Remarks – Jean Boivin
Deputy Governor of the Bank of Canada
Presented to: Montréal CFA Society
I am very pleased to be able to deliver this speech today to the Montréal CFA Society—my first speech in Quebec as a Deputy Governor of the Bank of Canada. As active stakeholders in the Quebec and Canadian economies, you are at the centre of the economic life of the country. Thus, I don’t have to tell you that the past few years have been challenging.
Barely three years ago, the financial crisis was a source of major concern worldwide. This unprecedented event had serious and costly repercussions, which we continue to feel today.
In the aftermath of the crisis, the global economy entered a recession that we can rightly characterize as “great.” Economic activity in the G-7 countries dropped by more than 5 per cent. According to the International Monetary Fund (IMF), the number of unemployed persons around the world jumped by more than 30 million, most of them from advanced economies.1 This is a striking figure, especially when we think of it as almost equal to the entire population of Canada.
The Canadian economy was not spared: It still faces major difficulties, and significant risks remain on the road ahead. Yet, it is also true that the country’s economic prospects have improved since the crisis, as we see in Montréal, which has enjoyed the strongest growth among Canadian urban centres. In fact, coming out of the recession, Canada is a leader among the G-7 countries. Employment and economic activity have surpassed their pre-recession levels. In light of the progress we have made, we can now ask: What was the real extent of this recession? What are the lessons to be learned, and what are the implications for the future?
The purpose of my speech today is to reflect on events that are still fresh in our minds. Let us remember, however, that the answers to these questions will become clearer over time, as new data and analysis become available.2
The Recession: First Impressions
At first glance, the answers seem simple. After all, a recession is defined as a generalized and sustained decrease of economic activity, of which the broadest measure available is GDP. It would then appear that our task is simply to measure the extent of the decrease in GDP during the most recent recession and then to compare this decrease with other, similar episodes in Canada, or elsewhere. Child’s play, you might think.
This could be the first approach that our descendants—future economists, yet to be born, with no inkling of what we just lived through— would take: to study and compare economic cycles in Canada. Examining the economy from this angle, they would observe that the recession of 2007–09 did not seem to be any more serious than previous recessions in Canada and that, in fact, it was much shorter (Chart 1). The behaviour of employment would seem to confirm such a diagnosis: employment losses were much less serious and, compared with other recessions of the past 30 years, jobs were regained much sooner (Chart 2).
But any diagnosis based on a narrow, mechanistic reading of statistical measures of economic activity could prove to be false, or at the very least, incomplete. If our descendants were open-minded enough, they might be led to examine some of the headlines from this time:
« L’Économie canadienne paralysée », La Presse, le 31 mai 2008
“A Financial Drama with No Final Act in Sight,” New York Times, 14 September 2008
« Nous sommes au milieu d’une crise grave », Le Droit, le 25 septembre 2008
“ It Couldn’t Get Worse, But It Did,” New York Times, 12 October 2008
« L’économie canadienne s’atrophie encore », La Presse Affaires, le 2 mars 2009
« Nous étions au bord de la catastrophe, » Le Devoir, le 18 juillet 2009
On the basis of their preliminary diagnosis, our descendants might wonder what all the fuss was about.
Let us hope, however, that curiosity spurs these future economists on to further inquiry. Behind this first impression hides a much more complex reality. Canada’s economy weathered a very violent storm, but thanks to wise precautions and appropriate navigation, it arrived safely in port, damaged perhaps, but still afloat.
The Global Economy on the Edge of the Precipice
But we cannot judge the severity of the storm on the basis of a safe arrival. Let’s go back to the autumn of 2008. Ministers of finance and central bank governors from around the world meet in Washington. The tension and anger in the air are palpable. After the credit bubble burst in August 2007, the financial crisis spread like wildfire. The liquidity crisis turned into a solvency crisis. In September 2008, the crisis worsened, and its effects were felt throughout the entire American financial system, triggering a series of events at breathtaking speed. In very short order, we witnessed the bankruptcy of Lehman Brothers and the nationalization of Fannie Mae and Freddie Mac.3 The contagion then spread to Europe, where key British, German and Belgian banks were either nationalized or needed major bailouts. Stock markets registered their greatest drops in more than 75 years.
