22 Feb 2016
" We do more transactions on iPhones (each day) than we do through the branches or through internet."
Nigel Williams, ANZ chief risk officer
This is an edited excerpt from that debate with Andrew Cornell, PPB chairman Steve Parbery, Ferrier Hodgson managing partner Steve Sherman , McGrath Nicol executive chairman Peter Anderson, KordaMentha senior partners Mark Mentha and Michael Stiassny, Deloitte partner David McCarthy, Moelis & Company managing director Colin Richardson, Houlihan Lokey managing director Nicholas Rowe, Borrelli Walsh managing director Cosimo Borrelli as well as ANZ chief risk officer Nigel Williams and former chief economist Warren Hogan.
Cornell: We're seeing the digital revolution take hold across almost all sectors. ANZ's new head of digital Maile Carnegie says everyone needs either be a tech company or become one soon. What kind of impact do you see from this kind of disruption in 2016?
Hogan: Everyone is talking about disruption but in every country, particularly in advanced economies, it's not proving additive. It's just cutting someone else's lunch and causing things like job losses in companies struggling to deal with it. But there's going to be new jobs created elsewhere.
The Australian Securities and Investments Commission has registered record levels of new companies in the last few years despite the fact the economy has been pretty flat. So there's a lot of industrial structural change going.
Williams: There's record numbers of companies being set up and that goes back to that investment and private equity - so there's not a lot of return that I actually see coming from them. There's a lot a capital available to burn but I'm not seeing the return yet.
I'm a little bit more cynical about the innovation disruption because I think the winners of disruption will be the incumbents. You can look at something like fintech and say it's a fantastic opportunity but that's assuming the banks don't invest in it themselves.
Stiassny: Disruption is driven by two things, isn't it? It's driven by someone having an idea but to disrupt requires the elephant - and I like elephants - to almost either be asleep at the wheel or to be looking at past data to make future decisions.
Take electricity. I don't own any generators, I think they're dead. Generators behave as though they're not dead and as though they will be the future of the world. Logic doesn't support this.
Banks have in the past been very reluctant to look outside their current business, driven by short term thinking.
Williams: It's always bad to choose your own industry to argue about disruption. There has been so much value ascribed to a lot of the disruption including of course Uber, a fantastic service and one I use. The traditional industries are very slow off the mark but are now fighting back. Does that create a multibillion dollar industry?
Staissny: No, it doesn't. But it doesn't kill them.
Uber was something the taxi sector should have used. They turned it down. So someone made a packet. That's all. There's no long term.
In software I think it is about taking a slice and leaving the old players there. Banks will always exist but there are a whole lot of people cutting your lunch. They're just cutting you into a smaller part of society.
Rowe: The damaging thing with Uber is to holders of licensed taxi plates, where the value has slumped almost 40 per cent since November. But you've still increased the number of drivers on the Sydney roads by 4,000.
You've got a massive uplift in employment in the market, which was pretty regulated before and those incumbents can't now change themselves because they've lost their edge. The incumbents had all the cars. Uber owns no cars but it has drivers who provided one million trips in Sydney in the first year.
Williams: I'm not arguing with you. It absolutely changes it but I'm just saying value that has been placed in there, the capital that's actually being invested is not necessarily guaranteed a return.
Stiassny: No. It's pure risk.
Rowe: It will actually lead to erosion in return on capital across the whole sector.
Stiassny: There are two types of investment in the world at the moment. There's your proposition.
Infrastructure has got a real big drive, hasn't it? There's people running at it and they're getting a low return. But instead of trying to find middle ground, they go right to the other end and invest in this high-risk stuff. They're two very different worlds.
Anderson: There seems to be two types of successful players in the disruption space. Some, like Google, start from nothing with an innovative idea and lots of energy and rapidly establish or takeover their market which concentrates great wealth. It's a wealth shift.
Others, like Apple, are already a major player and use their established scale, capital and customer base to disrupt a different space as they did with music. Successful disrupters seem to be one or the other of these examples.
MccArthy: You raised this issue, Nigel, about the innovation, that type of disruption not making a big impact on capital returns, given you're lending to the corporate world.
Different, I think, to the era of digital disruption, this era that we're going into now, which I think some people are calling an exponential era, where you've got your artificial intelligence and robotics and 3D printing.
They have all reached the tipping point. Artificial intelligence is going to disrupt insurance players because you don't need all of these people calculating premiums and products in the background anymore.
Houses can be built through 3d printing. There was a successful equity raising of a bricklaying robotics business in Australia in June and it was oversubscribed.
I think that and a combination of what you're talking about, the solar vehicles, connected houses, all those things being packaged together and happening at the same time will present enormous opportunity.
I know I probably sound like I'm preaching from the Prime Minister's handbook at the moment but, in the corporate world, each of these new technologies are going to cause pretty significant disruption - on the places that can't keep up. Does that concern you? It presents tremendous opportunity but does that concern you or is the impact still too small?
Williams: Actually I was looking at the disruption in terms of capital. We do more transactions on iPhones than we do through the branches or through internet daily.
As a result we have the data. When you pay tap and go you provide another set of data. You're Data on what you bought, where you bought it, when you bought it. That behaviour information is very valuable.
We never knew what you spent your money on when you paid in cash. The power of information connected to a card and to a transactional account is huge and data analysis is getting cheaper. Cost are about 10 per cent of what it used to for processing.
Stiassny: Did our pricing fall?
Williams: Absolutely. It's fundamentally changing. Look, some of our capital is going to be destroyed through disruption. Companies are going to do very well around our assets and around mobile and around that point of location specific data.
But I'm worried about the number of companies. A lot of capital, stuff listed on the stock exchange or in private investment, I think is potentially going to be destroyed. That's the truth. It's going electronic. It's going self-service but the data becomes very powerful.
Mentha: Disruption is interesting. I worked for many years and had an office but everyone has open plan now. I used to have a typing pool available to me. The word processor changed that. There used to be massive call centres. Now everything is done on line.
We have been moving with disruption for a long, long time. We are as an economy pretty resilient to new ideas and every now and then you get the Ubers of the world with new technology. Disruption is not new.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
22 Feb 2016
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