Here Finance Monthly hears from Kasim Zafar at investment specialists EQ Investors, who looks back at the past decade and considers the investment opportunities we should be considering ahead.

We started the decade with the global economy still reeling from the worst financial crisis in modern times.

Following the failure of the banks, trust in capitalism was then further eroded by the largest financial fraud in US history; Bernie Madoff was imprisoned for 150 years after defrauding clients to the tune of $65 billion.

Extraordinary times called for extraordinary measures. By 2012, most major central banks had slashed interest rates close to zero or below, hoping that ‘free money’ would help the economy heal and return to growth. Trillions of dollars were pumped into financial markets to plug anything resembling a hole. The idea was basic, yet oxymoronic. To save free market capitalism, central banks staged the greatest market intervention of all time.

Sovereign debt crisis

Europe was tested further by its sovereign debt crisis. Despite zero interest rate policies, the rate demanded to fund government debt of the ‘PIIGS’ (Portugal, Italy, Ireland, Greece and Spain) soared between 2010 and 2012, reaching almost 30% in the case of Greece’s 10-year debt.

The European Central Bank created its rescue package to save the European Union from imploding, committing to buy a massive amount of European sovereign debt. Despite this, since the root cause of the problem was too much debt, European governments adopted austerity measures, cutting fiscal stimulus spending.

Quantitative easing in the US put a line under asset prices, first bringing stability and then allowing growth, to the substantial benefit of those with wealth invested. The wave of economic austerity that swept across Europe led to an increase in income inequality and sowed the seeds of populism.

Environmental instability

Distrust of big companies spread beyond bankers like wildfire with the largest environmental disaster in American history. BP’s Deepwater Horizon oil spill in the Gulf of Mexico eventually cost the company more than $65 billion in clean-up costs and compensation.

There was no shortage of environmental tremors. We saw floods on multiple occasions in Pakistan, India, China, Brazil, Thailand and the UK. Hurricanes Sandy, Irma, Maria and Harvey; earthquakes devastated Haiti, Chile, Mexico and of course Japan where in Fukushima we witnessed the world’s second largest nuclear power plant disaster after Chernobyl.

The latest signs of an overheating planet are record temperatures (high and low) across the globe, including fires in the Amazon rainforest and across Western Australia in 2019.

A concerted effort to tackle the climate crisis was finally embraced by 195 governments in the form of the Paris agreement. Last year, the EU declared a climate emergency, no doubt inspired by Greta Thunberg. All legislative and budget proposals will be fully aligned to limit temperature increases to under 1.5 degrees – seen as the danger line for global warming.

Looking forward

The last decade has seen rapid technological advances and we see a number of these coalescing over the next decade. Let’s take a glimpse into the future because we think it’s pretty exciting.

Sustainable finance

Why would you want to invest unsustainably? Now that’s a powerful question. When the rules of the game change, only a fool plays the same strategy.

The next decade is going to see financial markets transform to incorporate a broader set of stakeholders and interests well beyond the bottom line. Legislative changes are already underway in the EU that will significantly alter the reporting requirements for companies and investment products including:

• Climate change mitigation;
• Sustainable water use;
• Transitioning to a circular economy;
• Prevention and control of pollution; and
• Protection of ecosystems.

Although the UK will have exited the EU by the time these rules come into force (around December 2021), we fully expect the UK to adopt similar reporting requirements.

The next decade is going to see financial markets transform to incorporate a broader set of stakeholders and interests well beyond the bottom line.

This will help to establish a common language for what qualifies as sustainable and unsustainable through legislature. The associated data reporting will bring transparency to the conversation and encourage us all to consider the merits of economic activities, particularly those ones which are deemed to be harmful.

AI revolution

A decade ago, we were buying the iPhone 4 and the original iPad had only just been released. The idea of cloud storage and cloud computing was just taking off and the volume of data in the world was estimated to be around two zetabytes – that’s two trillion gigabytes. For comparison, entry level iPhones today have a data capacity of 64 gigabytes. The volume of data in the world has since exploded to around 41 zetabytes. That’s a lot of data! Through analysing these big data sets, we are finding better ways of doing things and finding altogether new things to do.