The spectre of the Great Depression of the 1930s hovered on the horizon, reminding us that recessions following financial crises are usually longer and more difficult than others and leave behind indelible scars.4
Implications for Canada
Although Canada was not at the epicentre of the crisis, the contagion can spread through a number of transmission channels. The financial crisis was clearly leading to a massive slowdown of global economic activity, with a direct impact on foreign trade. Since three-quarters of our exports are destined for markets in the United States, experience taught us that when the United States sneezes, Canada catches a cold (Chart 3).
Further, with the increasing integration of the global economy, the fates of national economies are much more closely interrelated, even more than might be expected based on the scale of our international trade.5 A global financial crisis, therefore, can affect Canada not only through international trade, but also by weakening financial markets, shaking consumer and business confidence, and postponing capital investments, in light of the high level of uncertainty.6
Phase One: Sudden Slowdown
For all these reasons, the financial crisis was expected to have a significant impact in Canada, and for the first phase of the cycle, this was certainly the case.
During the last recession, GDP declined by 3.3 per cent over three quarters. In contrast, over the same period of time in the 1980s and the 1990s, it fell by 2.2 per cent and 1.9 per cent, respectively.
A prominent feature of the recent recession was the spectacular drop in exports. Exports were harder hit than in any previous recession, decreasing by 16 per cent over three quarters, while the most significant drop during the recessions of the 1980s and 1990s was only 8 per cent (Chart 4).
Investments were equally hard hit by the recession. There was a 22 per cent downturn in investments over just three quarters (Chart 5). Nothing like this has ever been seen. It took two years during the 1980s recession, and three years during the 1990s recession, before a downturn of comparable magnitude was recorded. This recent decline in investment is partly due to the exceptionally high levels of uncertainty haunting the global economy.
In sum, the recent recession was different from previous ones, owing to a more pronounced slowdown triggered by unusually steep drops in exports and investment. During its initial phase, the effects of the crisis in Canada—albeit to a somewhat lesser degree—were comparable to those in the United States and showed real signs of becoming a “Great Recession” (Chart 6).
Phase Two: Rapid Recovery
Despite the rapid slowdown, the recovery was faster than those that followed previous recessions. Why?
Neither exports nor investments can provide the answer. While GDP has recovered to pre-recession levels, business investment and exports have only recovered 45 per cent and 67 per cent, respectively, of the losses incurred during the recession.
If the recovery was speedier, despite weaker contributions from investment and exports, support for the recovery must have come from household and government spending. This was indeed the case. Household spending declined by only 2 per cent between 2009 and 2010, compared with 6 per cent during the previous two recessions. The contribution of government spending to growth was more than one percentage point in each year.
The greater strength of household and government spending reflects Canada’s favourable position at the outset of the recession. Major adjustments had been made to the structure of the Canadian economy. Business and household balance sheets were relatively sound, and the banking system was robust, managed prudently, and sufficiently capitalized. Canada’s monetary policy framework had been effective and was credible. The fiscal situation was favourable, and the social safety net and regulatory framework were effective. As well, household spending was boosted by the prosperity arising from strong demand for our natural resources and by improved terms of trade.
This favourable position gave Canada the flexibility it needed to respond strongly to the crisis without compromising the credibility of our public policy frameworks. Thanks to the expansionary monetary and fiscal measures adopted in concert with other G-20 countries, Canada was able to support domestic demand which contributed significantly to the economic recovery.
Important Lingering Issues
In Canada, then, we had room to manoeuvre to help us effectively absorb the aftershocks of the global economic crisis. It is essential to maintain this buffer in light of the elevated risks that still exist worldwide and the structural issues that persist in the Canadian economy, even after the recession. The standard of living that we will be able to sustain in the medium term will depend, in fact, on our ability to address these issues.
Allow me to address three of these issues: household indebtedness, international competitiveness and, more importantly, our productivity.
