On the Move: the Future of Finance

Top masters students from the region’s business schools were invited to the Frankfurt Finance Summit. Mariam Abdelhady, Master of Finance student at Frankfurt School of Finance & Management, reflects here on her impressions from the event.

On May 12th, 2016, I had the great opportunity to attend the 6th Frankfurt Finance Summit, which is organized by Frankfurt Main Finance (FMF) in collaboration with Frankfurt Institute for Risk Management and Regulation (FIRM). The annual summit, highlights the importance of Frankfurt as the center of financials stability and bank regulations in the Euro zone. It gathers Central bankers, regulators, representatives of the supervisory authorities, academics, financial politicians and practitioners together to discuss current financial issues from different perspectives. The focus of this year’s summit was digitalization and its impact on different players in the financial market. The discussions and speeches were divided into four parts:

Digitalization – The Dawning of FinTechs

The Summit started off by Dr. Lutz R. Raetting, Chairman of the Executive Committee of FMF, expressing his pleasure with sustaining the summit for the 6th year in a raw. Refereeing to the title of the Summit, he pointed out to the fact that we are all always “On The Move”, be it voluntarily or due to someone else pushing us to. As digitalization is the main focus of this year’s summit, he mentioned that the number of FinTech companies is increasing in the region and specifically in Frankfurt. The reason for this is the ideal conditions Frankfurt provides FinTechs with, in terms of the proximity to the regulator, as well as the best environment for the internationalization of their businesses.

In support of this view, Hessian Minister of Economics, Energy, Transport and Regional Development Tarek Al-Wazir highlighted the fact that Frankfurt will open its Fintech center in four months with the goal of improving the communication between start-ups, banks and regulators. This in turn will attract investors to Frankfurt and will position the city as an “innovative location for IT-driven start-ups in the financial sector”. Additionally, Al-Wazir stated that the current financial sector is undergoing fundamental changes mainly due to the economic and regulatory conditions and the ongoing digitalization, which explains the focus of the summit.

Examining the impact of FinTechs on the banking sector, Mr. Gottfried Leibbrandt, CEO of SWIFT, explained the concepts of Blockchain and Bitcoin and how they would impact the banking sector and SWIFT. Nevertheless, he believes that banks will make it through, just like they did in the 90s during the first wave of FinTech and the rise of online banking and electronic trading. The key for banks is to make use of those innovations to facilitate their work and not allow them to take over their work, whereas the main threat remains to be cyber security. On the other hand, Hauke Stars, Member of the Executive Board of the Deutsche Börse AG, believes that only those institutions that are able to adapt to the changing environment will survive. In accordance to this view, Roland Boekhout, Chairman of the Management Board of ING-DiBA AG, stated that cooperation with FinTechs in essential, because their technologies and services may be in the interest of their customers.

Redefining Banking – Regulatory and Economic Challenges

Another interesting topic discussed in the summit was the merger deal between Deutsche Börse and the London Stock Exchange. Mr. Carsten Kengeter, CEO of Deutsche Börse, explained the completed steps towards this merger, as well as the implications of this deal on the capital market and the benefits associated with it.

Furthermore, this panel discussed the potential implications of the capital market union on the banking sector, future regulations and the impact of what is believed by some to be BASEL 4, as well as the future of some financial institutions, giving the changing regulations and the rise of digitalization. Although past regulations have resulted in a more resilient banking sector, new ones are believed to make the conduct of some activities more difficult, hence hindering banks from realizing much of the profits they used to gain. Regarding the impact of digitalization and FinTechs on the banking sector, it is believed that they will change the business models of banks. Therefore, it is essential for the supervisory authorities to find the balance between supporting innovation and protecting customers and the financial system as a whole.

Tectonic shift – Where will finance move to?

Federal Finance Minister Wolfgang Schäuble’s speech focused on the proposed referendum on the Brexit and its impact on the future of finance in the EU. Although he advocates that Britain should remain in the EU, underlying its importance to the union, but should the referendum result in otherwise, the exit phase should immediately begin. He believes that Prime Minister David Cameron had negotiated a good deal and that no further concessions and renegotiations would be possible, in case of a majority votes for the exit. Hence he stated that “in means in, and out means out” with all the implications this might have. Additionally, Federal Finance Minister Schäuble highlighted the fact that in addition to the Single Supervisory Mechanism, there are still other areas in banking regulations, as well as fiscal budget, policies and security that will continue to improve in the future, with or without Britain.

