Frankfurt Main Finance at the Toronto Global Forum: “Fintech and the Future of Money”

With a strong start-up culture, a globally-leading Fintech cluster, proximity to established banks and thus access to potential clients and funding, the Financial Centre Frankfurt has a thriving FinTech ecosystem. Therefore, Frankfurt Main Finance’s Managing Director, Hubertus Väth, was invited to share the views and perspectives of the Financial Centre Frankfurt in a panel discussion on Fintech and the Future of Money at the Toronto Global Forum.

The Toronto Global Forum is an international conference fostering dialogue on pressing economic issues with the most recent conference being titled “Navigating a World in Disruption” and held under the auspices of the International Economic Forum of the Americas (IEFA). Heads of states, central bank governors, ministers and global economic decision-makers as well as industry experts partake at the conference. With 3.000 participants and 170 speakers, it’s a good opportunity for all stakeholders involved to leverage business synergies and engage in discussions with actors of the global economy.

The conferences first forum Fintech and the Future of Money addressed the impact of rapidly developing technology on financial services and traditional banking. The forum moderated by Alexandra Posadzki, Financial Services Reporter at The Globe and Mail featured the speaker Hubertus Väth, Managing Director, Frankfurt Main Finance, Al Goldstein, Chairman and Chief Executive Officer at Avant, Shuman Ghosemajumder, Chief Technology Officer at Shape Security and Rafael Funes, Executive Chairman of LOVIS.

The panellists discussed how the financial sector will look like in a few years, what impact new technologies are having on financial services and in what ways regulation can support innovation and promote confidence between consumers and financial institutions. During the debate, Hubertus Väth highlighted that while Technology has changed or even fundamentally replaced some forms of traditional financial services, established financial institutions are at times losing sight of, or under-investing in potentially industry-changing trends such as Artificial Intelligence, Big data, Blockchain, cloud storage –  all of which are technologies that may have a disruptive character for the financial industry and may revolutionize future pricing, trading, clearing, settlements.

Strengthening Relations with the City of Toronto

During the latest visit to Toronto, Frankfurt Main Finance met with Thomas Schultze, Consul General of the Federal Republic of Germany to Toronto and Michael Thompson, Deputy Mayor of Toronto to further the collaboration between the two financial centres, adding Artificial Intelligence to areas of cooperation.

Building a strong international network

Frankfurt Main Finance (FMF) is highly engaged in strengthening the financial centres’ international position and providing dialogue platforms. An integral part of those efforts are high-level delegation trips to partner cities. As such, FMF representatives recently travelled to Qatar and Kuwait to share best practices with representatives of the respective financial centres and to foster the dialogue on an international level.

As part of the latest visit, Frankfurt Main Finance met with representatives of the Qatar Financial Center (QFC) Authority. The organisation manages and maintains the QFC legal and tax environment, and licenses firms to conduct business in or from Qatar. Moreover, it develops relationships with the global financial community and other key institutions, both within and outside of Qatar.

Furthermore, Hubertus Väth, Managing Director of Frankfurt Main Finance, conducted an exclusive interview with the television channel Al Jazeera English, which focused on the consequences of Great Britain’s decision to leave the European Union. “London will remain one of the world’s leading financial centres,” said Hubertus Väth. However, as Väth stated, London will lose its passporting rights to the EU27, which currently allow the selling of financial products throughout the entire Union. Moreover, he emphasised FMF’s stance: “Brexit is neither good for the European Union nor is it good for Great Britain.”

This trip is an excellent example of FMF’s efforts to establish a vast international network of financial centres, which continuously grows and within which Frankfurt Main Finance represents the interests of the Financial Centre Frankfurt. Just in July 2018, FMF representatives travelled to the Global Finance Forum at Kazakhstan’s capital Astana, at which they discussed the challenges and changes in a globally interconnected financial industry with well-renowned industry experts and politicians.

