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Transcript of 2014 What will shape the future of banking /media/Publications and Reports... the future environment

  • 2014

    What will shape the future of banking See the world differently

    Flash Forward | Future-Focused insights

    16050127-hs-00163-DSI case studies.indd 1 05/05/2016 16:05

  • Introduction Banking is an industry undergoing huge change.

    Multiple forces are playing out simultaneously,

    although often at different speeds and at varying

    intensities across the globe. understanding what is

    shaping the industry, and more importantly, how

    to optimise your strategy in response, is crucial in

    crafting a sustainable competitive advantage.

    unfortunately, human beings are hard-wired to be poor

    at understanding the future. in our attempts to predict

    events to come, we typically take our experiences and

    data from the recent past and extrapolate forward.

    we hate uncertainty. to avoid it, we either pretend it

    doesn’t exist or we create ever-increasingly complex

    models and forecasts to help determine what we

    should do today in order to be successful tomorrow.

    as Pierre wack, the pioneer of scenario thinking at

    royal dutch shell, observed, “Forecasts are not always

    wrong […] and that is what makes them so dangerous.

    [..] But sooner or later forecasts will fail when they

    are needed most: in anticipating major shifts in the

    business environment that make whole strategies

    obsolete.” You don’t need to have worked in financial

    services for long to know that Pierre has a point.

    so how can we be more constructive and thoughtful in

    understanding what the future of banking may bring?

    First, we should acknowledge that there are three types

    of driving forces or mega-trends that shape the future:

    1. Pre-determined forces –what we believe

    we know to be true; as it turns out, this

    is actually a shockingly short list;

    2. Forces we assumeto be true –typically we make

    this a list much longer than it should be; and

    3. Fundamental uncertainties–events or forces

    we simply can’t predict, but the way they play

    out will be significantly important in shaping

    the future environment within which we

    and our organisations need to operate.

    so, which forces should we focus on to better

    understand how the banking landscape will

    evolve over the next 10 plus years?

    there are five key uncertainties we should pay

    particular attention to. the way they play out will

    shape the global banking industry, determining

    winners and losers, survivors and casualties.

    Exhibit 1. World Population Trend, 2010-2050 Population in billions

    1 2 3 4 5 6 7 8 9 10










    Asia and Oceania Africa Europe Latin America and the Caribbean Northern America

    Source: “World Population Prospects, the 2012 Revision –MEDIUM”. United Nations, Department of Economic and Social Affairs. 2012.

    2 What will shape the future of banking

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  • 1. “Changing PlaCes, Changing FaCes”

    traditionally demographics has been closest t

    traditionally demographics has been closest to a pre-

    determined force, however with the increasing influence

    of globalisation and connectivity driving ever-increasing

    migration, even these trends are harder to predict, let

    alone understanding the consequences for banking.

    un demographic models tell us that the world will

    become more populous. From 7.2 billion today,

    there will be 8.2 billion of us by 2030 and 9.6 billion

    by 2050. that growth will not be evenly distributed.

    there will be a heavy skew towards africa and india,

    with the latter forecasted to overtake china as

    the most populous country on the planet around

    2028, when both populations hit 1.48 billion.

    europe, on the other hand, is predicted to shrink, only

    acerbating the well-publicised demographic time bomb,

    as dependency ratios collapse from 4:1 to 2:1 by 2050.

    ageing will not be the only challenge of restructuring

    population pyramids. a number of significant

    countries, including india, saudi arabia and other

    Middle eastern states, will have rapidly growing

    sections of the young. they will need jobs, housing

    and food. even if you have vast wealth to pay many to

    do nothing (and most do not), this wouldn’t seem to

    represent a very stable or sustainable future society.

    urbanisation is an ever-popular “mega-trend,” and a

    major driver of economic growth and prosperity. More

    than 50 percent of the world’s population now lives

    in a city. we already have 23 megacities (population

    in excess of 10 million), with another 14 forecasted to

    join those ranks by 2025, the majority in asia. the un

    projects that this trend will continue so that by 2050,

    the urban population will represent 70 percent of the

    planet. to repeat, 7 in 10 of us will live in cities by 2050!