Let us start with household debt. Since the beginning of the recovery, household credit has increased at twice the rate of personal disposable income. In the autumn of 2010, Canadian household debt climbed to an unprecedented level of 147 per cent of disposable income (Chart 7).
The relatively healthy financial condition of Canadian households at the beginning of the “Great” Recession helped the Canadian economy to better withstand the initial shocks of the crisis. However, going forward, it is essential to maintain the necessary room to manoeuvre to keep household spending on a viable path. This leads us to believe that the rate of household spending will more closely correspond to future earnings, and certain signs to that effect have already been observed.
Canada’s International Competitiveness
The second issue is our ability to compete internationally. The slow recovery of exports is due in part to the sluggishness of global economic activity. It is also due to the continued erosion of Canadian business competitiveness over the past ten years. This erosion can be attributed to the appreciation of the Canadian dollar and Canada’s poor productivity performance. Thus, Canadian exporters are seeing their market shares for a wide range of goods drop in the U.S. market—by far the most important market for Canada—while exporters in other countries, such as China and Mexico, are gaining ground (Chart 8).
As global economic growth continues to take root, we are seeing early evidence of a recovery in net exports. But, at this point, exports are still weak when compared with previous recessions. And in a world of growing international competition, we should not assume that the forces causing the erosion of competitiveness through the previous decade will simply fade away because of a global recovery.
This situation highlights the need to diversify our export markets and increase our ability to compete, not only with American producers, but also with other foreign exporters.
Productivity and Investment
This brings us to the third issue. As I just discussed, international competitiveness is based on our ingenuity, the efficiency with which we produce, or, for short, productivity. But beyond its influence on international competitiveness, productivity is a fundamental determinant of our economic well-being. To improve productivity, we need investment.
The slow recovery of investment in this cycle is particularly surprising in light of relatively favourable financial conditions: interest rates remain low, and the exchange rate facilitates imports of machinery and equipment.
The elevated level of uncertainty experienced during the recession, especially from a global perspective, was a major hindrance to business investment. This uncertainty was not confined to our borders: the link between uncertainty and business investment was clearly evident in the economies of the United States, Germany and the United Kingdom.7
Yet heightened uncertainty is only part of the explanation. Although the recession in the United States was more serious and Americans faced at least the same degree of global uncertainty as we experienced in Canada, Canadian business investment in machinery and equipment lags behind that of the United States (Chart 9). In 2009, Canadian workers had access, on average, to approximately half the capital expenditures in machinery and equipment and information and communication technologies (ICT) of those available to their American counterparts. This is not a new phenomenon. In fact, between 1987 and 2009, Canadian investment in machinery and equipment and ICT per worker represented, on average, 77 per cent and 59 per cent, respectively, of similar American investments.
It is true that business investment started to recover at the end of 2009. Yet much progress remains to be made: less than half of the extraordinary drop in investments of the last recession have been recovered. With the increasing globalization of markets and the demographic challenges we face, maintaining our standard of living will require improved productivity. We must continue to innovate and to invest in promising projects.
Conclusion: Perception vs. Reality
We are fond of repeating the old adage: “An ounce of prevention is worth a pound of cure.” Recent experience expands the notion and shows that good prevention measures can also make the cure more effective. Before the Great Recession, Canada was able to protect itself by ensuring that it had room to manoeuvre to absorb the shocks of the crisis. The lessons we learned from the past were reflected in the adoption of sound public policy frameworks. A solid position, combined with the relatively healthy state of Canadian households, gave us the flexibility to withstand the worst effects of the global shock.
Future economists studying the 2007–09 recession in Canada may find it difficult to go beyond their first impressions and assess its true impact. Some will undoubtedly surmise that the economic activity of this time did indeed reflect, not only the extent of the shock, but also our ability to absorb it. The storm we weathered was a major one. We should not forget that it could have struck at a time when we were more vulnerable and less flexible. Things could have unfolded very differently, with disastrous results.
It is some comfort to know that, collectively, we were able to limit the damage. We must proceed with the strategy that has served us so well: continue to learn from our experiences to ensure better prevention and, when necessary, a better cure. For this, we must strive to deal with the issues that confront us with strength and determination.