This is the realm of artificial intelligence (AI). Data scientists are creating sophisticated computer algorithms that identify esoteric features in data of a known entity (such as known ailments in radiology scans). When the algorithms are presented with new images, they are now able to identify things better than their human equivalents. This technology has incredibly wide applications in everything from early stage healthcare diagnoses to logistics route optimisation.

Data and artificial intelligence is being combined with robotics to achieve some pretty incredible feats, often referred to as the ‘internet of things’. Computing power is now decentralised, agile and mobile, freed from the confines of the home and office. The smartphone heralded a new era of fast and interactive data sharing and then the proliferation of sensors has taken things to another level. Everything is being connected: the smart home, smart buildings, wearable consumer devices, remote machine & engine diagnostics and of course, our transportation systems.

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Transforming healthcare

Healthcare is getting better from improved diagnostics, but there are improvements in treatments themselves. Increasingly healthcare is become an exercise in engineering. Biotechnology is developing medicines that are designed to combat specific diseases; treating the cause rather than the symptoms. In the future, it is easy to envisage so called ‘designer drugs’ that are designed for our specific genetics and perhaps beyond a decade from now, we could even be 3D printing these at home.

Precision fermentation

The current world population is 7.7 billion and the UN forecasts we’ll add another one billion people over the course of the next decade. Resource efficiency will be crucial for this to be sustainable, especially to create enough food for everyone. Robotics assisted precision agriculture and partially or wholly embracing veganism will help, but a new technology could change the face of agriculture and food supply altogether. Precision fermentation is the name of the technology behind the various meat alternatives we see in restaurants and supermarkets.

These are synthetic, precision engineered proteins that have similar nutritional value and are approaching cost parity to animal protein. We haven’t synthesised the perfect rib-eye steak yet, but we believe there is a good chance that agriculture will look wildly different in a decade’s time. Could we be looking at the path to ending poverty by then?

Quantum computing

Many of these transformational technologies are based on analysing data using artificial intelligence with computer power that is thousands of times faster today than it was a decade ago, all connected through the digital infrastructure of the internet. There is one problem though. We are approaching the physical limits of computer miniaturisation that has driven the increase in computer power.

However, human ingenuity is pushing through this boundary, developing a new breed of computing. Based on Einstein’s concepts of quantum superposition and quantum entanglement, this new breed of quantum computing would rewrite the rulebook and open the door to… a world of even more new possibilities yet.

From more intelligent healthcare to synthetic steak, the decade promises major developments.

New challenges are being laid down and to remain relevant, businesses are facing tough decisions on how to best align to the current economic climate.

With significant change comes great opportunity. As we step into 2020 and the next decade, Stephen Magennis, MD for UK Quality Business at Expleo, acknowledges that in spite of market challenges, it is an exciting time for businesses who are looking to use technology to drive their future success.

The Biggest Change of the Past Decade: Fast money

Currency has been used to trade in exchange for goods and services for millennia. Each evolution has been prompted by a shift in convenience. Bartering? Too variable. Bronze replicas? Too cumbersome. Metal coins? Too heavy. Paper? Too bulky.

For a long time, plastic cards seemed to have cracked the problem: easily portable, quick, convenient. Then Apple launched the iPhone in 2007, which represented a seismic cultural shift in how we go about our daily lives.

This one device enables us to stay connected and productive in so many ways, that it was inevitable it would also be the catalyst for another evolution in the story of currency. Contactless payments are designed to be seamless and convenient. One tap, and the shopper is on to their next errand. Simple.

Arguably, of all the technologies which have emerged over the last ten years, contactless payment has claim on being the most impactful on our daily lives.

Arguably, of all the technologies which have emerged over the last ten years, contactless payment has claim on being the most impactful on our daily lives.