Financial Inclusion

Discussing the importance of technology to the financial sector, Mr. Diwakar Gupta, Vice President of the Asian Development Bank, explained, using India as an example, that new technologies, like mobile banking, allows the large portion of the population living in rural areas to access financial services. Additionally, governments should also make use of such technologies, for example to make sure subsidies really reach the poor. Mr. Gupta believes that the biggest challenge for technology-based financial services is getting people to use it for the first time.

Overall, attending this summit was a great experience exposing us to the main topics that might affect the financial sector as a whole and its main players in the near future, with insights from top notch practitioners, as well as financial politicians and regulators of the field. Such unique experiences that Frankfurt School provides to its students, along with academic excellence is what differentiates it from other schools and universities.

British EU Referendum: Possibly the biggest political decision in a generation

In the eyes of Germany’s Federal Minister of Finance Dr. Wolfgang Schäuble, the up-coming referendum on EU membership is possibly the biggest political decision facing the citizens of the UK in a generation of more. Minister Schäuble expressed this in his keynote address at the Frankfurt Finance Summit. He advocated for the UK to remain in the EU, but explained that there would not be any further concessions made. If the UK were to decide for a Brexit, the exit phase would begin immediately. He also explained that the government would not campaign for the headquarters of Deutsche Börse to remain in Germany in the case of a merger with the London Stock Exchange. This will also hold in the case of a Brexit.

Watch Dr. Schäuble’s entire address below.

WHU Master in Finance Students on the Future of Finance

Top masters students from the region’s business schools were invited to the Frankfurt Finance Summit. John Offermann and Xavier Hilderbrand, both Master in Finance students at the WHU – Otto Beisheim School of Management, reflect here on their impressions from the event.

The world of financial studies is full of theories and ideas. Rational economic actors, econometric methods and various pricing models form a standard diet for would be financial aficionados. The question echoing in business schools is how these ideas actually affect the world of finance, and then in turn, the real economy. Thus as students of the Master in Finance program at the WHU – Otto Beisheim School of Management, we greatly appreciated the opportunity to participate in the Frankfurt Finance Summit 2016 and see how financial theory affects practice.

Over the last six years, the Frankfurt Finance Summit has brought together leading stakeholders of the European financial industry to discuss contemporary issues in different parts of the industry. This year’s theme was On the Move and to a large extent revolved around the megatrend digitalization and its continued role in reshaping the financial sector. The summit is organized annually by Frankfurt Main Finance, an initiative that was established to actively promote Frankfurt am Main as one of Europe’s leading financial centers. Members of the organization include the State of Hesse, the City of Frankfurt and other prominent financial institutions in Europe. Lively and engaging speeches and dialogues, with exceptional speakers such as Wolfgang Schäuble, the German Minister of Finance, Carsten Kengeter, the CEO of Deutsche Börse, and Günther Oettinger, the European Commissioner of Digital Economy and Society, illuminated a select audience.

And what an audience: an inspiring blend of roughly 200 personalities from government, regulatory authorities, leading financial institutions and FinTech startups. Throughout the entire event, the atmosphere was pleasant and there were plenty of opportunities for networking and exchanging opinions. We very much enjoyed the chance to speak to different representatives of banks, insurance companies and foreign embassies and to hear their views on current issues facing the financial markets.

The summit began with an introduction by Dr. Lutz Raettig, Chairman of Frankfurt Main Finance, Wolfgang Marzin, CEO of Messe Frankfurt, and Tarek Al-Wazir, Hessian Minister of Economics, Energy, Transport, Urban and Regional Development. Drawing on Frankfurt’s history as a trading hub, each speaker accentuated the qualities that made Frankfurt one of the world’s most influential financial centers, whether that be the presence of institutions like the European Central Bank, or the State of Hesse’s strategic investments in the Messe and various FinTech incubators.

Notwithstanding the warm welcome, Tarek Al-Wazir made a stark warning to the audience: the financial sector is currently failing to support growth in the real economy. He called for financial institutions to better refine their services to support businesses all over Europe. The minister also underscored that a Brexit is not in the strategic interests of Frankfurt and Hesse, despite what would be an inevitable shift of financial clout from London to Frankfurt. This would be a recurring view from various speakers throughout the day.

