Baiduri Bank: Our digitisation journey means upskilling and reskilling our people

Baiduri Bank has long been at the forefront of financial services in Brunei, delivering technological firsts and innovative solutions in response to ever-evolving consumer behaviour. Baiduri CEO Ti Eng Hui explains how the bank’s digital transformation is improving the customer experience, which technologies are being deployed behind the scenes, and how Baiduri is upskilling and reskilling its workforce to meet the new challenges of the digital-first banking era.

World Finance: How has your digital transformation been delivering improved customer experiences?

Ti Eng Hui: We believe that genuine human connection is at the core of excellent customer experience. It is therefore essential for us to have a hybrid approach – leveraging technology while providing the best banking experience for our clients.

And we have enhanced so far our digital banking platforms for both retail and business customers. The app that we have launched incorporates optional biometric login as well as financial calculators and risk profiling tools to provide a better customer experience.

More recently, we have launched new offerings such as Baiduri Qpay, that allows our customers to pay via QR code.

We continue to improve digital engagements through our industry-first AI chatbot, Emmi. At the same time, we are reconfiguring our branch design and service model to offer a better overall experience that combines both online and offline interactions. So our branches are now focusing less on transaction processing, and more on providing quality financial consultations to our customers.

World Finance: And how have you been transforming Baiduri’s internal workflows and infrastructure?

Ti Eng Hui: Yeah, we need to ensure that internally, the organisation is ready to support our digitisation aspirations. For that reason, we kickstarted our digital transformation with our HR function. We are using cloud-based solution SAP SuccessFactors, and through this platform, most of our human resources and talent management processes are now done digitally.

We are actively deploying modern technologies including artificial intelligence, machine learning, Robotic Process Automation and new microservices to automate existing workflows.

Baiduri Bank will be the first bank in Brunei to migrate and operate our core banking platform to a new cloud-based system under the SaaS model. This will enable us to offer superior customer propositions with personalised offerings when we go live in the middle of next year.

We are also the first bank in Brunei to modernize our credit risk management using artificial intelligence – through this, we are developing and deploying high quality credit scorecards at a fraction of the time and cost – with reduced credit risk, improved efficiency and greater agility for retail and SME businesses.

World Finance: Now, is there a risk that on your transformation journey, you could lose good staff along the road?

Ti Eng Hui: This digitalisation journey will undoubtedly bring about shifts in the way that we work – and that is why it is important for us to be a learning organisation that focuses on reskilling and upskilling our people – identifying technical competencies needed to support our journey and building in-house digital capabilities.

The bank’s newly established Organisational Development and Learning Unit is tasked with upskilling and reskilling the bank’s workforce – offering leadership courses, Employee Wellness initiatives, Change Management, transformational workshops, and on the job training to identify gaps in skills and competencies.

A great example of this is that over 30 employees from different business lines and key support functions across the whole Baiduri Bank Group underwent the RPA Citizen Developers certification. They will act as RPA champions to help further Robotic Process Automation within the group.

World Finance: And what does the future hold for Baiduri Bank? With these twin digital and people transformation strategies, what do you hope to achieve?

Ti Eng Hui: So as a 100 percent owned local bank, our focus for the time being is very much on the Brunei market; Baiduri Bank has continued to grow significantly, thanks to the great support received from our customers and all the stakeholders. Since we already hold a prominent position in the local banking industry, the only way to grow further is venturing beyond Brunei.

At the moment we are focusing a lot on capacity building, especially from the people side of it, technology and organisational perspective. We need to evolve our business model, reaching a high-performing level of operations and execution of our strategies.

Once we have a strong foundation, it will be time for us to consider a diversification plan beyond Brunei.

Chasing the sun: Africa’s burgeoning renewables sector

Until a few short years ago Angola, twice the size of France, would have relied on its oil reserves to provide most of the energy for its 34 million people. After all, the former Portuguese colony boasts one of the highest hydrocarbon deposits in all of sub-Saharan Africa.

