Financial technology, sustainability & Trichet on our sci-fi future



We’ve rushed straight from Camp Alphaville’s big data, AI and debt sustainability conversations to Paris to take part in a United Nations Environment Program-hosted symposium entitled New Rules for New Horizons: Reshaping Finance Sustainability.

[As an aside – we were delivered to the venue by a particularly overjoyed Parisien taxi driver celebrating news that local protests against Uber’s UberPop service, which allows non-professionals to offer rides, had successfully persuaded the Silicon Valley Taxi-Unicorn-App-Monopoly-Disruptor to suspend the service as of this weekend.]

This is a very brief summary of the session we moderated on financial technology and sustainability — yes there is a connection — before a more thoughtful take on everything we’ve just downloaded sometime next week.

As another aside, our panel preceded a session on mutualising the future “to harness financial system disruption for sustainable development”, which we think roughly translates to: “if G7 central banks have to take private risk onto public balance sheets, let them at least be able to dictate useful terms on the sort of assets they take so as to steer sustainable development.

That panel featured Jean-Claude Trichet making lots of comments about technology opening the door to a sci-fi novel world in about 20 years time and fintech itself encouraging short-termism in markets by making liquidity available on a second-by-second basis. (Ed – could Trichet be unfamiliar with the whole bond liquidity thing Bloomberg’s Tracy Alloway and the FT’s Robin Wigglesworth have been going on about?)

But back to our panel which featured Michael Liebreich, chairman of the advisory board and founder of Bloomberg New Energy Finance, and Matu Mugo, assistant director of bank supervision, at the central bank of Kenya.

Our debating point: How can technological disruption and business disruption to the financial system drive new rules, standards and norms to catalyze financing for sustainable development? Which roughly translates to: can moving fast and breaking things in finance ever be about more than just rent seeking?

Liebreich told us on the sidelines of the event that he’s a fan of deregulation, doesn’t think that government is necessarily needed to forge new markets — not in theMariana Mazzucato sense anyway — and that financial innovation in the form of prepay solar power credits can, for example, create the right incentives for the private sector to build the infrastructure the world needs to achieve sustainability.

We struggled with that last point until we realised what he was actually advocating was a prepay credit system that turns abundant solar energy into a synthetically scarce resource by cutting-out power to receivers on a Tank Girl/Mad Max 3“Masterblaster runs Barter Town” power-domination and distribution basis.

As a further aside, Liebreich — who is a thermodynamics expert and accomplished skier — was pretty adamant that there is no downside to adding complexity to the financial system, that the flash crash resulted from a mismatch between the speed of regulation and the speed of market agents (not, as we counter proposed, poor market understanding of liquidity conditions because of system incentives for creating information asymmetries) and that deregulation never adds inefficiencies to the system (we countered with the whole Enron California power-cut thing, but he wasn’t convinced.)

His overarching point, however, was that sustainability doesn’t have to come at the cost of growth, and that — thermodynamically speaking — we can have it all.

Matu Mugo, meanwhile, made the point that in Kenya it was telecoms companies — one telecoms company in particular: SafariCom, a.k.a Vodafone — rather than banks which helped to bring digital payment services to the financially excluded and achieved this by essentially making the economics of micropayments work.

We put it to him that unlike banks, this was down to Safaricom being allowed to forge a monopoly at the cost of state seigniorage. Furthermore, had M-pesa been brought to market in a competitive framework, we asked whether it would really have been able to achieve the network effects that made its model a success?

Mugo countered that Safaricom was not so much a natural monopoly as a “dominant provider”. Besides, he stressed, M-pesa wasn’t really in the credit business.

Furthermore, there were clear benefits for the banks. For example, now that the payments “eco-system” had been created — a risk borne by Vodafone not the government or the bank network — it would be banks which would be able to exploit the infrastructure for themselves.

From our point of view the suggestion seemed to be that a monopoly is just fine as long as it’s a temporary monopoly and one that allows for a means to a publicly-minded end. In this case, it’s a question of data provision and availability. Banks in Kenya, for example, can now make credit decisions based on datasets accumulated by way of the M-pesa system which, in turn, allows for wiser capital deployment — which, in turn, improves sustainability and de-risks the system.

That got us talking about whether the cost of financial inclusion in the developing world always has to be connected to a de facto data serfdom. But we’ll have more on the big data panopticon and sustainability link, as well as the use of crowd funding tools for achieving sustainability goals, in our follow-up post next week.

We’ll just leave you with the snippet that someone in the room asked the Trichet panel whether banking supervision could be improved with the use of drones (we *think* he meant on a loan quality inspection basis).