Introduced by John Psaila, Managing Partner of Deloitte Luxembourg, and moderated by Sarah Khabirpour, the 10^th edition of Deloitte's Horizon conference was held on September 28 in a hybrid mode. This year's phygital event gathered 50 onsite attendees and 250 online participants. In 2022, Deloitte will offer its event a brand new format.

CBDC, the Perfect Storm in the Financial Industry ?

Bruno Colmant, a financial specialist, tax expert, economist, university professor, but also multidisciplinary thinker and prolific author, opened the conference by addressing a trend that will constitute a genuine revolution in monetary history: central bank-issued digital currencies (CBDC's).

He reminded the audience that money has a dual nature. It is both a store of wealth - a stock - created by central banks and a means of payment - a flow - generated by private banks. In the 1930's, the American economist Irving Fisher had the idea of sterilizing the money flow and ensuring that only central banks could create money. That way, if the economy lacks inflation, the central bank can increase the stock of money and lend to banks, which in turn lend to individuals or businesses. On the other hand, in case of overheating, the central bank can reduce the number of monetary units. "This is quite a revolutionary idea", commented Bruno Colmant, "because it is tantamount to nationalizing money". Anyway, Fisher's idea, known as the Chicago Plan, never saw the light of day: President Roosevelt opposed it, as did commercial banks.

"In my book on the Chicago monetary Plan published last year, I wondered if the idea of a state-issued cryptocurrency founded on this plan was plausible", recalled Bruno Colmant. "And I wrote that we were not that far from such a scenario".

According to him, the reason why major central banks are currently working on digital currencies is due to the fact that they hold a large part of the public debt, which will merely continue to accumulate in the coming decades.

"The big advantage for states is that if central banks are able to determine the quantity of money, they are also able to constantly modulate the quantity of government bonds they buy", said Bruno Colmant. "By the way, in Fisher's plan all public debt was to be bought by the US central bank", he added.

One of the dangers of CBDC's would be that the entire life cycle of those currencies could be traced. Were the system to become widespread, it would mean the end of black money and, all money flows being traceable, tax returns would become superfluous. At a later stage, governments would have the power to affect consumption or savings, and to decide to deflate or inflate the economy by simply acting on interest rates. In the end, this would trigger a profound change in the shape of the global economy.

 Are private banks aware of the magnitude of the coming change?", asked Bruno Colmant. "Intelligent bankers are totally aware of what is happening", he answered. "They are already transforming their banks into commercial platforms - such as Belfius and KBC in Belgium - offering not only banking but also a whole range of new services. The banks that will survive in the future will be niche players, but it will be difficult for retail banks to adapt to the new environment", he said.

Turning the Innovation Pyramid into a Cube

Leo Sharma is the nineteen-year-old Co-Founder and Vice President Technology of Workshop4me, a non-profit organization that teaches children how to become the problem solvers of the future through programming and other technological skills.

Leo believes that the fundamentals of innovation are amongst the least understood principles. He presented two perspectives to address this.

The first perspective relates to the boundaries of innovation. According to him, leading experts often have a limited understanding of the future potential of their own area. "When it comes to looking at what lies ahead, they fall in the same traps as their predecessors and end up saying that nature or knowledge have a finite boundary", he said.

Leo Sharma disagrees with this this vision of things and believes that "knowledge is expanding with an acceleration, just like the universe". The expansion of knowledge is comparable to Moore's law, which states that the number of transistors on a microchip doubles every two years. "This means that there is a lot that can be expected", he said.

The second perspective concerns the application of innovation. Leo underlined that, in the EU alone, billions of euros are allocated for supporting innovation. While some of this money does profit the corporate world and humanity, a large part of these investments don't translate into benefits. "The potential of the research done is not fully capitalized, and that's what troubles me", he said.

Leo Sharma's theory is that "we must transform our current knowledge and innovation shape from a pyramid to a cube". According to him, most of the R&D money goes to researching new knowledge,  expanding the base of the pyramid. The layers above are the applications of the real world uses of knowledge. "Quite a lot of the knowledge we have has been tapered off when it comes to being applied, hence the shape of the pyramid", he said. "I have observed that innovation is relatively easy. But carrying it forward widely and implementing it in the real world is not well understood, even by the innovator himself".

Creative thinking and a multidisciplinary approach are needed to convert the pyramid into a cube. This could be achieved by introducing an effective set of KPIs at each layer of the pyramid.

