The company’s entry into international markets is a growth point for any business. Since 2016, our financial group has been developing investment strategies for private wealthy clients and resolving their near-financial needs thanks to a large number of global partners. In 2020, we realized that we were ready to go further: to erase geographical boundaries, and now we are actively heading for Asia. Sergei Uskov, managing partner of the investment company Aravana Capital Management, tell us which trends to focus on in the process of globalization.
Trends
In my opinion, in the next ten to fifteen years, the economy will change rapidly under the influence of demographic, technological and, as a consequence, environmental factors. The financial sector will have to renew itself along with the economy. Considering the above factors, I have identified three global trends that affect the economy and determine the future of finance.
Digitalization
We can see how digitalization is changing the structure of companies’ business models. The things which were discussed by society in the late nineties – early zero seemed like something impossible, is already a top direction today.
Platform economy
An interesting case was shown by Ant Financial, a subsidiary of Alibaba, which is engaged in the Alipay mobile payment application. While the Americans were struggling with chips and PIN codes, and the Europeans were mastering contactless payments, Chinese company with more than 1 billion users and without a single branch bypassed everyone in terms of digital payments. Today, about half of the world’s financial transactions take place outside the banking system.
Big data
According to the IDC forecast, the global digital data volume will increase to 175 zettabytes by 2025 (40 zettabytes in 2020). Most of this data will be constantly changing in real time. Currently, the largest big data markets in terms of revenue are the United States (53% of the global market, $ 100 billion), Japan (5.1%, $ 9.6 billion) and the United Kingdom (4.9%, 9.2 billion dollars). The Russian market still has an insignificant share and is estimated at 45 billion rubles.
How will this affect the financial market?
Financial companies can support the evolving digital and platform economy by developing fast, secure and cross-border payment methods. And the introduction of the Internet of Things will allow companies from different industries to centralize their business processes on the basis of a single platform.
Renewal period. Moving to a low carbon economy
At the moment, a green economy creates not only risks, but also opportunities for the economy and the financial sector. Investors do not yet have a clear idea of how companies will feel in the changing environment, new rules and customer reactions. It is difficult to assess climate-related risks and opportunities yet. Experts estimate that the world will need more than $ 90 trillion in the next decade to build the necessary infrastructure — an impressive investment in the transition to a low-carbon economy.
Demographic changes
There are at least 4 generations among the clients of companies, and each of these segments is individual, has its own habits, stop factors and rules. In the context of increasing life expectancy, the rapid development of young teenagers, companies need to be able to incorporate into their services solutions and problems that customers may have in a year / two / ten years.
How will this affect the financial market?
Financial companies are well positioned to help the economy go through its transition. So, with the help of Al, the protection against fraud will increase in the next few years, financial services will become even more personalized, companies will be able to reduce their costs.
And the transition to a low-carbon economy will require not only impressive investments, but also a significant amount of information (the experience of developing countries).
Stability check. Development of new business models
In addition to banks and fintech companies, small startups are entering the financial market, creating a competitive environment. According to the Financial Stability Board, almost 50% of all global financial assets now belong to players operating outside the banking system. As a result, competition in the non-banking financial sector is increasing.
Cyberattack threat
According to experts from McAfee and the Center for Strategic and International Studies the global economy lost more than a trillion dollars (820 billion euros) in 2020 due to hacker attacks.
Increased technological efficiency
New technologies will be able to make financial companies (and not only) more dynamic, helping to create new services and products that meet customer requirements. For example, over the past few years, self-driving innovation has made a big breakthrough not only in grocery delivery, but also in passenger transportation. Other leaders in the automotive industry, from car and hardware manufacturers to taxi services, have also joined the driverless race.
How will this affect the financial market?
The pandemic has shown that in the conditions of the most severe crisis, systemically important companies survive to a greater extent, capable of providing jobs and those structures that are ready to change their business model in a short time, taking into account market conditions. Relying on new inputs in the field of cybersecurity, innovations in financial spheres, special attention should be paid to market regulation. It is important to rethink old rules that may not fit the new economy.
Why Asia?
According to the long-term forecast of Bloomberg Economics, in the world until 2050 the center of economic power will shift from West to East, to Asia (strengthening of the above trends). According to a forecast based on an analysis of capital, technology and labor, Asia’s share of global GDP will rise from 25% at the beginning of the 21st century to more than 50% in 2050 due to a decrease in the shares of North America and Europe.
In my opinion, foreign direct investment, high savings rates, impressive investment in human and physical capital, and effective macroeconomic policies will be key drivers of East Asia’s development.