Episode Twenty Three: The Data (Re)Evolution

Why the Evolution of Data and Banking Creates Healthy Competition

Be confident about what you're good at and take the time to learn from other people.

We are joined in this podcast episode by Sir Douglas Flint, Chairman of Standard Life Aberdeen, who discusses an array of topics, including revelations from the financial crisis, the growing number of data sources, open banking and the opportunity gap.

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The Power of Data Podcast

Episode 23: The Data (Re)Evolution

Guest: Sir Douglas Flint, Chairman of Standard Life Aberdeen
Interviewer: Sam Tidswell-Norrish, International CMO, Dun & Bradstreet

Sam TN 00:00
Welcome to the Power of Data Podcast and welcome to Sir Douglas Flint.

Douglas Flint 00:04
Very happy to be here. Thank you.

Sam TN 00:06
Thank you, Doug. We're sat on the 60th floor of a building downtown in New York with a beautiful view of the city out there. And it just reminds me really that this is the heart of capitalism. This is the heart of financial services, along with London – I should patriotically say – and it's an industry, you spent a good deal of time in. You were with KPMG, and then at HSBC, where you were the Group Chairman, and I think it was about a year ago, was it about a year ago, you moved on from HSBC, two years ago? And you're doing a number of other things now, including as the chair of a Standard Life Aberdeen, can you tell our listeners a little bit about what you're up to at the moment?

Douglas Flint 00:41
So a bunch of things at the moment, the most important thing I'm doing well, the biggest thing I'm doing is I'm Chair of Standard Life Aberdeen which is one of the UK's largest active fund managers, a job I’m very interested in because I am fascinated by the demographics of aging and the necessity to improve saving and retirement provision. And I think asset management firms have a great role to play alongside public policymakers and regulators. I chair a fascinating company called IP Group which commercializes the intellectual property developed in universities predominantly in the UK, but also in the US and Australasia. And I have a role for the UK Government and being the UK’s envoy on China's Belt and Road Initiative. So these are the three main things that take up my time.

Sam TN 01:28
That’s incredibly diverse and actually pretty different to what you were up to at HSBC, but clearly a nod to your appreciation of innovation and technology. You were at HSBC during the financial crisis, the financial crisis was really the inflection point for our industry to suddenly intersect with technology at lightning pace, to deliver a new suite of propositions to the consumer, but ultimately to redefine what a bank is and how it does it. What was some of the biggest shifts that you saw through your career in financial services?

Douglas Flint 02:01
I think you're absolutely right, to point to the financial crisis. And I think what the financial crisis highlighted was that the industry had grown significantly in terms of its impact on the economy, the contribution it made through taxes and the employment taxes and the people who work there. But the scale the industry, when it went wrong, suddenly exposed how vulnerable economies were to an ecosystem of finance that was no longer able to support the companies and individuals that it had been able to hitherto and the losses that were embedded and in some of the bad landing some of the bad products, some of the bad behaviors and put at risk the confidence in the system and therefore confidence in the economy. So I think that led to what has been a growing trend across all industries. There's a reflection in public policies, it’s what is this industry for? What role should we expect it to play? And are we satisfied that it has the regulatory framework and management structures and controls. And are we satisfied that it's exposed to sufficient competition? Would it be better if there were more people able to compete in financial services and of course, this sort of discussion about its role took place at a time where technology was enabling new entrants to come into the marketplace and regulatory sandbox is so called sort of give them license to create new products and new approaches, and without some of the burden of the incumbents have it that they had gone through decades, hundreds of years ago. So it was it was an interesting time, everything was being redefined, remodeled, but around a kind of, okay, this industry has got very, very big it's really, really important, but what's its purpose and how does it demonstrate its social value? And technology was both a challenge to the industry in the sense that it enabled you entrance but also the ability for it to use the extraordinary trove of data and relationships that it has to better shape proposition and services to fulfill the purpose that was being stressed.

Sam TN 04:14
One of the things that’s had, well is having a profound impact on certainly on retail banking, is open banking, derived from really our version of PSD2, going first, going faster. And it's transforming how banks interact with each other, and how banks interact with the consumer and then subsequently what the consumer can do with his bank or her bank. Can you tell us a little bit about your perspective on open banking and how far does that extend? Do we see open banking come to the US, do we think the US environment can handle open banking, and how does that then translate into other industries?