Avanti Sharma, Leo's younger sister, is a Pre-Teen Technology Specialist at Workshop4me. She considers that we have to create an innovation framework where talents are correctly recognized and their skills harnessed. "We need to bring innovation to our school systems so that no more future Einstein's drop out of school or get lost in the crowd after graduation", she asserted. At the corporate level, the concept of respecting the environment should be the primary driver to design new products and services. "When we implement this approach", Said Avanti, "the gap between innovation and sustainability should start to reduce and sustainable innovation will emerge".

Customer Centricity : The X Factors

Nancy Rademaker, a specialist in the impact of digital on customer behavior, then took the stage to explain to the audience how Customer Centricity and focusing on Customer Experience (CX) is essential to acquire and retain customers.

"73% of executives surveyed last year predicted significant industry disruption in the next 3 years", she stated. And this disruption is coming from three main factors: new technologies, new competition and higher expectations amongst customers.

Technology has indeed changed the business as we knew it but what is essential to realize, according to Nancy Rademaker, is that it has changed us humans as well. To make her point clearer, she referred to the concept of the 5 I's, 5 characteristics that are either new or have become more prominent because of technology. "We have all become more informed, individualistic, impatient, intuitive, and influenced. These 5 I's, that keep on constantly evolving, must be taken into account when creating a strategy", she said. In view of this, the crucial challenge for any organizations these days is to grand agility a central role. "You can no longer have a rigid strategy with a 5 year plan fixed in stone. Instead, your strategy should become fluid", she advised.

But then, what can we learn from those who disrupt our business models?  The first lesson may seem obvious but is actually very hard to put into practice. "Do not start with the product", said Nancy Rademaker, "but start with the customer and work on improving the quality of the exchanges he has with your company". Customer Experience is a customer's perception of his interaction with any part of an organization, relative to his expectations. CX influences behavior and builds memories. It is the first X factor of Customer Centricity.

The second lesson that we can take from the disrupters is that they make optimal use of the new technologies. AI and algorithms are already in use in the consumer market but also in the legal and banking fields, for instance. While it requires huge amounts of data to make the most and take full advantage of what new technologies have to offer, only 1% of industrial data is being used today. "But if we manage to harness the huge opportunities brought by the use of technology and combine them with the 5 I's, we can turn these five characteristics into formidable levers for a better customer experience", she said.

The X factor is not only about the customer. An equal focus on Employee Experience (EX) will distinguish great companies from average ones. "CX and EX should go hand in glove for organizations to be successful and this requires a drastic cultural change. One in which processes and procedures need to be rethought from scratch, and where leadership and organizational structure need a thorough make-over", advised Nancy Rademaker. Every customer-centric company will need to make the journey from CX to EX and back. "If you provide a better Employee Experience, you will have more motivated employees who in turn will offer better Customer Experience, leading to more satisfied customers who tend to be more loyal and thus represent the economic value of your company", she concluded.

Building on Four Key Strengths

After a motivational show by Rainer Hersch, an orchestra conductor and humorist combining music with comedy, Nicolas Mackel, CEO of Luxembourg for Finance, shared with the audience the main lessons from the report on The future of the Luxembourg financial services industry drawn up by Deloitte in partnership with LFF.

"The numbers relating to Luxembourg’s financial industry are amazingly good", noted Nicolas Mackel. "Our fund industry recorded a 20% year-on-year growth rate, the private banking sector has seen really positive development, and the same goes in the insurance industry", he observed. "In addition, Brexit relocations have confirmed and consolidated Luxembourg’s role in many sectors", he added.

"However, Luxembourg is not in the habit of resting on its laurels", said Nicolas Mackel. This is the reason why Deloitte and LFF surveyed the decision makers in Luxembourg's financial sector on how they see the future and what they suggest to maintain and strengthen the industry's position. What comes out of the survey is that four key strengths must be exploited and further developed: internationalization, innovation, sustainability, and talent.

Accordingly, Luxembourg’s financial services industry must cement its position as a cross-border centre of excellence to attract more international investors and increase its pivotal role in connecting markets. On the innovation front, technology must become a core pillar of the financial sector's strategy and help Luxembourg take centre stage in the inescapable platformization of the industry.

"Over the past five years, Luxembourg Green Exchange, the world’s first platform dedicated exclusively to sustainable finance, has become a market leader by listing more than half of the world's volumes in sustainability bonds", said Nicolas Mackel. And a recent research by ALFI and Morningstar showed that 44% of the investments into sustainable funds in 2020 went into Luxembourg's sustainable funds. "The world needs sustainable finance and what we want to become is a center of excellence in that area", he stated.

Of course, such ambitions come with challenges on the talent side and the financial industry will have to keep on attracting different profiles from abroad and expanding its training capabilities.

Michael Renotte