- M. Dao et P. Loungani (2010), "The Human Cost of Recessions: Assessing It, Reducing It," IMF Staff Position Note No. SPN/10/17, International Monetary Fund, 11 November. [←]
- With the publication of the national accounts for the first quarter of 2011, scheduled for 30 May, Statistics Canada will begin a historical review of the past four years. [←]
- Officially, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. [←]
- In the decade following a financial crisis, growth of annual GDP is usually one percentage point lower, while the unemployment rate is generally five percentage points higher. See C. Reinhart and V. Reinhart (2010), “After the Fall,” National Bureau of Economic Research Working Paper No. 16334. In a recent study conducted with its international partners, the Bank estimated that the costs of a financial crisis for an economy represent about 63 per cent of GDP. See Strengthening International Capital and Liquidity Standards: A Macroeconomic Impact Assessment for Canada (Bank of Canada, 2010). [←]
- Empirical studies show that the links between countries are particularly tight when countries simultaneously sustain the same shock. See, for example, J. Boivin and M. Giannoni, "Global Forces and Monetary Policy Effectiveness," in International Dimensions of Monetary Policy, J. Gali and M. Gertler (eds.) (Chicago: University of Chicago Press, 2008). [←]
- Recent research at the Bank of Canada has empirically demonstrated that the financial channel plays a key role in the transmission of shocks originating from the United States. See K. Beaton and B. Desroches, “Financial Spillovers Across Countries: The Case of Canada and the United States,” Bank of Canada Discussion Paper No. 2011-1 (2011); and K. Beaton, R. Lalonde and S. Snudden, “The Propagation of U.S. Shocks to Canada: Understanding the Role of Real-Financial Linkages,” Bank of Canada Working Paper No. 2010-40 (2010). [←
- See R. Bachmann, S. Elstner and E. Sims, “Uncertainty and Economic Activity: Evidence from Business Survey Data,” National Bureau of Economic Research Working Paper No. 16143 (2010); N. Bloom, “The Impact of Uncertainty Shocks,” National Bureau of Economic Research Working Paper No. 13385 (2007); and N. Bloom, J. Van Reenen and S. Bond, “Uncertainty and Investment Dynamics,” National Bureau of Economic Research Working Paper No. 12383 (2006). Many older studies on this issue are also available. See, for example, B. S. Bernanke (1983), “Irreversibility, Uncertainty, and Cyclical Investment,” The Quarterly Journal of Economics 98 (1): 85–106. [←]
Source: Bank Of Canada www.bankofcanada.ca
What is loneliness and how can you manage it?
By Iris Schaden Your Business and Personal Coach
A mere century ago, almost no one lived alone. Today, many do and it is not unusual. The recent lockdowns and isolation periods have amplified feelings of loneliness. But why do we feel lonely? Why do our bodies experience social pain? Learn about what we can do to improve our situation, prevent chronic loneliness and minimise the tremendous impact it has on our health.
Solitude and choosing to be alone can be bliss. Over the last sixty years the number of people living alone has increased in developed countries by more than 50 percent. In countries such as Denmark, Sweden and Switzerland, it is very common for people to live alone. But this does not translate into higher levels of self–reported loneliness. Many people have friends or family they can interact with on a regular basis.
However, it is important to recognise that this choice is different to loneliness, which can be a state of profound distress. Loneliness is a purely subjective and individual experience that can be felt by anyone, no matter their social, educational, gender or age demographic. Humankind are social creatures by nature – we struggle without it – and social connections are important to our health and emotional wellbeing.
Loneliness is a problem when we feel that no place is home; when we are in a group and we still feel social separation; when we spend time with our family but we feel like we don’t belong; or when we lose a relationship and struggle to adjust. It is a growing phenomenon in modern times, a by-product of our individualism, long-distance study and career opportunities or time-consuming work commitments.