Douglas Flint 04:51
I think in a world where data is increasingly shared consciously or unconsciously, and therefore, there are many, many people, organizations that have access to, to data, the competition through data sources will become more intense. I think open banking was resisted initially by the industry, only really on the basis that we want there to be a level playing field. So if our data is going to be shared, we want it to be shared with people that have got the relevant qualifications and standards and controls, because it's too important for people to have a goal. I mean, corporate failure is part of this sort of the recreation of business activity as one business model fails and another one takes on, that you have to think that that's not a great thing for financial services, you don't really want people to come in and have a go and fail because of the consequences and confidence of the system that would be driven to that. So that there was some pushback to start with, so let's make sure that people who have access to the data who are going to compete are properly qualified and have the appropriate controls and so on. And let’s have a level playing field in terms of the way they're regulated. I.e. if it looks and walks like a bank, it's a bank, not some kind of different animal. And I think the interesting issue now, which the financial industry is thinking about, while it's very open to open banking, well, maybe there should be, if that facilitates competition, maybe the organizations that seek data from the banks to compete should offer their data to the banks to allow the banks to have a better proposition to offer to their customers, because they've now got access their information that's coming from other companies that have collected a huge amount of data, you know, to which they want to add banking data, but why can't they share their data with the bank, allow the banks to do what they want to do better? So, you know, I think this whole debate more generally about whose data is it, where's it held? How's it used, who permissions it and so on and so forth is a fascinating one. I think the other concern banks have at the moment is the free rider impacts of some of the business models of FinTech rely on the fact that customers they've got have a bank account, and therefore they've gone through all the due diligence, KYC at the bank, and therefore they can rely on that. And therefore, that's a kind of a free rider approach. We see you do all the screening of the customers, and then we'll cherry pick the most attractive services and leave you with the ones that are less remunerative. So it's a, it's an evolution, but it's I think it's good competition. You know, I think banks will end up being stronger and better as a consequence.

Sam TN 07:32
You were recently appointed by the UK Government to lead on some of the Belt & Road Initiative activity. Can you tell us a little bit about your perspective on the opportunity the UK has with working with China, and I say that with a smile on my face sitting in the US who definitely aren't working with China.

Douglas Flint 07:49
Well, I think you know, Belt & Road is a is a curious name in a way for what is essentially Globalization 2.0 for infrastructure. Which is clearly needed to address creating the economic ecosystems that allow developing countries to emerge with business models that support their populations, particularly growing populations. And clearly, infrastructure is needed to address climate change, both in terms of replacing energy creation that is not in a form, we would wish it today and also creating the energy production that will serve the needs of an expanding and a more affluent population around the world. I think the challenge that the world faces if we don't address these issues collectively as one of uncontrolled migration, which would be very, very dramatic in Europe and in South Asia as the population growth there, if it were not able to find economic sufficiency, never mind, prosperity would seek to move where more jobs and a better lifestyle could be seen to be available. And you know, if Europe can't cope with a few million migrants if it was in the 10s of millions, never mind the hundreds of millions, that would be pretty dramatic and climate change, of course, affects the entire world. So, you know, I think the ambition of Belt & Road in terms of building economic ecosystems and contributing to the climate change agenda is hugely important. Now, from the UK’s perspective, I mean, essentially, I represent the professional financial services element. And you know, it's not for the UK to say to China, we can build infrastructure better than you. I mean, we're good at building infrastructure, but China has built more in the last decade then almost the rest of the world has in its history. But what we can do is build capacity that the scale of infrastructure spend needed is in the 10s of trillions of dollars. China cannot conceivably finance that all by itself and many of the countries that aren't necessary recipients of infrastructure investment also don't have the resources. So the City of London, the professional services industry has a huge role to play in my view and building capacity, financial capacity, and it will do that by essentially doing what it always does, which is accumulating funds from all over the world and all the pockets of investment funds that exist into a place where they can be put within a governance and then integrity framework and a legal framework, that people have confidence that whatever they're investing in, is transparent in relation to the risks and the financial returns that are available. I’m not saying it's risk free, but there will be confidence that what they're getting is what they think they're getting. The UK, you know, does that better than anywhere else. I mean, London is the largest international financial center, partly because of time zone, partly because of history, partly because of rule of law.

Sam TN 10:31
And I can't help but think about the enormous opportunity both the UK companies but also the UK economy more broadly. And actually, UK society because the Chinese are technologically so far ahead of us. How can we best help Chinese firms come to the UK and to do so efficiently and with impact for our economy?

Douglas Flint 10:49
I think it's a huge opportunity, the outward flow from China. I mean, it's been dramatic over the last decade as China's opened up, but many of the Chinese firms that are huge in a domestic sense, and then huge in an international sense in terms of this scale are very limited in their external profile in terms of what they do outside the country because they've never had to live in such a large domestic market and such a strongly growing domestic market. I think the next evolution clearly for Chinese firms is to become more international to invest overseas to gain access to markets to gain access to technology, to gain access to skills that they don't have. And I think there's a big opportunity for UK firms, UK financial firms in particular, to facilitate that outward flow, both in terms of financing it but also in terms of working with clients to help them understand how to integrate how to manage an international network of companies, because again, there isn't that much experience in China yet of running an international firm, very good at running very large firms domestically, but how do you run firms that are in you know, Brazil, the United States, Italy, UK, Poland, you know, Angola and understand all the different cultures and modes of operation and political and legal systems that you operate in. In Britain, you know, we have many, many companies that have been doing that for 100 years. So I think we've a lot to offer in terms of experience and I think you'll see a more international management, the cadre emerging China, both from Chinese businessmen who've gone and worked outside of China, but also for international businessman that start working for Chinese companies. There's a big opportunity.

