Working out priorities in the brave new world of fintech

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There was no mistaking the enthusiasm, even the passion, among the luminaries and delegates on the first day of the Dubai Fintech Summit 2023.

Essa Kazim, governor of the Dubai International Financial Centre (DIFC), struck a note of gravitas in his welcome address with the assertion that “we are at the crossroads of history,” in a world where economic slowdown, inflation, climate change and sustainability all present big challenges to the established financial infrastructure.

The implication is that fintech – the application of advanced technological systems to the financial process, whether in digital currencies, payment systems, risk analysis or regulation – can play a big part in helping meet those challenges.

Fintech in all its forms has no doubt been a driving force in the impressive growth of the DIFC, and will be the main motor behind the next stage of its development, the DIFC2.0 masterplan.

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But there was, in my view, a disconnect between the brave new world optimism of the fintech enthusiasts at the event, and the more down-to-earth concerns with real world problems which the big financial institutions – many of whom were represented at the Madinat Jumeirah – are facing today. These include rising interest rates, liquidity and credit issues, the potential (and pitfalls) of artificial intelligence (AI), and the complications caused by environment, social and governance (ESG) considerations in finance and investment.

A motivational video at the glitzy event included the line “we ain’t done with the disruption yet.”

In the circumstances, many in the audience might be forgiven for preferring stability to more disruption.

Jenny Johnson, president and CEO of Franklin Templeton which has $1.5 trillion under management, was very aware of the potential of digital and AI technologies: “Embrace it, don’t fight it. It’s like water running downhill. It will find a way,” she said.

Compared to the hundreds of billions of value destruction caused by the recent mini-banking crisis in the USA and Europe, the rise in the value of bitcoin – for many virtually synonymous with fintech – was a “distraction”.

Another hard-nosed banker, Bill Winters, CEO of Standard Chartered, admitted he was “not cool enough to be a tech guy.” But he said all the right things about fintech, and about its central role in the UAE’s economic life, pointing to the launch of Zodia (backed by StanChart), a digital custody initiative, in the region.

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But what really got Winters’ interest were more fundamental issues: the increased chances of bank runs in an era of digital information, the recent deaths of “solvent” banks in the USA and Switzerland for want of liquidity, and the still-menacing concept of “too big to fail” banks.

On the big unknown facing StanChart – the prospect of a takeover or merger with a regional or global rival – Winters was sanguine about his bank’s prospects of carrying on as an independent, but would of course talk to anybody if it was in the shareholders’ interest. The prospect of “dating” Noel Quinn, the CEO of HSBC, however, was “absolutely horrific.”

Another panel also brought the fintech fun back down to earth. A session on “collaboration between fintech and regulators” saw a candid assessment of the place of ESG in the new financial world.

Bryan Stirewalt, former CEO of the Dubai Financial Services Authority, said that while a lot of attention was focused on the environmental aspects of the new investment regime (the “E”) and there was much debate about social factors (the “S”), without a proper governance structure (the “G”) neither of the other two can work. That seems like plain common sense.

In the opening sessions at least, there was little mention of the area which seems to me to hold the biggest potential for advancing financial technology: the development of a truly global system for payments and for providing facilities to the unbanked population.

The World Bank estimates that roughly 25 percent of the world – 2 billion people – do not have access to any form of banking facilities. Providing those, mainly in developing markets, with efficient payment and credit systems, and digital mobility, would seem to be a worthy priority in this brave new fintech age.