By Maria Bruno-Britz
Keeping the U.S. at the forefront of technology and innovation seems to be on the agendas of many committees and conferences these days. Earlier this month, the Technology Innovation and Manufacturing Stimulation Act of 2007 was passed by the U.S. House of Representatives. The legislation earmarks new funds for the National Institute of Standards & Technology (NIST), reauthorizing several of NIST's competitiveness and innovation initiatives.
This drive to remain competitive is certainly not lost to the U.S. financial services sector either.James Dimon, chairman and CEO of JPMorgan Chase, and Richard Kovacevich, chairman and CEO of Wells Fargo, were named co-chairs of The Financial Services Roundtable's Blue Ribbon Commission on Enhancing Competitiveness. The commission was created at a spring meeting of the Roundtable's board of directors as a means for developing "regulatory principles that deliver more balanced, consistent, and predictable outcomes; identify alternative ways to modernize U.S. financial services charters to meet the challenges of global competition; and create a financial services competitiveness reform agenda." Areas on which the commission will focus include securities litigation, U.S. and international accounting standards, anti-money laundering, Basel II capital rules, consumer lending and investor protection. This commission will bring together some of the brightest figures in U.S. the financial services space to examine recent losses in market share to foreign securities markets and ensure the place of U.S. financial institutions as global leaders.
This reminds me of what we're seeing in the banking space in general in terms of M&A activity. More and more, we're witnessing the acquisition of U.S. banks by foreign financial services entities. In fact, I remember conversations I've had with a number of analysts who believe that at the current rate of consolidation, there will only be a handful of banks globally within the next decade or so-and most will be based off America's shores.
There are a variety of reasons for this prediction but I look to the technology argument. Some have said that to a certain degree, some foreign financial services firms are more advanced in their IT operations than their U.S. counterparts. In Asia, for example, some firms have had the opportunity to leapfrog from extremely antiquated systems to the latest in banking automation. In Europe, forces such as the advent of the single euro payments area (SEPA) are driving financial institutions there to seriously re-evaluate and even upgrade their IT systems. Furthermore, many operate core systems that can accommodate multiple currencies. In contrast, financial institutions in the U.S. have managed to do quite well by squeezing as many miles out of legacy infrastructure as they possibly can--a definite situation of "If it's not broke, don't fix it!"
But analysts say that time is running short for banks' older IT systems. And there are those financial institutions in the U.S. that are realizing this and are starting to replace or consider replacing their systems.
Of course, there are various factors that allow one country to dominate others in any space, but in financial services, it can be said that technology is probably the key. Technology has opened doors and new opportunities for other competitors to step into an existing market and fill a gap there. They're often more nimble and have the wherewithal to deal with a new type of customer constituency. Technology gives you an edge, whether you're the bank down the street, a bank overseas or even a non-bank player like a retailer elbowing its way into the financial services space.