Frankfurt Main Finance is a founding member of the World Alliance of International Financial Centers (WAIFC)

In an era of breakthrough technologies and rapid social change, Financial Centres are key to sustaining economic growth. Thus, the objective of the Word Alliance of International Financial Centers is to create a transparent network that facilitates cooperation and sharing of best practices to further the understanding of the importance of international financial centres for national and international economies as well as social development.

International Network FMF

Stock market breakfast

Stock market breakfast on the trading floor with Burkhard Balz, Board Member of the Deutsche Bundesbank

The stock market breakfast on the trading floor of the Frankfurt Stock Exchange has become a unique communication platform for financial market players. The event series aims at strengthening relations between all participants by facilitating an informal exchange. Keynote speaker Burkhard Balz, Board Member of the Deutsche Bundesbank, emphasised this in his speech Economic Education – Challenge and Tasks for Everyone in the Financial Centre at the stock exchange breakfast on Thursday morning. According to Balz, Financial actors at the Financial Centre regularly exchanging ideas is necessary to ensure the success of measures taken.

While December is usually filled with end-of-year-reviews, the recent stock market breakfast focused on the future: Keynote speaker Burkhard Balz highlighted the importance of increasing economic education. The Bundesbank has already provided numerous lectures and materials online. With having organised 400 lectures, the Museum of Money is an integral part of that educational work. The Bundesbank’s position paper “Sharing central bank knowledge” – the Deutsche Bundesbank’s economic education activities“ summarises the core ideas of ​​the Bundesbank’s educational program. The desired outcome of that program are economically aware citizens: people who have the knowledge, abilities, skills and attitudes, to manage everyday situations in which economics play a role and have answers to questions concerning economic issues. This applies to personal finances as well as to economic and financial matters at the corporate, national and international level. Additionally, the media bears the responsibility to report on economic issues, said Burkhard Balz in his speech.

The discussion of the stock market breakfast goes beyond the trading floor

By commenting on a Frankfurt Main Finance Tweet concerning the stock market breakfast, Marc Richter, Senior Trader Equities Frankfurt at Baader Bank AG, highlighted another aspect of the debate on economic education: “Likewise, economic education in schools should be of further focus.” A statement Sven Schumann, Director – Head of Section Community Relations & Initiatives of the Deutsche Börse, showed agreement to with a like – the stock exchange breakfast does not only guarantee for an exchange of ideas but also facilitates an (online) discussion.

Here you will find further follow-up reports to the event series:

Apr 2018: „Economic success is a necessary stage of transition if you want to be physically successful”: Axel Hellmann at the stock exchange breakfast on the Frankfurt Stock Exchange Parquet (german article)

24. May 2017: Stock market breakfast on the floor with Hauke Stars (german article)

At home in Europe – FMF and Eintracht welcome Frankfurt’s newest banks

CFS-Index takes a clear downturn

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 4.5 points to 113.9 points in the third quarter of 2018. The significant decline is primarily due to weaker growth in earnings and employee numbers among service providers as well as slower growth in revenues and investment volume throughout the financial sector. Among the financial institutions, however, the downturn in revenue growth is offset by an increase in earnings, while sentiment regarding employee numbers is neutral.

“Given the contrary trends in the earnings of banks and service providers – rising for the former, falling for the latter – the question arises as to why their investment behaviour is so similar. It appears that macroeconomic and political uncertainties (Brexit, Italy, USA, China) are the primary cause of the slowdown in investment,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is still rated positively, albeit to a lesser degree.

Since the Brexit vote in 2016, the future international importance of the Financial Centre Germany had been rated at historically high levels. In the third quarter of 2018, the corresponding figure of 126 points remains at a good level, despite recording a significant decline of -5.3 points.

“The downward trend in the assessment of Germany’s future international significance as a financial centre is seeing the glass half empty. In recent months, other financial centres in the European Union have indeed also benefited from Brexit. In this context, the positive developments in Frankfurt could seem less significant,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., on the survey results. “But when you look at it closely, the decisions by more than 30 financial institutions to move their European headquarters to Frankfurt speak for themselves. In 2019, the Financial Centre Frankfurt will gain considerably in international importance.”

