadvantages of FinTech also extend beyond the online world and into areas with existing services – Australia Post has increasing postal costs as physical mail declines; traditional retail is increasingly losing ground to online shopping due to online’s lower income and tenancy costs; and lastly the Uber vs Taxi showdown has forced a drop in the value of Taxi Licences.
Mark Boyle, financial services industry leader for IBM Australia, believes that while these FinTech start-ups may offer leaner and more cost-efficient services than brick-and-mortar services, they lack decades of extensive data collected by long-established financial services providers. And it’s these analytics that provide an opportunity for market leaders to identify insights to disrupt the disrupters.
“If I had asked people what they wanted, they would have said faster horses.” Henry Ford
Keeping up with this rate of change is both confronting and challenging for investors using more tried and tested methods of investment. Clinton Wong, UBS Head of equity and sales, believes the market appears to be more accepting of the inherent risk involved in start-ups and investing even before the company has proved profitable.
For fund managers, finding this balance between innovation, investment, and risk is paramount to investment in the future of the economy, but also wealth generation for their clients.