The pandemic, with its required isolation and social distancing, has added additional stress to many households, but feelings of loneliness or adverse effects of social isolation are particularly prevalent in one-person households and young people aged 12–25. According to a study by VicHealth, even before COVID-19 young adults and adolescents reported high levels of loneliness, social isolation, social anxiety and depressive symptoms. Additionally, it is men who tend to report higher levels of loneliness than women.
Reported loneliness is on the rise. In 2017 and 2018 former US Surgeon General Vivek H. Murthy declared ‘an epidemic of loneliness,’ and the UK appointed a Minister of Loneliness. In these two countries, one in five adults reported that they often or always feel alone; in Australia, it was one in four adults. And this was before COVID-19, which makes us realise the mental and emotional impact lockdown has on individuals.
What happens to our bodies when we experience loneliness?
Neuroscientists, such as John Cacioppo, identify loneliness as ‘a state of hypervigilance whose origins lie among our primate ancestors and in our own hunter-gatherer past’. Our ancestors needed to belong to an intimate social group to survive. Cacioppo explains that our bodies respond to being alone, or being with strangers, as though we were in a dangerous situation.
Separation from other people (the group) triggers a fight-flight-or-freeze response and we feel social pain. While physical pain is primarily a sensory experience, social pain is the emotional state that comes from the distress of being lonely. Like the bodily sensation of hunger, it alerts us to a need, but instead of food the need is social interaction.
Loneliness generates anxiety: our breathing quickens, our heart races, our blood pressure rises and we struggle to sleep or sleep well. If we don’t pay attention, over time we start to act more fearful, defensive and self-involved. All of these actions drive others away and tend to stop those experiencing loneliness from doing what would benefit them the most: reaching out to others. It is a vicious cycle and one that is especially challenging for older and younger individuals.
Tactics to help cope with feelings of loneliness.
To belong is to feel at home in a place or situation where you feel included, comfortable and connected with others. In his assessment, Vivek H. Murthy wrote, ‘To be at home is to be known … You can feel at home with friends, or at work, or in a college dining hall, or at church, or in Yankee Stadium, or at your neighbourhood bar. Loneliness is the feeling that no place is home.’ Having relocated to different cities and countries and re-establishing my life over and over again, I can certainly say that loneliness can be a challenge.
How can we combat the feelings of loneliness and the anxiety that comes with it, before it becomes chronic and we find ourselves even more isolated over time?
The first step in moving forward is acknowledging how you feel. Give those feelings a name with a specific timeframe; for example, today I feel alone or since I’ve been in lockdown, I have felt alone or since I lost my partner, I feel disconnected and lost. By doing this, we focus on the present and do not label our entire existence as lonely.
My personal strategy is to go outside if the loneliness gets too ‘heavy’; connect with other people through looks and smiles (even under a face mask our eyes can smile); call friends and family regularly; or schedule a brunch or glass of wine with friends (in person or video chat).
Practising random acts of kindness and gratitude, for others and ourselves, is another very effective and very positive way of bringing us back into the present moment and improving our overall wellbeing. Energy flows where our focus goes. It takes effort and sometimes it is indeed easier to just give in and watch a light-hearted movie on the couch. And that’s fine too!
If you are ever experiencing loneliness, I recommend exercising your social muscles and also seeking support. Remember that your feelings are normal as we are biologically fine-tuned to being with and interacting with others. However, you will need to make changes to avoid jeopardising your health. Once loneliness becomes chronic it becomes self-sustained and you will begin exhibiting defensive behaviour. As a defence mechanism, loneliness makes you assume the worst of others and you (your brain) become hypersensitive to social signals that might be interpreted as hostile towards you, when in reality people might just be trying to help you.
Large studies have shown that feeling lonely has a tremendous impact on your health: it can make you age quicker, cause dementia to advance faster, weaken your immune system and lead to anxiety and depression. Many people turn to substance abuse which only serves to numb the symptoms, rather than treat the source. And while you can find so much information online, knowing is not enough. Remember that reaching out for help is not a sign of weakness but one of strength. So please reach out to your network, talk to your health professional or get in contact with me.
There are different ways to improve your overall wellbeing. Let’s discuss.