Following the introduction, Carsten Kengeter took the stage. Having presided over his first Annual General Meeting the day before and on the cusp of a meeting with Wolfgang Schäuble the day after, Kengeter gave extensive insight into the ongoing merger between Deutsche Börse and the London Stock Exchange. In something of a concession to his critics, Kengeter appealed to the audience’s emotions through sound business logic. His case rests on the benefits that the deal would bring to the Deutsche Börse, the German financial community and European economy as a whole. For the Deutsche Börse, the deal will put an end to stagnant revenue and a sliding share of capital vis-à-vis muscular competitors outside the continent. For the financial markets, a united stock exchange company will better facilitate capital flows between London and Frankfurt, respectively the world’s largest financial center and the premier business gateway to Europe’s single largest economy, Germany. Ultimately, the real economy in Europe would benefit from more efficient capital allocation in consolidated rather than fragmented stock exchanges; a natural development of the European Union’s Capital Markets Union drive.

The summit then continued with the first panel discussion – a debate on financial regulation and its future in Europe. The panelists represented states, regulators and leading financial institutions. There was agreement on most overarching points. The panelists largely agreed that overregulation could threaten the industry and that the industry as a whole is better prepared for any future shocks than in 2008. This consensus broke down somewhat when discussing details; there was a considerable mix of views on further developments to the Basel regulations and the effects of new regulations on important retail financial products like mortgages. The panel agreed that future supervisory efforts should focus on enforcing proper conduct of financial professionals rather than dwelling on problems of the past. Towards the end of the discussion, Mr. Hufeld, President of the Federal Financial Supervisory Authority (BaFin) depicted the “three gorillas” facing the industry: low interest rates, FinTech and regulation.

The second part of the Summit 2016 resumed after participants had the chance to discuss the first speeches and debates over a delicious lunch. The second half revolved around FinTech opportunities. Günther Oettinger was the first to speak. He pointed out that digitalization is tremendously impacting the way people and businesses communicate today. He made clear that the European Commission is trying to foster “common standards in a coherent market” to enable technology companies to operate seamlessly in Europe.

The following interview with Gottfried Leibbrandt, CEO of SWIFT, and the second panel discussion were both moderated by Caroline Hyde, Correspondent at Bloomberg Television for European Business. The discussions dealt with FinTech and the question of to what extent entrepreneurial businesses in the financial technology space are disrupting established banks and insurance companies. The general consensus was that FinTechs are increasingly forcing more traditional players to rethink their business models but are not making them obsolete. Most said that FinTechs oftentimes are helping their bigger counterparties to incorporate innovations more quickly into their businesses.

The next keynote speaker was the Finance Minister of Germany, Dr. Wolfgang Schäuble. In a direct, pointed speech, the Minister focused on the implications of the United Kingdom’s Brexit referendum. Similar to Mr. Al-Wazir, Dr. Schäuble emphatically argued that any upside benefit for Frankfurt would be at the expense of the broader European financial industry and economy. Dr. Schäuble pointed out that access to the single European market comes at a cost and the more access a country has, the more it will have to take responsibility for it. Other topics in the speech and question and answer session included the ECB’s current policies, the relative achievements of financial regulators since the GFC and the merits of the Deutsche Börse LSE merger.

At the end of the summit, Mr. Diwakar Gupta from the Asian Development Bank spoke about how FinTech is helping underprivileged people in Kenya and India take advantage of banking services. By using biometric identification technology and inexpensive cellphones, more and more people are being enfranchised by the financial system. It is now possible for people in rural areas of developing countries to open up bank accounts and make mobile banking payments at reasonable prices.

Finally, we want to thank Frankfurt Main Finance for the great opportunity to be part of the Frankfurt Finance Summit 2016. The discussions were tremendously inspiring and we enjoyed the chance to listen and speak to so many brilliant presenters and participants. We highly recommend the Frankfurt Finance Summit to anybody who has the opportunity to be part of it. You won’t be disappointed!

