The structure of the financial services industry has evolved considerably throughout the past decade, as the implementation of strict regulation and advancements in technology have accelerated the need for firms to optimise efficiency.
Much has already been discussed regarding the automation of back office operations, although in the case of many of the sectors old guards, that change stops there.
Problems involving the method in which information is conveyed with clients and regulators still persist, hence the focus must now turn to revolutionising this communication, bringing front-office and middle-office processes into the 21st century.
Globalisation has removed the borders between international financial transactions, while online trading has created more market participants through the greater accessibility of complex financial products for the retail investor.
Algorithmic trading strategies and abnormal monetary policy conditions have reshaped liquid markets, demanding that firms employ more resources to understand the impact that these trends could have.
Transparency and Risk
The implementation of MiFID II and Basel III will also affect market structure. The former is pushing for greater rules surrounding transparency regarding investor information such as the cost of advice as well as products, in addition to increased transparency requirements on transactional price quoting for banks, brokerage services and trading houses.
The latter will force institutions to defend against systematic risk, bolstering capital buffers combined with a leverage ceiling.
The accessibility of new information and demand for further disclosure means that investors will not just need to manage more data, but to find new ways to communicate essential changes to clients. With buy-side risk coupled with access to the repo market becoming more challenging due to regulatory constraints, connections become essential in these illiquid markets in order to maximise trading opportunities between buyers and sellers.
One solution could be the development of a ‘matchmaking service’ that anticipates market conditions, addresses the consequences of new regulation in addition to linking traders based upon their preferences given these conditions.
However, while this may appear to be a useful fix to the aforementioned problems, the replacement of ‘financial advisors’ with ‘data specialists’ may prove to be a controversial manoeuvre. How could such a service in retail banking, for example, understand the emotional plight of a struggling small business owner as they seek a loan extension?
Another solution would be to embrace a long conceptualised, but relatively new to the market, technological advance called virtual reality (VR). VR is computer-generated information that allows for interaction in a virtual space. It is a new medium of communication that called the ‘ultimate empathy machine’.
Throughout the entirety of human history, people have tried to communicate information from their perspectives to others using different tools, ranging from cave paintings to books, televisions, computers and mobile phones.
VR is another one of these tools, although the difference is that this technology allows a person to “live” within the information instead of just receiving it. While watching a documentary on a TV can trigger an emotional response within the audience, VR goes beyond that, with users fully immersed in the situation.
The Solution for the Financial Industry
VR has the potential to be the decisive tool needed to rectify many problems in the financial services industry. This device would immediately allow for the display of dynamic data, which in turn could be simplified into a clearer form.
For example, Virtualitics is an immersive virtual space that allows people to interact with data using the Oculus Rift. This creates the chance for live collaboration and an ‘on the go’ presentation of different asset classes, volatility movements, price points, etc. Investors could communicate in the same virtual space, from numerous geographical areas in the same trading session.
The Human Aspect
Observing a particular security in a VR space also ‘humanises’ the process, psychologically improving the emotional understanding that an investor has for his particular securities. Most importantly, the use of VR helps to bridge the physical distance that is so often a problem in multi-national corporations.
Whether it is creating a direct interaction with a client in a remote area of the world, who may struggle to access a branch due to infrastructure, disability or age, to a company executive aiming to maximise investor attendance during an IPO roadshow, this technology gives clients the option of complete customisation throughout the business lifecycle.
This capability goes hand in hand with comments made by Mary Callahan Erdoes, CEO of Asset & Wealth Management at JP Morgan Chase & Co, in the company’s annual report 2016, who stated that:
“We also believe advisors and technology need to work together. Clients want to choose how, when and from where they interact with us – whether it’s through online platforms, on the phone or face to face. The person-to-person interaction becomes even more important as our clients’ lives grow more complex and they require more comprehensive advice.”
It Will Be a While
Unfortunately, it is too early to be talking about a full implementation of VR. This technology is still in its infancy, with many barriers currently preventing it from reaching its true potential. One of the biggest problems is practicality in terms of both use and comfort. For example, Oculus Rift is one of the first commercial VR headsets that bring a truly immersive experience. This is enabled thanks to a powerful computer, in room-scale trackers and a carefully designed controller allowing the user to move and interact in a virtual space.
The sizable hardware package leads to a problem of practicality because not everyone has the space to fit the equipment. Also, the total cost of a VR-ready computer and an Oculus Rift headset is around £2000 excluding the content. Finally, the heavy Oculus Rift headpiece completely covers one’s face which may lead to discomfort and safety concerns after an extended period of use.
Although Virtual Reality may be the tonic for many existing problems in the financial services sector, at this moment in time, it is unlikely to make a meaningful impact. So far, there have been approximately six million VR headsets sold according to Superdata research from March 2017, a figure dwarfed by the 363 million sales of mobile phones.
These numbers suggest that the VR industry still remains a niche market, with many analysts predicting that it will take a further ten years to become as ubiquitous as mobile phones. Overall, there is little doubt VR will grow in influence, but progress hinges upon the ability to rectify the aforementioned hardware/software problems. Even if this involves a step into ‘mixed reality’, which combines features from both VR and augmented reality.
So, for now, one’s interaction with a financial advisor will still be face to face. However, with new technology constantly implemented as companies seek a competitive advantage, one should not be surprised that meetings in the near future will take place in a different reality.
(Polo Lam, Global Marketing Assistant at Gaz VR in Madrid, Spain, co-authored this article)