Mark Cliffe is Chief Economist of the ING Group, a global financial services group with 38 million customers. Based in London and Amsterdam, he leads a team of economists and strategists in sixteen offices around the world, analyzing the global economy and financial markets. The team also studies consumer and corporate behavior in the context of disruptive technological, political and environmental change, with a view to producing engaging content and innovative solutions. A graduate of Cambridge University, Cliffe has worked for a variety of financial services firms, including HSBC and Nomura Research Institute. He recently spoke to The Innovator about the market forces that are accelerating change and ING’s own digital transformation.
Q : How can a chief economist help with digital transformation?
MC : In advising people about the future, there is a need to think much more broadly about the best approach. Rather than ‘betting the ranch’ on particular numbers and probabilities, we need deeper understanding of how the world could change, in order to identify what are the alternative scenarios, and the possible ‘no regret’ moves that could be made. It is better than operating blindly or assuming that tomorrow is going to be like yesterday. More and more companies are waking up one morning and discovering that a company from a different segment has moved into their space. So it is worth investing a lot more time to make contingency plans and try and reorganize the way companies operate to make them more responsive to rapidly changing circumstances.
My job is to essentially look at what is happening in the world and try to give guidance on the future so that our executives and our clients can make better decisions. Most of my career has been heavily focused on macroeconomic forecasting of a relatively short-term nature. What is the economy going to do over the next year? But these days I set my predictions into the context of disruption: not just in terms of economics, but in politics, society the environment and technology. The interesting thing is how these things interact with one another. For example, the argument that technological change increases inequality has political consequences that we can see very clearly in the so-called ‘techlash’. This is not just a political phenomenon but a real social phenomenon.
Q: What, in your opinion, are some of the most significant new market forces impacting banks and other big corporates?
MC: A key shift is away from buying ‘stuff’ to buying experiences. This has led to the invention of everything-as-a-service: banking-as-a-service, identity-as- a-service, mobility-as-a-service, and so on. The whole sharing economy idea, coupled with the current focus on the environment show the profound changes and the degree of uncertainty they are causing in the corporate world. The auto industry is a prime example. All sorts of things are disrupting the business model of the auto industry including ride sharing, autonomous cars, electrification, and climate change. We are seeing a multiplicity of new players moving in, including Tesla and the big tech giants, who are investing in various ways. Banks making loans to the auto companies and supporting these companies in the long term have to think about this as well.
Banks also have to think about stranded assets [ assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities]. The shift away from fossil fuels to renewables means that investment in fossil fuel- based companies will be vulnerable: they may ultimately have to abandon projects and leave oil and gas in the ground. This is the macroeconomic environment I am analyzing and talking to customers about.
There is also another level to this. Consumer behavior is also being profoundly changed by this disruptive climate. People’s lives are being completely transformed by technology. Not long ago there were no mobile phones. Today people spend an average of three and a half hours a day on digital devices. You can access the world’s knowledge in the palm of your hand and soon these devices will be wearable and possibly embedded. This is transformational.
Q: What about ING’s own digital transformation?
MC: We are working very hard on our transformation. We are engaged in an effort to transform the business by eventually moving into one single platform not just in the traditional IT sense of unifying the core tech but also in a business sense so that we can operate in our markets in a more standardized and efficient way. Obviously, like many banks, we operate in many markets and have different legal structures and so a lot of work has to be done in reorganizing the company to make it fit for the digital age.
That said, ING has the great advantage of being profoundly digital because we started early. ING Direct was launched in 1990s and rolled out to multiple markets so we have a track record we are trying to build on. A lot of effort is being made in innovation processes, in changing the culture of the company and into working with fintechs. Of course, as a regulated bank — unlike some of our digital-only competitors, we have other burdens to deal with, which puts us at a disadvantage to some of the new entrants that are more than nibbling away at slices of our business.
Still, we have the crucial advantage of maintaining the trust of customers. Despite all of banks’ self-inflicted wounds people still trust banks with their money. Three or four years ago there were suggestions that Big Tech companies could very easily march into the banking industry, but now there is a tech backlash. We have seen that with the Facebook Libra project. I think we are potentially on the brink of another shift. There will be an attempt to re-democratize the Internet so that people can wrest back control of their data. Banks could play a pivotal intermediary role here.
Q: Several years ago the World Economic Forum published a white paper that said that banks were in a good position to become the brokers of digital data. Why has this not happened?
MC: It will require effectively redesigning the plumbing and the economics of the Internet in order to rebuild the infrastructure in a robust way to preserve privacy and security. The holy grail will be personalization based on digital tech. We are barely at the beginning of this process. Most banks are still cleaning up the data they have already got. Once they have this in good shape they can build on that and add in other relevant data for consumers. We are making good process with the so-called zero-knowledge proof approach in which the data that is shared is just enough for for the purpose for which is intended. But there are other massive challenges. For example, the energy use of the blockchain will need to be dealt with as banks or groups of banks try to radically shift from a more closed system to becoming trusted intermediaries using distributed ledger technology.
Q: So does that mean that you are optimistic that banks will become brokers of digital data?
MC: There is a good chance of that with certain pre-conditions. It depends in part on policy makers. We need societal settlements on frameworks for how data is used. In the U.S. there is talk about breaking up the Big Tech companies and obviously tech companies are lobbying furiously against that. One way forward is the idea that the Big Tech companies are going to have to share their data with other companies. The open data movement is a very powerful force and could prove to be unstoppable. If it succeeds it would make life a lot easier for other organizations like banks to build broader data sets. As a bank we know which stores you shop in but we don’t know what you bought and the shop doesn’t know how much you earn.
There is a huge amount of data that can be consolidated and analyzed. The important point is to do this with the consumers broader interests in mind, instead of mining data to sell to advertisers. People will want to have more value extracted from their data because they want things that help them make better decisions. Banks like ING could move into decision-making services since the transaction part of banking is being commoditized. Our role would be to use data to help people to achieve better outcomes.
Q: Can you give some potential examples?
MC: Banks have a special role in the housing markets. The problem consumers have in the housing market is not getting the right mortgage. In general, that is not too difficult. The problem most consumers have is buying the wrong house in the wrong place at the wrong time. There are many ways that banks could help. We have a lot of data about what is going on in the housing market so we could be looking out for the interest of consumers, advise them and give them a digitalized experience of having a private banker At ING our slogan is ‘empowering people to stay a step ahead in life and business’. It is really a call to the organization to look at what is going on in people’s lives and help them. Financial products are secondary. We could also look, for example, at whether they can afford to go on holiday. That area is a massive space. A lot of effort is being made to turn data into information and turn that into knowledge, or answers, with the highest aspiration achieving wisdom, or asking the right questions. By being much smarter in the way we organize data and use data we can come up with more meaningful questions, answers and services.
Q: You recently came back from a trip to Silicon Valley. What did you learn while there?
MC: There is now a recognition that Big Tech’s tendency to gobble up the best startups is not sustainable because their dominance is being challenged. The other thing is that although there is a continued and extraordinary stream of startups there is a global gap in knowledge of who is doing what. There are so many business opportunities out there but there is a lot of duplication of effort. There is a real need to improve the way in which innovations are cultivated and curated.