FinTechs Changing the Financial Sector

“The FinTech firms are not about to kill off banks, but they will reshape finance,” declared Günther Oettinger, EU Commissioner for Digital Economy and Society, speaking at the Frankfurt Finance Summit. He explained that the job of regulators is not to stymie the young financial technology companies, but rather to create room for innovation. “The time is right for an open dialogue on digital transformation,” expressed Oettinger. He further outlined the importance of created the Digital Single Market.

Watch the video of Commissioner Oettinger’s keynote below.

Hesse Actively Promotes Development of FinTech Hub in Frankfurt

At the Frankfurt Finance Summit, Tarek Al-Wazir, Hessian Minister of Economics, Energy, Transport and Regional Development, revealed that the planned Frankfurt FinTech Hub will open in September 2016. The Hessian government kicked off this initiative last December with an announcement. The goal is to create an attractive environment in Frankfurt for modern financial technology companies, known as FinTechs. The FinTech Hub should help to facilitate the founding of new companies and help to retain established FinTechs in the Frankfurt Rhine-Main region.

Watch Minister Al-Wazir’s speech below.

6th Frankfurt Finance Summit: the Future of Finance Decidedly Digital

On May 12, 2016, top names from the finance sector and politics came together in Frankfurt for the 6th Frankfurt Finance Summit. This year’s Summit was titled On the Move – the Future of Finance and explored digitalization’s implications for the industry and regulators. More than 200 people attended the conference held in Kap Europa, the first congress center in the world to be awarded a platinum certificate by the German Sustainable Building Council.

Of particular interest during the Summit were young financial technology companies, or FinTechs. Amongst other points, the day’s first panel explored the regulatory implications of digitalization and FinTech. The second panel of the day called Digitalization – the Dawning of FinTechs and moderated by Bloomberg Television’s Caroline Hyde, focused solely on FinTech. Even the conversation between Prof. Dr. Andreas Pfingsten and Diwakar Gupta highlighted the important role that digitalization is playing in increasing financial inclusion in developing economies in Asia, where millions of people lack access to brick and mortar financial institutions and cash still reigns supreme.

In his opening address, Tarek Al-Wazir, Hessian Minister of Economics, Energy, Transport, Urban and Regional Development, highlighted the importance of FinTech for the region and discussed the most recent developments in the continued effort to advance the Frankfurt-Rhine-Main region as a European center for FinTech companies. “[Digitalization] is not only a technological development. I think digitalization is working to restructure the economy and to change our lives. In fact, we are witnesses of a revolution,” explained Al-Wazir. Further stressing the importance of FinTech, Al-Wazir stated that, “The financial center Frankfurt needs to catch up in this development. Here, as elsewhere, the rule applies: either move with the times, or the times will move on without you. […] The region of Frankfurt enjoys ideal conditions to evolve into an international FinTech hub.” At the end of his address, Minister Al-Wazir outlined new details of the highly anticipated FinTech Hub to open in Frankfurt in September 2016.

The Future of Finance

With a look to the future of the financial sector, Carsten Kengeter, CEO Deutsche Börse Group, shared some of his views in a conversation with Prof. Dr. Uwe Stegemann, Director McKinsey & Company. Besides discussing topics like a possible Brexit or the merger of Deutsche Börse and the London Stock Exchange, Kengeter was keen to recognize the importance of FinTech and the new approach of his own organization in supporting FinTech and innovation. Kengeter pointed to Deutsche Börse’s own Venture Network, the recently launched FinTech Hub in Frankfurt and their commitment to initiatives like Dialogue Forum FinTech Frankfurt-Rhine-Main: “With our FinTech Hub being part of the Hessian State Government’s FinTech initiative, we want to give start-ups in the financial sector a jump start, thereby contributing to the creation and development of a FinTech community within Frankfurt’s financial center. Frankfurt should become Germany’s leading FinTech center.” Deutsche Börse Executive Board Member, Hauke Stars, would even point out later that Deutsche Börse was indeed itself a disruptive FinTech in the 1990s when it brought digitalization to the trading floor.