Payments in a pandemic: UK consumer trends emerging from COVID-19
By Philip McHugh CEO at Paysafe
The outbreak of COVID-19 has been a global catalyst impacting many industries, including payments. It has forced consumers to adjust to different ways of purchasing goods and services; according to our latest Lost in Transaction research, a survey in which 8,000 consumers globally were asked about their payment habits, over half (54%) of UK consumers said they have used a payment method new to them since COVID-19 began.
This change in consumer behavior will serve as a tipping point for the payments industry. Consumers are demanding more choice, and more convenience in how they pay, with 84% of people we surveyed admitting to thinking about payments differently in 2020.
Here are four trends coming out of the COVID-19 pandemic we believe will permanently alter the global payments landscape.
- Major shifts to digital
This pandemic has not only been the impetus for change from consumers, but for businesses too. For cash consumers, particularly those who are unbanked, the short and long-term impact of only having to access to products and services digitally is going to be substantial. Providing a smooth transition from retail to online payments will be key. According to our research findings, COVID-19 has led 21% of UK consumers to try online shopping for the first time and 12% using a digital wallet for the first time to make an online payment.
Digital merchants must take this into strong consideration when thinking about the evolution of their checkout. There are many viable options, including incorporating an eCash solution to give the buyer the option to maintain cash as their primary payment method, or introducing a digital wallet that enables people to shop online without sharing their financial data with merchants and potentially compromising their financial security. By 2023, digital wallets are expected to become the most popular online payment method in the UK, accounting for 33% of the market.
Already, nearly half of UK consumers (43%) said they increased their online shopping habits because of restricted access to high street stores and this percentage is expected to grow further. It’s vital that businesses begin to diversify their payment offerings otherwise they’ll fail to meet consumer expectations and risk losing out to their competitors.
- The growth of contactless
Despite the World Health Organization not issuing an official warning against using cash, the psychological perception of the safety of handling cash has made an impact. Nearly two thirds (63%) of UK consumers surveyed said they will be using contactless more in the short term due to health and safety concerns, and 61% saying they are happier using contactless now than they were last year.
At the end of March, cash usage in Britain halved, according to Link , operator of the UK’s biggest network of ATMs. In addition, contactless card limits for in-store spending rose from £30 to £45 to cut the need for physical contact in shops. Increased adoption of mobile wallets like Apple Pay or Google Pay across all generations may be on the horizon, making payments more accessible to society. Restaurants and pubs are also encouraging the trend towards cashless as well, such as prompting people to use an order-ahead app to pay for drive-through orders or removing the need to press a “pay now” button before a contactless payment.
- The importance of remittances
With travel restrictions still in place around the world, sending money home quickly, seamlessly, and cost-effectively remains more vital than ever. Half of consumers have given money to family or friends since the crisis began, and nearly a quarter (20%) have done this at least three times. According to our research, 74% of consumers would use a digital payment method to send money abroad, either through a digital wallet, direct bank transfer, or online money transfer services. Effective remittance channels are needed to combat specific issues caused by this crisis, including being financially inclusive for those needing financial support for the first time and who may not have a bank account, or access to digital payment methods because of displacement and isolation.
- Embracing the power of technology
Our recent Lost in Transaction research shows that consumers are already adapting to challenges in purchasing, including getting to grips with alternative payment methods, and it is the industry’s job to make those methods even more accessible to society. Both payment providers and online retailers must adapt in line with the demands of consumers, and the requirements of the situation. Ultimately, the accelerated change and improvements made to digital commerce throughout this pandemic will pave the way for the future of both digital and in-store payments.
Once the world resumes ‘business as usual’, the payments industry, guided by changing consumer behavior, will develop further thanks to new technologies such as 5G technology, artificial intelligence and automation – all helping to speed up transactions, improve in-store payments, and enhance user experience. Online and mobile banking will become more ingrained in the mainstream and consumers will come to expect a fully-integrated, unified experience across all channels and touch points. We were already on this path, but the pandemic has served to accelerate consumer appetite for enhanced products and services.