Financial industry revenue growth declines / Positive earnings growth among financial institutions, negative among service providers

As forecast by the financial institutions in the previous quarter, growth in revenues/business volume declined in the third quarter. The corresponding sub-index for the financial institutions falls by 6.1 points to 112.7 points. Service provider revenues are 5.3 points down on the previous quarter at 123.7 points. Both groups are anticipating a further slight decline in the current quarter.

There is a stark contrast between the earnings growth of the two groups. After a weak second quarter, the financial institutions have returned to a good level. The corresponding sub-index rose by 9.8 points to 111.6 points. The service providers, on the other hand, recorded a sharp decline of 11.3 points to 116.3 points. For the current quarter, both groups expect a slight decline in their earnings growth.

Investment volume down

Contrary to expectations, the growth in investment volume in product and process innovations at the financial institutions fell by 5.3 points to 110.8 points. This low level is expected to persist in the current quarter. The sub-index for the service providers also fell by 3.4 points, though at 118.9 points it still remains at its third-highest level since the surveys began in 2007. However, a further downturn is expected in the current quarter.

Financial institutions show neutral sentiment on employee numbers

After the brief period of job cuts at the financial institutions in the second quarter, the employee numbers sub-index rises by 3.6 points and now signals a neutral sentiment at 100.1 points. As expected, the growth in employee numbers at the service providers has slowed. However, even after falling by 8.4 points, the corresponding sub-index remains at a good level of 117.9 points. As for the current quarter, the service providers expect employee growth to decline further, while the financial institutions are forecasting job cuts.

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

CFS survey: Artificial intelligence will be one of the core topics of the financial industry in the future

CFS survey: Artificial intelligence will be one of the core topics of the financial industry in the future – More initiatives to inform and educate the public would be beneficial

The German government has decided to invest three billion euros in the funding of artificial intelligence (AI) by 2025. There are also talks planned with the federal states and partners from industry to stimulate further investment. The main goals include making Germany and Europe a leading location for AI technologies and ensuring future competitiveness.

Despite the positive signals from the German government, a recent survey by the Center for Financial Studies found that the majority of the German financial industry (84% of respondents) doubts that most decision-makers in business and politics are precisely aware of the importance of artificial intelligence. Digitalisation in general and AI in particular are terms frequently employed in public discussions, although many people have only a vague idea of what these topics entail. Given the importance of these trends, a clear majority (86%) of the German financial sector is in favour of an initiative to inform and educate the public.

“We are living in a time of dramatic changes in the economy and the world of work. It is therefore essential to inform and educate people of all ages appropriately. I would like us to not only focus on schools, but to develop formats for adult education to address these key future topics,” said Professor Volker Brühl, Managing Director of the Center for Financial Studies, commenting on the survey results.

Artificial intelligence is very likely to revolutionise a whole range of industries over the next 10 years – 83% of respondents are convinced of this. Only 17% think that the importance of AI technologies is overestimated.

The financial sector is already heavily influenced by artificial intelligence, and the new technology has the potential to transform financial processes. Accordingly, 90% of German financial industry respondents said they expect AI technologies to be one of the core topics for their industry in the future.

“German banks must make substantial efforts if they are not to lose out in the field of artificial intelligence. Only a few banks are pursuing a genuine AI strategy today,” Professor Brühl adds.

When asked about the key future areas of application for AI in banking, 77% of respondents cited central functions (risk management, controlling etc.), closely followed by asset management (76%) and retail banking (73%). In addition, 53% mentioned the capital markets business. Only 36% of respondents regard corporate banking as a relevant area of application.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., underlines: “When it comes to AI, in international comparison the gap is enormous. According to a survey by management consultants Asgard and Roland Berger, there are only 106 AI start-ups in Germany compared with 383 in China or around 1,400 in the USA. The German government’s program is late to the game, but not too late. In order to catch up, it is now necessary to cooperate intelligently with start-ups and join forces in the Financial Centre Frankfurt.”

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.