Exploring ways for financial services firms to better prepare for events that may significantly alter the future of the industry was the focus of a fireside chat with Mike Bodson, DTCC President & CEO and Amy Webb, quantitative futurist and best-selling author, at the recent DTCC Forum 2021: Architects of Innovation.
“What will the future look like, and who will control the new reality?” Bodson asked, referring to a point Webb made about varying forms of perceived “realities” affecting markets and investors. “How are we going to differentiate between “reality” and “real”? In our industry, that slight difference of words can mean a lot, especially if it can lead to things like market manipulation.”
The speed at which markets can turn and the types of investors driving that change have increased significantly, and were illustrated by the extreme volatility in several stocks earlier this year. Companies need to know how to address these alternate realities quickly, she explained.
“Technology, meme stocks and non-fungible tokens (NFTs) have punctured the mainstream,” Webb stated, adding that some investors do not understand financial literacy and markets. Where people gather next—online forums, for example—and the way in which they make decisions will have implications that affect the industry. “These are not unrelated blips—there is a shift of how people perceive reality,” she said.
Fringe Trends
Bodson turned the conversation to the ways in which firms may identify signals of what’s coming next, asking “how companies keep focused and at the same time recognize future opportunities and challenges?“
Firms can prepare and react to what they see, while still discerning peripheral signals, Webb said, adding that financial institutions should be preparing, not predicting, to reduce uncertainty and make agile decisions more quickly.
Webb categorizes the companies adept at foresight as “Pathfinders,” citing Nintendo as an example of a future-looking organization. “Most people don’t realize that Nintendo has been around for more than 100 years, first as a manufacturer of playing cards,” she said. Nintendo has thrived through the advent of electricity, radio and television, two world wars and Japan’s economic crises.
While Nintendo is not the largest company in its space, it sets the pace by actively mapping signal data and looking at future behavioral changes and disruptions, determining how that affects risk and growth. “Nintendo doesn’t seek to understand the future of games, even though it is a gaming company,” Webb said. “Rather, Nintendo continually investigates how people will seek and create entertainment, and the company develops multiple strategic paths forward.”
Maintaining a Future-Looking Culture
Webb noted that successful firms encourage an environment that rewards constant questioning and looking for disruptions—but not out of fear or duress. Companies need to promote a “culture of intentional mind wandering,” she said.
Bodson noted the challenges the industry often faces with new technology where “innovation happens, it’s the adoption cycle that always takes longer.” He cited the initial excitement surrounding distributed ledger technology and the slower pace of identifying, adopting and rolling out new solutions to address business challenges.
Sometimes events, such as the pandemic, act as an accelerant and push technology toward greater adoption, Webb said. If the industry sees a common use case, “they should figure out protocols and standards and build what will solve the problem that happens in the future,” she said.
From a geopolitical point of view, Bodson asked Webb to compare China’s policy and approach to artificial intelligence to the United States, where it is primarily a commercial interest. Webb said that China and the US have a fundamentally different views as it relates to telecommunications and infrastructure. “We have failed to recognize China’s economic, diplomatic, militaristic and technological pacing threat,” she said. Adding to the challenge is China's Belt and Road initiative, where China is trading debt services for infrastructure.
Webb noted the shift in the global balance of power and how stakeholders need to understand that impact. “Regulators must be willing to think in the near- and long-term simultaneously, and to model plausible, but alternative futures.”