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The Findustrial Revolution

David Craig  President of Financial & Risk, Thomson Reuters

David Craig  President of Financial & Risk, Thomson Reuters

As a confirmed tech geek, I love disruptive innovators and lately I’ve been reflecting on the meteoric rise of platform companies like Uber and AirBnB. These companies have turned the tables on established regulated industries, and are fundamentally changing consumer behavior.

Financial services, another long-standing and highly-regulated industry, may seem a world away from hotels and taxis. Yet it also finds itself heavily disrupted by its own ‘findustrial revolution.’

So what can the industry learn from the dramatic success of companies like AirBnB? And what could an ‘Uberized’ financial services industry look like?

It’s about creating a community

Platform companies create value by connecting communities and providing an opportunity for those communities to transact.

In many ways, financial markets are the original communities.

There are no incumbents. Intermediaries become irrelevant. The challenge is to create the platform the community most wants to use: Who is a member? How easily can they connect with others? How often do they want to come back?

In many ways, financial markets are the original communities. The London Stock Exchange, for example, is one of the world’s oldest stock exchanges and started life in the coffee houses of 17th century London. It also happens to be where Baron Reuter set up his first office in 1851. He understood the value of communities and the importance of news.

Intermediaries still dominate the business-to-business (B2B) financial world – but could this change in an ‘Uberized’ world?

Customer experience must be frictionless, immediate and intuitive

The consumer side of the financial services industry was the first to experience this shift. Distribution and access to capital has changed, and alternative lending models such as crowd funding and peer-to-peer lending are substituting for traditional lending institutions. The industry is estimated to raise $50 billion next year globally.

Consumer tools and technology have transformed user expectations in the B2B world as well. Users demand immediacy, ease-of-use, fingertip access and round-the-clock availability in both their personal and work lives.

I’m reminded how dramatically customer expectations have shifted when I watch my three-year-old use an iPad. She can’t read a book yet, but she has no trouble with this technology because it is intuitive and user-friendly.

Of course, consumer banking is catching up to this new world of customer expectations, with online and mobile banking, but the B2B world is still rife with friction and complexity. Part of this complexity is driven by regulation, a friction which is unlikely to disappear. But what if the experience of regulation could be made frictionless? What if financial community platforms had regulation built in, so the ultimate users could transact without noticing it?

The financial services industry wants openness, interoperability and connectivity.

The other part of the equation is liquidity flow. SMEs are increasingly turning to alternative forms of finance and the landscape will no doubt change further in an ‘Uberized’ world:  What if a corporation didn’t need to approach a traditional bank to raise capital?  What could the digital investment bank of the future look like?

Open platform business

The customer experience must extend to everyone in the community – buyers, sellers, partners, facilitators – and be seamless for all parties. Both sides of the equation must value the platform. The more players that exist there, the more valuable it is for everyone.

To create value, you need both providers and consumers to inhabit your platform. It must be as easy to be provider on the platform as it is to be a user.

The ultimate longevity of a community is founded on the strength of the relationships within it. Community owners play a fundamental role in driving the trust and transparency required to forge strong relationships.

By being open, we are helping our clients to harness the full potential of our entire portfolio.

In our Financial & Risk business unit at Thomson Reuters, we continue to evolve to a true open platform which is helping customers, partners and suppliers to connect. The financial services industry wants openness, interoperability and connectivity. We help them to grow and expand across borders and markets, and perform efficiently, effectively and profitably. We give them unique ways to discover opportunities, cut costs, manage regulatory burden, monitor market trends and anticipate change.

By being open, we are helping our clients to harness the full potential of our entire portfolio, which they in turn can use to create value for their business.  Derek White, Chief Design and Innovation Officer at Barclays recently discussed with us how this open approach is helping Barclays connect, co-create and scale ideas that will help shape the future.

Fundamentally it all comes back to trust. It remains the key ingredient for any open platform business.

Before Uber and AirBnB, it was possible to ride in a stranger’s car, or stay in a stranger’s home, but it certainly wasn’t mainstream. These companies provide mechanisms, policies, and community-driven transparency to drive trust between counterparties.

When the London Stock Exchange began evolving from Jonathan’s Coffee House in Change Alley to the institution it has become today, it adopted a coat of arms with the motto “Dictum Meum Pactum”: my word is my bond.

Many things have changed over the last 300 years in financial services – the importance of trust isn’t one of them.

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