The panel, Redefining Banking – Regulatory and Economic Challenges, featured some of Europe’s top names in regulation and supervisory. After stressing the importance of the Capital Markets Union for growth of the European economy, the role of regulators in digitalization came into focus. Felix Hufeld, President of Germany’s Federal Financial Supervisory Authority (BaFin), stressed that his agency would create regulation that treats FinTechs and established institutions equally, helping to ensure a level playing field. Gabriel Bernardino, Chair of European Insurance and Occupational Pensions Authority, explained, “We need to create the possibility for companies to innovate, but also within boundaries that will protect consumers.” Sylvie Matherat, Member of the Executive Board of Deutsche Bank, further explained, “Digitalization has a fundamental impact on the banking industry and banks’ business models. Through its Innovation Labs, Deutsche Bank collaborates successfully with FinTech companies. We are embracing technology innovation as a source of future differentiated value to our clients. However, given the increasing importance of FinTechs it is vital that they are regulated adequately. Regulators need to find the right balance between fostering innovation and safety for clients and the financial system.”

Günther Oettinger, European Commissioner for Digital Economy and Society, delivered the Summit’s first keynote address, examining digitalization and the European strategy for fostering digitalization and creating a Digital Single Market. He stated, “Our duty is to protect the consumer, the investor and their personal data and to ensure a level playing field for all players of the sector.” Oettinger inspiringly stressed that the time is right for an open dialogue on digital transformation and gave details of an action plan to be released later in 2016, the result of discussions with political and business leaders across the EU.

The Dawning of FinTechs

The second conversation and panel titled Digitalization – the Dawning of FinTechs, moderated by Bloomberg Television’s Caroline Hyde, proved to be one of the most exciting and lively conversations of the day. In his conversation with Hyde, Gottfried Leibbrandt, CEO of SWIFT, stressed the importance of cyber security and how digitalization can create new vulnerabilities. Leibbrandt also posited that banks should cooperate with FinTechs and that adapting their technology would help them and consumers. The panelists continued the conversation on FinTech and discussed how FinTech is changing back office functions in banks as well as the role it plays for end-users or consumers. On Blockchain, Hauke Stars of Deutsche Boerse stated, “Blockchain has the potential to disrupt the financial industry right from the center.” Stars continued to explain, that “The big cost and the big benefit in the financial industry is not the consumer from my perspective, it’s the B2B business. And when I look at the costs banks have in the back office and the infrastructure costs and the opportunity for efficiency with different technology, I’m sure there will be an impact on the way finance is run in the future using this technology. It is the way the financial infrastructure is run, the underlying technology that I see as changing and the driver for change.” Roland Boekhout, Chairman of the Management Board of ING-DiBa AG, highlighted his organization’s efforts to cooperate with FinTechs, “Our goal is to be the leading digital bank in Germany. Besides developing our own digital services internally, we emphasize cooperation with FinTechs who are also developing technology and services relevant for our customers.”

A distinct honor this year, was welcoming Dr. Wolfgang Schäuble, German Minister of Finance, to the podium to deliver this year’s Keynote address: Tectonic Shift – Where will finance move to? In his keynote, Dr. Schäuble addressed the UK’s possible exit from the EU saying, “I think both the EU and the UK are better served with Britain remaining,” and that, “Great Britain’s relationship with Europe should not be defined by splendid isolation, but by splendid integration.” He further explained that the future of finance is deeply seeded in the future of the EU. He lauded regulators, saying that the risk of tax payer money being used to save failing banks has fallen. He also shed light on progress that needs to be made towards strengthening the banking union. Finally, he touched on digitalization and innovation expressing that all industries must be innovative to find business models that fit to the new world. Following his address, participants enjoyed the opportunity to ask Dr. Schäuble their own questions.

The final conversation of the day between Prof. Dr. Andreas Pfingsten, Director, Finance Center Münster, University of Münster, and Diwakar Gupta, Vice President, Asian Development Bank (ADB), centered on Financial Inclusion, covering a broad area from policy making to society to digitalization. Gupta explained the challenges of financial inclusion in areas where one third of the population lives in poverty, topping the list being limited access to financial services and getting people to use them for the first time. He asserted that governments must play a central role in crafting policy to support technology that will help foster financial inclusion. The success stories of mobile banking networks in Africa evidence the need for the expansion of FinTech to support these aims.

In its sixth year, the Frankfurt Finance Summit proved again to be a great success, proven by its resonance in the media and not only the distinguished speakers and panelists, but also the high-profile participants. The Summit was also available via a Livestream which was viewed by more than one thousand people throughout the day. The complete recordings of the Summit can be viewed in the YouTube playlist below.