Sam TN 12:30
Awesome, thank you. You're involved in the Archbishop of Canterbury's Just Finance Foundation, which works to ensure a fair financial system and to educate the next generation, which is critically important as the world moves ever faster every day digital skills, for example, are harder to acquire. And the opportunity gap for those that aren't exposed to those skills gets ever larger each day. Why is this something that you feel is so important to our industry, and can you talk a little bit maybe about what the foundation does?

Douglas Flint 13:01
Really, it was it was set up to address a number of things. Firstly, the concern that existed, that the most vulnerable were often exposed to financial services that were very expensive and potentially could trap people in unaffordable debt. And this was essentially driven by some of the worst examples in the payday lending sector. So not so much in the traditional banking sector, but in the payday lending space. And that led to a concern over financial exclusion. Why are there people who don't have access to the traditional sector, which would be much less expensive than the payday lenders, but there were people who felt that the banks are not for us, you know, people like us don't go there. And they would use services that were much easier to get access to, but were much more expensive and then that led to reflection is why do people think that they're excluded and that’s what led to a sense that we needed to start education at a much earlier stage so that people learnt about money, the responsibility of money, the privilege of money and what money means in terms of the ability to manage your life and how to budget and save. So the two strands of the foundation are to support financial education in primary school through building savings clubs very, very modest, but just creating the understanding of money and savings. And then secondly, helping people understand how to get access to financial services in a lower cost way than people historically who were either excluded from or felt they weren't welcome in the banking system, the traditional banking system had the opportunity to avail themselves of, and I think technology again, has been one of the great contributors to creating products that can be delivered very, very inexpensively to consumers on a fair basis to give them access to means of payment means of identification and so on, on fair terms without the cost that goes with a traditional branch structure and all that.

Sam TN 15:07
Thank you Doug, that’s fascinating stuff. And it's interesting hearing about how you spend your time outside of the business world, which is what ultimately you have become so famous for. You received your CBE in 2006, for services to financial services. And you were recently knighted, all of which are recognitions by the UK of your incredible contribution to the UK economy and our industry. But the recognition is by government, and you're starting to dip your toe into a number of different areas of government, the Belt & Road being part of that. I wouldn't normally ask this question but given that Rob just asked David Rubenstein on stage if he was going to run for president. Have you ever thought about spending more time in politics?

Douglas Flint 15:49
No, no, I think you have to have a calling for politics and I think the skills I've developed over the years are better used in the commercial space and in the charitable space, supporting financial education, financial inclusion, I don't think I have the bandwidth or the patience at this stage in my career to contemplate politics. It's not something I've ever thought about seriously.

Sam TN 16:20
I would have been surprised given the state of our political system at the moment if you jumped in with both feet. Question to end on. I'm always fascinated, having had some great mentors, in my relatively short career so far. I'm always intrigued to know what and who you have learned from in your own career. Have you had any business mentors that that have had a profound impact on how you shaped your career?

Douglas Flint 16:44
Yeah, very definitely. I think anyone who denies that they were influenced by people that they've watched whether they watch people and said I could do it better than that, or whether watch people and said I wish I could ever do something as well as that, I think we learned from every experience we've got I mean, I think in my own case, there were four people that I, I genuinely believe shaped my career. There was a senior partner of Peat Marwick as it was when I, when I started life as an accountant, Michael Far was a huge influence in terms of building a culture of integrity and service. Two of my Chairmen at HSBC, when I was finance director Willy Pervis and John Bond were titans of the industry and again, you know, had an ethical backbone that was so, so strict and straightforward that it was fabulous to learn from and understand that doing the right thing was always the right thing to do. And then finally, one of the most extraordinary people I've ever met Peter Sutherland, when I was on the BP board, he was Chairman of BP. And he had an extraordinary career in so many different ways but as a leader and as an inspiration, he was remarkable to work with and learn from and I put them on a pedestal.

Sam TN 18:01
And just taking maybe one of those lessons, if you could speak to, and our listenership is very broad and many people who are coming into their professional career, listen to our podcast, what piece, one piece of advice would you give someone young who's keen to make a big impression?

Douglas Flint 18:18
I think the best piece of advice to anyone is be confident about what you're good at, and take the time to learn from other people. I mean, I used to say always to people joining HSBC, you know, spend the first three months doing more listening than talking because two thirds of the things you think look odd or wrong, you'll find out there was a reason for that. And the third, you, you continue to question and you need to challenge, but I think the most important thing is you have to be true to your values, and no one should ever put up with being in an organization or in a part of an organization where the values that are exhibited by colleagues or the organization itself don't match their own. I think it's really important for individuals to define their own values, what they stand for what they want to be part of, and to ensure that wherever they work, it's not about how much you paid or anything. It's about, do I work in a place where I get up in the morning and believe that by the end of the day, I'll have done something that I'm proud of. And you know, I think people should really think very carefully about what their own contribution is going to be and find a way of delivering that contribution that makes them satisfied.

Sam TN 19:27
There we go. Doug, thank you so much for being on the Power of Data Podcast. It's such a pleasure to have you on it. And yeah, we look forward to seeing you soon.

Douglas Flint 19:35
Great pleasure. Thank you.