    what does this mean for banking? we will have

    another one billion people entering the consuming

    class by 2025, injecting up to $30 trillion into the

    global economy. there will be increased investment in

    infrastructure and housing. aspirational lifestyles will

    need to be funded. economic activity will intensify.

    all seemingly good news for a bank seeking to serve

    individuals and organisations requiring finance, credit,

    risk intermediation and financial transactions.

    however, increasingly expensive welfare systems

    will need to be funded. aging populations will

    have to save more for retirement, potentially

    squeezing the supply of risk capital. higher taxation

    to meet increasing and unfunded liability gaps

    will dent consumers’ ability to, well, consume.

    This frames up the first uncertainty; how will changing demography, migration and urbanisation impact the world economy’s ability to grow?

    Constrains & Inhibits Facilitates & Increases

    Impact of “New

    Demographics” on Global Economic


    Heidrick & Struggles 3

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  • Exhibit 2. Megacities 2011 vs. 2025

    1. Tokyo 37.2m

    2. Delhi 22.7m

    3. Mexico City 20.4m

    4. New York-Newark 20.4m

    5. Shanghai 20.2m

    6. São Paolo 19.9m

    7. Mumbai 19.7m

    8. Beijing 15.6m

    9. Dhaka 15.4m

    10. Calcutta 14.4m

    11. Karachi 13.9m

    12. Buenos Aires 13.4m

    13. Los Angeles-Long Beach-Santa Ana 13.4m

    14. Rio de Janeiro 12.0m

    15. Manila 11.9m

    16. Moscow 11.6m

    17. Osaka-Kobe 11.5m

    18. Istanbul 11.3m

    19. Lagos 11.2m

    20. Cairo 11.2m

    21. Guangzhou 10.8m

    22. Shenzhen 10.6m

    23. Paris 10.6m

    38.7m 1. Tokyo

    32.9m 2. Delhi

    28.4m 3. Shanghai

    26.6m 4. Mumbai

    24.6m 5. Mexico City

    23.6m 6. New York-Newark

    23.2m 7. São Paolo

    22.9m 8. Dhaka

    22.6m 9. Beijing

    20.2m 10. Karachi

    18.9m 11. Lagos

    18.7m 12. Calcutta

    16.3m 13. Manila

    15.7m 14. Los Angeles-Long Beach-Santa Ana

    15.5m 15. Shenzhen

    15.5m 16. Buenos Aires

    15.5m 17. Guangzhou

    14.9m 18. Istanbul

    14.7m 19. Cairo

    14.5m 20. Kinshasa

    13.6m 21. Chongqing

    13.6m 22. Rio de Janeiro

    13.2m 23. Bangalore

    12.8m 24. Jakarta

    12.8m 25. Madras

    12.7m 26. Wuhan

    12.6m 27. Moscow

    12.2m 28. Paris

    12.0m 29. Osaka-Kobe

    11.9m 30. Tianjin

    11.6m 31. Hyderabad

    11.5m 32. Lima

    11.4m 33. Chicago

    11.4m 34. Bogotá

    11.2m 35. Bangkok

    11.2m 36. Lahore

    10.3m 37. London

    Source: “World Urbanization Prospects -The 2011 Revision”. United Nations, Department of Economic and Social Affairs. March 2012.

    4 What will shape the future of banking

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  • 2. “new sheriFF in Town” For more than 40 years, globalisation has driven the

    growth of banking. that form of globalisation was very

    much in the image of the “washington consensus” – a

    market-driven, u.s.-dominated economic model. that

    consensus is now being challenged on two fronts:

    is continued unfettered global integration still a positive?

    in a post financial-crisis, post-snowden world, many of

    the assumptions about greater transparency, relaxed

    regulation, increased and unchecked flow of capital,

    information, goods, services and labour are all being

    challenged. while george w. Bush originally secured the

    agreement of the g20 at the start of the financial crisis to

    avoid increased protectionism at all costs, the concept of

    “gated globalisation” seems to be gaining currency. trade

    flows have stagnated since 2008. capital flows, having

    reached all-time highs of over £11 trillion in 2007, have

    collapsed by more than 60 percent since. with increasing

    concerns over