Sample these recent lines: “The paper-based QR code is very cost-effective (sticker) and does not need any maintenance. In due course, the QR codes will migrate to the dynamic version (generated from a software with the amount embedded). The payer’s software can handle multiple interoperable QR codes, allowing the acceptance infrastructure to evolve.”
In case these words read like as if from a technical journal, they are actually from a Reserve bank of India (RBI) report on furthering digital payments in India. In December, the RBI had appointed a committee (Chair: DB Phatak) to ‘examine and review the current system of QR codes in India for facilitating digital payments’. QR or Quick Response codes are those grids of black squares one sees at various retail outlets.
This article is not about QR codes and digital payments, but about how the language of finance is changing. There was a time when finance folks would talk about balance sheets, loans, equity capital, etc. The academia refined their language to include terms as heterogeneous agents, risk-based modelling and so on. Now with the increasing digitisation of banking and finance, the language is changing again.
The role of technology in finance has changed from that of a peripheral/supporting industry to taking the central stage. There was a time when bankers/finance professionals just worried about interest rates and balance sheets. The CEO of a bank was mainly interested in the flow of funds in the organisation. Now, these professionals have to worry about terms such as interoperability, platforms, apps, etc. Earlier, whether the bank servers were running on Unix or Microsoft did not matter for bankers, but now they need to know whether their bank apps are running on Android, Apple phones, and so on.
This is also being reflected in job recruitment advertisements as well. Last year, Bank for International Settlements (BIS) in a job vacancy for risk management specified the profile as one who could ‘analyse, design, implement and test bespoke .NET business applications, interfaces and services for Risk Management.’ Risk management is not just about taking care of asset-liability mismatch alone.
The BIS recently announced setting up innovation hubs in different countries to collaborate on finance and technology. In a follow-up, the BIS Innovation Hub (BISIH) and the Hong Kong Monetary Authority (HKMA), announced a tech challenge inviting new innovative technologies to resolve problems in trade finance. The novel solutions could be ‘those based on internet of things (IoT), artificial intelligence (AI), machine learning (ML), federated learning, blockchain/ DLT or quantum computing!’ The notice also mentions a platform-based approach, integrated databases, etc. in one breath.
Trade finance at one point meant export-import invoicing, export financing and refinancing, but this is not enough in today’s world. On the lines of these innovation hubs, central banks are experimenting with sandboxes where again the idea is to bring the two fields of technology and finance together.
The digitisation of banking also complicates the traditional bank runs where depositors rushed for their money in branches. Now depositors can just click and make this happen. There is a reason that banks first freeze/disable their websites in case of some news over troubles over their finances. Even without trouble, bankers have to be alert to all possible threats on their systems which requires them to constantly update their data systems. The Central Bank of Bangladesh learnt this the hard way when it lost nearly $1 billion in a cyber-heist. The overall integration of technology with finance has become so deep that bankers cannot just leave it to their tech experts but understand it themselves.
The bankers are going to be challenged even more with artificial intelligence, neural networks, machine learning, etc. taking centre-stage in banking. Whether it is meeting last mile problems of financial inclusion or predicting financial markets, these new networks are going to lead the way. This technology was expensive and used by only a few organisations, but is likely to be used by more as it has become cheaper over the years. So it is not just bankers, but fund managers, and security analysts who have to confront this changing language as well.
To top this all, COVID-19 has manifold quickened the pace of technology in finance and this means finance folks have to learn the new language of finance quickly as well. The crisis has pushed digital technology in everything possibly related to money, banking and payments.
In fact, the technologists are quickly learning the language of finance and could topple the cart. The technology firms, such as Google and Apple, are looking at digital payments seriously and could soon be in banking. Facebook challenged the central bankers’ monopoly with its currency Libra.
The finance profession should not treat this as a challenge, but as an opportunity. The COVID-19 crisis has been kinder on those industries that have made investments in the digital space and could avoid human touch. Banking and finance, thankfully, belonged in the latter category. In a way, financial organisations have always welcomed new technologies as they are in the business of exchanging information. Just that they can no more afford to just get benefits out of the technology, but have to learn how to talk in technological terms. Or else technologists would take over space sooner than one can imagine.
(Amol Agrawal is faculty at Ahmedabad University. Views are personal.)