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Dan Hooper

By Dan Hooper, director of Piccadilly Group, a niche provider of specialist test and assurance solutions to the financial services sector

The purported Chinese curse, “May you live in interesting times”, remains as apt as ever in the global financial markets and for those providing financial technology services. Fintech delivery has never been straightforward at the best of times, but the changing geopolitical landscape presents new uncertainty for a sector that has barely recovered from the aftermath of the global economic downturn.

As technology markets evolve, geopolitics has become an unlikely determining factor in a firm’s technology strategy and its ability to grow and meet the needs of its business. Whether viewed from the point of a fintech provider or consumer, geopolitical factors now almost certainly play a role in the outcome of technology projects.

Dan Hooper

Dan Hooper

Firms are having to react accordingly by adopting their own geopolitical stance. Earlier this year, a Russian IT services supplier was forced to relocate its headquarters to Switzerland in light of the growing tensions between East and West. Its clients, including several European banks, were forced to place key IT initiatives on hold until this relocation ‘workaround’ was agreed.

In a move that fuels further tensions between Russia and the West, the country recently announced that its PC makers and state-run organisations should use home-grown Baikal chips rather than US-designed Intel or AMD ones. China has followed suit and banned Windows 8 on government computers citing information security concerns, which paves the way for local alternatives such as the Ubuntu operating system.

From an IT outsourcing perspective, as Russia seeks to extend its geopolitical sphere of influence, evidence suggests that it risks eroding the certainty and confidence of using IT providers in that region.

Closer to home, growing disenchantment with the EU and the pending Scottish independence referendum have led to heightened uncertainly for financial institutions – uncertainty that could further impact technology change programmes.

On the Scotland front, several banks, including TSB, Tesco and Virgin Money, will have to decide where their loyalties lie in the face of a ‘yes’ vote. This is not to mention RBS and Lloyds, whose chequered histories and past, present and future impact on an independent Scotland will remain under constant scrutiny right up to the vote.

The possibility of a Scottish Financial Conduct Authority would further complicate an already complex regulatory landscape, particularly the impact of EU regulations on Scottish financial institutions active in the UK. Financial institutions, already grappling with existing regulatory pressures know how challenging global, regional and national compliance change programmes can be.

At the same time, the election of Jean-Claude Junker to the President of the European Commission despite the UK’s objections has been seen as a real push towards a more federalist Europe. The man himself may deny it, but Eurosceptics across the UK and beyond undoubtedly see him as someone who will push for closer European union. The irony is that in doing so, this may further their cause and eventually drive an increasingly anti-federalist Britain out of the EU. Either outcome will determine the direction of the respective financial markets and companies operating therein.

Where challenges exist for many, so too do opportunities. The government will launch industry body FinTech UK this year, based in Canary Wharf, with the aim of positioning the UK as a global leader in financial technology start-ups.

Start-ups have the luxury of being compliant from the outset, rather than having to upgrade large, legacy platforms. In fact, venture capital investor enthusiasm for start-ups has reached a new high with $10bn poured into investments in the first quarter of 2014 according to CB Insights, a research group.

Technology is now very much at the heart of everything we do in the financial sphere – and for those firms that are able to capitalise on this renewed investor enthusiasm, the changing global and geopolitical landscape means it is all to play for.

Risky markets with geopolitical uncertainty will cause financial businesses to be tentative. In Russia, for example, geopolitical concerns have been cited by the International Monetary Fund (IMF) as a potential cloud on the country’s entire economic future.

After all, financial firms crave stability in which to operate and their technology partners have the same requirements.

The question, of course, is how to spot a genuinely stable financial environment. The Basel-based Bank for International Settlements (BIS) has warned of “a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally” and even suggested that “euphoric” capital markets worldwide could be setting themselves up for yet another fall.

So what should financial technology consumers and providers be doing? Well, risk is always there but it can and should be mitigated. Markets where the political and regulatory situations are more stable offer the biggest opportunities for growth, most likely at the expense of those regions and nations where things are less certain.

The regulatory pressure on financial services firms remains enormous, and it is imperative that their suppliers remain able to deliver. Where geopolitical risk is perceived, effective use should be made of transformation, vendor-consolidation and right-shoring initiatives, which have become seemingly more common in a bid to identify wider cost savings and efficiencies.

From the point of view of the smaller fintech start-up, however, heightened investor enthusiasm proves that the current geopolitical climate has significant reward upside for those firms able to capitalise on emergent opportunities.

Global Banking & Finance Review


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