FinTech Landscape: Synergy and Disruptive Innovation in Investment Banking
By Mr. Kunal Sawhney, CEO at Kalkine
While technological leaps seem to be defining brighter future for some businesses in the post-COVID era, FinTech continues to thrive and transform the landscape of financial services industry. It is about staying ahead of the curve in this race against grabbing a bigger chunk of market amidst shrinking consumer and business confidence – as adoption of advanced technology can be the secret sauce in attracting and retaining customers in the digital era.
Asset management, insurance and lending companies are some of the prominent segments in the broader financial segment that have very swiftly embraced the latest digital technologies. Looking at Investment Banking (IB) space, while COVID-19 pandemic initially brought the sector to its knees, latest trends in financial technology adoption seem to be getting them back on their feet, driven by advanced and streamlined offerings pertaining to M&A advisory, risk management and financial assets management.
In general, we have heard about versions – Fintech Version 1.0 & Fintech Version 2.0, but the modern theory around investment using financial technology does not end here. There is a multitude of factors that can push and prod the IB thematics while channelising the way technology can slither through and give a spin to each and every product and service in Investment Banking space. Tech-based end-to-end models appear to take things one notch up when it comes to dealing with risk profiling, lending, fraud analysis, payments etc. Let’s look at how this is made possible in today’s world:
AI Technology Penetration – The ‘New Normal’: Penetration of Fintech in IB models is charting out new growth prospects for the financial services industry, ensuring cost optimisation of due-diligence, enhancing value for M&A prospects, streamlining legal checks and advancing asset-reporting discrepancies in acquisition deals. Besides, AI-empowered actuarial software is providing a firm nudge to offering top-notch, faster and accurate risk advisory services.
Moreover, seamless utility and penetration of AI and ML in algorithm trading, stock market prediction, fraud detection and prevention, acquisition of new customers, risk profiling and network security deserve much applause. Amidst COVID-induced market volatility, technology-enabled valuation models play an important role in carving out future stock predictions and aiding sound investment decisions.
Big Data Analytics Driving Value-Based Offerings- IB players are increasingly adopting big data models in evolving and providing advanced offerings in terms of building customer-centric asset portfolio valuation models, offering trading and investment support, risk advisory and M&A support. Meanwhile, big data is also leveraged to optimize internal processes such as automated customer support, salary optimization, attrition modelling, fraud analysis, credit/operational risks, etc.
Besides, the concept of algorithm trading seems to be gaining wide acceptance across major IB players in ensuring efficient execution of financial trades and robust investment decisions without human intervention.
Empowering revolution in the IB space, adoption of unique predictive models, sophisticated statistical techniques and ensuring privacy and integrating of data is crucial here. Specific set of challenges needs to be carefully catered to, in order to ensure that big data boosts competitiveness and support deeper market penetration.
Robo Advisory – The Next-Gen Frontier: Robo Advisory engages high-tech algorithms and provides secure, faster and self-service functionality via online investment management platforms. As per market experts, asset under management using Robo Advisory is expected to grow multifold in the post COVID era.
With minimal manual efforts, Robo Advisory allows automatic adjustments and rebalancing of the portfolio allocation based on algorithms and pre-defined investment rules. The investments are entirely automated and have self-learning algorithms, while the cost of running a robotic automation tool is far less than doing the same work manually.
Cash Less Transactions – The Immediate Future: With increased comfort and safety associated with online cash-less transactions amidst current health crisis, IBs are able to improve and augment existing products and services, in addition to developing new business models. While social distancing is becoming a new normal in the coronavirus era, financial advisors appear to be harnessing the fruits of tech transformation and heightened cashless transactions.
Undoubtedly, banking giants that are fast in adopting digital technologies have an edge over their peers. However, the biggest challenge for FinTech is data privacy, as transactions that go digital are highly prone to cyberattacks. Nevertheless, digital transition may see emergence of a digital-first model in the near term, ensuring radical shift in the value proposition offered to clients, with an ever-increasing emphasis on digital toolkits and electronic market access. All in all, it’s how firms refine their transformation objectives, evolve from the lessons learned from the pandemic and review their broader strategic agenda.
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