TNT Symposium 2022 focusing on “Human.First” - interview with Jerry Grbic

How are innovation, trust and banking interrelated?

It is the mission of the ABBL to promote the sustainable development of regulated, innovative and responsible banking services, and the question of trust is intrinsically at the centre of this equation.

The interrelation between trust and banking dates back as far as 4.000 years ago. This is the farest you can trace back the notion of banking. In the ancient empires, people kept their money in temples, as they were deemed to be the safest places in those days and has people had trust in the priests.

So, banking has come a long way. Society has evolved dramatically over the centuries, and so have the banks. But banks still offer trust as they stand for stability based on a high level of regulation and this trust is needed for a finance system to work.

But banks are not necessary seen as the most innovative ....

In the public's view banking is seen as an old-fashioned activity. Moreover, many people expected that classic banks would disappear, being replaced by neo banks. But that didn’t happen!

It is true, banks are seldom at the forefront of technological evolution and there is a reason for this: The banking activity is highly regulated. In our business, a secure offering and a stable environment are more important than introducing disruptive technologies.

But Banks will also adapt to the challenges of today’s technological and digital revolution.

Didn't FTX's setbacks deal a fatal blow to the optimism surrounding the rise of crypto assets?

A recent study among banks by PwC[1] unveils a cautious optimism for Luxembourg regarding crypto assets: 61% of respondents expect crypto-assets to become a strategic priority in next years. But, still today, a lot of questions remain and at the end of the day it is all about trust: A vast majority of consumers has trust in the current financial system. You have a 50€-bill in your wallet, you trust this piece of paper is worth €50.

Looking at the disaster of the cryptocurrency exchange platform FTX, people got a painful reminder of the concept of counterparty risk. If people trust you, they buy or use your product. The Guys of FTX lost that trust.

What are the challenges for the banking sector in the future? 

First, the increasing regulation, but also the importance of a same level playing field in this context.

According to Chris Skinner, a well-known fintech commentator, a bank is subject to around 5 times more regulation than the average tech company. No wonder we find it difficult to compete.

Furthermore, the cost of regulation is constantly increasing in the financial sector. We are talking about +16% on average since 2015.

But do not get me wrong, we are not asking for less regulation. We just want the same regulation for everybody!

Second, legacy systems. The banking sector has been dealing with heavy, outdated legacy systems for many years: Think only about the mainframe computers used for decades. Adapting those systems whilst maintaining the level of security that clients need and have is a major challenge: And this requires huge investments.

And what about opportunities?

Coming back to regulation: regulation is a challenge, that's for sure, but from a different angle, regulation represents an opportunity for banks.

Many early-adopters and investors in crypto-currencies and crypto assets are quite young and have never experienced a crisis and lost money with such investments, until recently. In contrast to what happens in the MIFID regulation, investors in crypto-assets have no protection and no clear framework. Just remember that on social media, “influencers” sell investment proposals without any control.

After losing money in such unregulated markets, the new generation might turn to their banks as they are looking for a secure framework for their investments.

Another interesting topic are collaboration within the ecosystem. To develop more efficient solutions for banking i.e., in the field of compliance or risk management, mutualization and partnerships can be ideal solutions. Again, you need to trust your partners to engage in such a process.

The good news is, that the Luxembourg eco-system is ideal for developing such joint-ventures as people are close to each other; Luxembourg is an open economy with international activities and international competencies; and all banking activities are represented.

Finally, data, data and data again. Data is at the heart of innovations and banks certainly do have the data. Moreover, we are used to manage data in a secure environment for years.

The tipping point is that consumers want to stay in control of their data and only want to share it with somebody they trust And maybe, the somebody they have been trusting for 4.000 years starts with a head start on this challenge.