Here it is worth thinking of the proverbial swan, calm and collected floating on the lake’s surface, yet paddling away under the water. The technology used to deploy, integrate and support contactless systems is complex. Layers of data and functionality are in play, with security constantly being tested, reviewed and enhanced so users can remain confident that their money is protected.

Across travel, retail, entertainment and beyond, experts are already looking for the next technology evolution in the payment space that will ensure customer experience remains paramount. In the early 2020s, we are likely to see regulation technology move into the spotlight while biometrics become mainstream.

The businesses leading the charge will be those who can ensure systems are fit for purpose, delivering a simple user interface and offering rigorously-tested security.

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The Differentials to Come in the Next Decade:

1. Winning the data war

Managing data in a way that combines and analyses knowledge from across global organisations is still a major challenge. Stricter data integrity and protection laws, heavy fines and lower customer trust won’t make this critical opportunity any easier to grasp.

However, those that can master big data, real-time analytics and enhanced cognitive capabilities will be better equipped to counterstrike the Fintech threat and remain relevant.

2. Guaranteeing financial resilience

Since the 2008 banking crisis, regulators have forced institutions to swell their reserves in case of another crash. With the growing dependency on technology – and the potential threat of disruption from cyber terrorism, outages and data breaches – Financial Institutions (FIs) may soon need to guarantee their operational resilience too. Or they may choose to advertise resilience as a competitive advantage.

3. Making use of robotics

AI assistants and humanoid robots are constantly evolving. These technology advancements are key for FIs becoming cognitive – replicating the human ability to learn and respond to the preferences of customers.

That said, there is still work to be done in convincing customers that a personalised service from a chat bot who can understand your speech, gestures and even your facial expressions is a good thing.

4. Do not write off the human touch

One of the many benefits of digital transformation is its ability to automate the most routine office tasks. Undoubtedly, this upheaval will cause widescale restructuring in FIs. However, employers will still need people with the soft skills, who can create a human experience for customers and keep the brand relevant to everyday community life.

To the future

As technological advances revolutionise FIs, efforts to drive efficiencies, improve processes and overhaul supply chains will become central to delivering best-in-class customer service.

The challenge for FIs, is to assure that whilst these innovations offer significant benefits to businesses and consumers alike, transparency and trust is set to become the ‘crucial’ offering.

September marks the 10^th anniversary of the contactless card, and in the last decade we’ve seen its use soar, particularly in recent years. Barclaycard believes its use will push a further 300% in the next four years.

 Finance Monthly has heard from Ian Bradbury, CTO for Financial Services at Fujitsu UK and Ireland, who shares his insights on how contactless has developed over the past ten years, and where he expects the payments landscape to go next.

It is hard to believe that contactless cards have now been around for a decade, as we have only in recent years seen them receive significant uptake with consumers. What was once seen as ‘scary’ and ‘unsafe’ to use, is now – thanks to its ease and education – resonating and growing in popularity with today’s consumers and now responsible for a third of all card transactions.

We expect this adoption of contactless payments to only grow, and become an increasingly important feature in the British payments landscape. Ultimately, both consumers and retailers are choosing to adopt solutions that are secure, quick and easy to use, as well as ubiquitous.

Not only are contactless payments quicker and easier to use than Chip and Pin, they are in a variety of ways more practical than small change and notes. The notable corresponding growth in debit card transactions also implies that this is not just growth fuelled by debt and easy credit – much of this increase will be a result of contactless payments being made purely due to ease. Moreover, contactless payments have the added value of fuelling other payment solutions such as Apple and Android pay and other wearable technology, which isn’t so easily done with Chip and Pin.

The success of contactless payments highlights consumers today are quick to adopt new payments solutions that focus on improving their experience. That said, because consumer experience can cover many aspects including convenience, security, speed and ubiquity, it’s essential that providers put in place ways to improve the experience over current solutions. If future payment solutions do not address all of these areas – which are fast-becoming an everyday expectation from consumers – then they are unlikely to be successful.