The world of finance is evolving at a rapid pace, driven by relentless digital disruption and an ever-increasing wave of regulations. This was never more obvious than my time at SIBOS 2023 in Toronto. The 4-day conference allowed experts, leaders, and vendors from across the industry to delve into the challenges and opportunities facing Financial Services. After several sessions, hallway connections, and 1:1 conversations, a few salient takeaways emerged that will continue to resonate in this dynamic environment.

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1. Innovation and Creative Destruction

The financial industry is witnessing a profound transformation, fueled by innovative digital technologies. This innovation, however, isn't devoid of casualties and ambiguity in terms of what “digital transformation” means. Existing firms and business models are grappling in a world where technology moves faster than institutions and lightyears ahead of regulation. However, it is also giving rise to what economist’s call "creative destruction." This process is a double-edged sword, bringing both opportunities, as well as challenges and unknown risks.

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2. Unintended Consequences

Regulations are essential to managing risk, but they can also unintentionally hinder innovation. Striking the right balance is a formidable challenge for policymakers, leaders, and corporations. They must navigate a delicate equilibrium between safeguarding the financial system. Ultimately fostering positive change and innovation while meeting the consumer demand for ease of access.

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3. Information Asymmetry

Digital Open and AI finance has the potential to enhance information flows, also amplifying concerns about data privacy, cybersecurity, and misinformation. Beyond the General Data Protection Regulation (“GDPR”) and other regulations, there are real concerns about how the avalanche of information is collected, managed, utilized, and shared. It has become a paramount security issue in this era. With generated data from Machine Learning Models and other 3rd party data sources, disinformation is becoming more than noise in the machine. Protecting individuals' data rights and ensuring the accuracy of information is a critical component of this landscape and is of utmost importance.

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4. Network Effects

Financial services is not outside the realm of the “network effect”. As open finance becomes a larger goal, the more financial products and technology platforms become interconnected. This can lead to tremendous benefits, such as convenience and efficiency, it also poses challenges. Natural monopolies and concentrations of power can emerge, and a collapse within a single interconnected system. This could cause a cascade of failures through the entire system, prompting the possibility of highly restrictive regulatory interventions.

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5. Financial Inclusion

It is always refreshing to see the Sustainable Development Goals (“SDGs”) represented at these events with such enthusiasm and drive. Getting the unbanked and underbanked into the traditional banking ecosystem allows improved access to credit, savings, payments and increased economic stability, while also benefiting financial institutions with additional account holders. The key difference in the sessions I attended was the desire to better understand the population, the reasons, and rationales that are often very different from the ones we have assumed for years. Continuing partnerships between fintech, alternative and mobile credit ratings, digital banks, and community organizations can leverage internal networks and expertise in reaching out and representing underserved communities; key steps to provide the tailored solutions needed to build a more inclusive financial ecosystem.

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6. Systemic Risk

On the lips of many bankers at the event was the collapse of Silicon Valley Bank and the chilling understanding that systemic risk is still something the industry grapples to contain. With technology, M&A, and continued consolidation of financial service providers across the globe, systemic risk is inherent in the system and can amplify overall instability if not adequately monitored. Understanding these emergent properties and proactively addressing them is a priority for risk management.

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7. Coordination Challenges

If there is one thing global public institutions like the UN or World Economic Forum gets right, it’s that larger global issues can’t be solved alone; it takes a coordinated effort between government, corporate, and regulatory stakeholders. The digital finance landscape knows no borders. Effective regulation and risk management demand international coordination, harmonization of rules, standards, and policies. Achieving this synergy among nations is a formidable but essential task in our interconnected world.

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SIBOS 2023 showcased not only the incredible potential of digital finance and payment systems but also the complexities that come with it. As we navigate this evolving landscape, understanding and applying these key takeaways will be crucial to the industry. Balancing innovation with stability, inclusion, partnership, and fostering global collaboration are the cornerstones of success for the future. The journey ahead promises both challenges and remarkable opportunities, and staying informed and adaptive will be our compass.

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By: Tiffany Hart, Client Engagement Manager for Artisan Studios

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