ING's Point of View

Johan KestensJohan Kestens, Managing DIrector at ING Belgium.

Before joining ING in 2014, Johan Kestens was a senior partner at AT Kearney. Besides managing the Belgian office, he also led their finance consultancy. An expert in this domain, he has written extensively on the subject, and published many papers including ‘
Reinventing Banking – Capitalizing on crisis’ in 2008. He was deeply involved in the creation of the European Stability Mechanism, an organization similar in design to the International Monetary Fund, but geared for the member nations whose currency is the Euro.

There’s a 3rd game changer and that is demographics

“All of what’s been written about the two major game changers is absolutely right, but above and beyond the upgraded regulation and new technology, there is a 3rd game changer that underpins the other two, and that is demographics. I believe it’s an even more powerful force because it’s the hardest to reverse. You can always change aspects in regulation and technology if you want to, but the demographic changes in the population will take decades to work through.

The new demographics are driving a number of the key decisions in the financial industry. For a kick-off, there are a larger number of retirees and this is naturally leading to more pension discussions, but at the same time we’re asking ourselves what ageing means when dealing with financial services. Even though life expectancy is longer and many more people are fitter, there is nevertheless a significant increase in the number of older people needing care, and that in turn has repercussions on people’s finances. How, for example, will someone with Alzheimer’s disease make payments?

Rising levels of wealth

For the first time in 2 millennia, Western Europe has been at peace for almost 70 years, and as a result, assets have survived that in the past were destroyed by world wars, the great depression and so on. Thomas Piketty and his book ‘Capitalism in the 21st Century’ refers to this, confirming that a portion of society is getting back to the days when they can live on their invested assets.

This has implications for society as a whole, as well as the financial services industry. There are fewer life long commitments these days, and that’s true for financial services, employment and even relationships. Did you know that one of the fastest growing sub-segments in society is people marrying for a 3rd time? Wealth gives people different options and leads to more fragmented behaviour. They have a choice.

At the very minimum, this brings an increased level of complexity for us, particularly if you know we’re living at a time with historically low interest rates. There’s no manoeuvring space anymore. The analogy I can think of comes from the world of sailing: drift too much towards shore, and you lose the flexibility and the speed you need to react.

Different levels of technological understanding
The reality is that the relatively affluent older person still wants personal advice, while the younger generation, who are smart phone savvy, never go near a branch. The different cohorts therefore all behave differently, often only really feeling comfortable with the technology they grew up with. So while the situation may be more complex than in the past, the great thing is it offers an exciting future. There are fundamental forces at work here, and it’s creating a unique set of circumstances: complex client business, people living longer, more technology savvy, etc. Hence the market offers a rainbow of options, and with every one of them, you have a chance of striking gold.

Client conversations

People from all walks of life need good financial services and it’s a shame that a large proportion of the population is apparently not getting it. There is an opportunity therefore to be far more intelligent in the way we manage our clients, but that involves gaining a level of trust with the clients. We need to better understand how they lead their lives, for only then will we be able to help them and hook them up with the right products. It’s a big macro challenge for the industry, and one that demands effort and initiative.

Maths is becoming sexy again

There is no doubt that the power of technology and the right algorithms are helping society solve some of the big issues of today, and there are some unusual, complex and wonderful mathematical formulae describing the world we live in, particularly coming from the world of astronomy. The incredible thing now is we have the power to crunch the numbers, and as a result we’re now getting closer to having a better understanding of human behaviour. So even if there are many differences in individuals, the collective result is far more predictable that you would imagine. Patterns emerge when you look at a billion decisions, and the whole picture becomes much clearer. This can improve safety on the internet and prevent risk in many areas of people’s lives. However as with any technology, what can be used for the good can also be abused and we need to manage that.

Never before has there been a greater need for proper financial services delivered by ethical people who understand the power and limitations of technology.

There is no doubt that the power of technology 
and the right algorithms are helping society 
solve some of the big issues of today”

In summary

1. There are more than 2 forces at work in the industry, and changing demographics are important.
2. Society is a mosaic of different needs, ages, wealth and technology understanding.
3. There is a real opportunity to understand and serve clients better.
4. The macro danger in the financial system is still there, and there is still a concern about low interest rates and rising pension obligations.
5. The combination of all this means you need an agile and risk aware IT department that can create the conditions whereby clients can be served in the right way.

 And what about the young competitors?

It’s obviously far easier to launch a competing business to the banks today. Not only are there no legacy systems to worry about but you can choose cutting edge technology. The reality is though it’s very hard to stay there. You also have a lot of cherry picking … you don’t see these innovators doing mortgages, now do you?

All in all it’s good news that they are there, for it forces everybody to rethink their business, and that’s how and why society will progress. 

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