But today Angola is showing the way for the rest of the region in the harnessing of solar energy, the region’s great hope in the renewable revolution. In 2022 alone, Angola installed nearly a gigawatt of new photovoltaic capacity in a 14 percent increase on the previous year. And although that still ranks the country far behind early starters like South Africa, which accounts for more than half of all of Africa’s solar energy, Angola’s rapid embrace of photovoltaic power is seen as highly symbolic. As early as 2025 the government expects to install 100 megawatts of solar capacity, a third of it coming from off the grid as it taps into average annual temperatures of between 16°C and 26°C.

Other countries are following suit, notably Ghana, Kenya and Rwanda. All are pursuing a target of achieving much of their energy from the sun by 2030 in what will be a historic and transformative transition in countries that have hitherto relied on fossil fuels and often erratic grids for their power. Although many African countries are late in seizing the potential of solar energy, they are catching up fast as they come to realise their unique ability to harness the sun.

To take the example of Rwanda, it is located in East Africa at approximately two degrees below the equator, a fortuitous position in terms of solar potential. Technically, its solar radiation intensity is roughly equal to five hours of peak sun a day, way ahead of many western nations.

If Africa can wake up to the potential of solar and other renewables, the prospects are impressive

As a region – and it is a giant one with many disparities in terms of solar potential, Africa’s potential in terms of solar radiation is 4.51 kWh/kWp a day, which puts it ahead of South and North America, the latter by some margin (see Fig 1). However, there is a lot of ground to make up. Until very recently, Africa lagged behind other regions in exploiting its solar potential, according to official sources like the World Bank’s Global Solar Atlas and the International Energy Agency. Vast though the region is, it claims just one percent of the world’s installed solar capacity.

This doesn’t tell the full picture though, because sub-Saharan Africa likes to do things in its own way and much of the new solar generation is off-grid, sometimes way off-grid, and thus escapes official measurement. Rooftop installations have been proliferating, for instance, in factories and homes.

But from a standing start, Africa has “a unique opportunity to provide affordable, reliable and sustainable electricity services to a large share of humanity where improved economic opportunities and quality of life are the most needed,” notes the World Bank.

Blended finance
There’s money on the table for the right projects. Mingling among the 40,000 attendees at last year’s COP27 in Cairo were representatives of the multilateral lenders, development banks and private-public finance who are ready to engage in the ‘blended financing’ – essentially multiple funding sources – that will make the transition to renewables happen. The World Bank is under pressure to take the lead on this.

The sums may be daunting – the total renewables budget for the region is estimated at $190bn a year between 2026 and 2030, with two thirds of that going into clean energy. However, that would still represent a fraction of the total global spend on the pursuit of net zero and the benefits are almost immeasurable.

And to put the budget into further perspective, IEA executive director Dr. Fatih Birol pointed out: “Bringing access to modern energy for all Africans calls for investment of $25bn per year – a sum equivalent to the cost of building just one liquefied natural gas terminal.”

New funding arrangements are under discussion including ‘concessional finance,’ a low-cost form of debt that encourages other lending, notably private capital originating from domestic financial markets. In other words, local lenders would have skin in the game and an interest in ensuring the money was properly spent. To ensure that, some governments will have to raise their game in the management of what lenders now call ‘foundational investments’ in the energy revolution. One overdue reform is in the fraught area of energy subsidies. As the price of oil and gas spikes in the wake of the war in Ukraine, the cost of subsidising households has risen in the region and some countries have doubled subsidies in what the IEA describes as “an untenable outcome for many countries facing debt distress.”

Simultaneously, numerous African leaders have mounted campaigns for compensation from the western world for chronic water shortages, extreme weather events ranging from floods to droughts and rising poverty that were triggered elsewhere. This is not in dispute. As Dr. Birol put it: “I find it profoundly unjust that Africa, the continent that has contributed the least to global warming, is the one bearing the brunt of the most severe climate impacts.”

Privately though, western diplomats say compensation won’t happen, at least not in the way that some African leaders want, and that other forms of financial support for investment in solar and renewables will be on the table instead. As the prestigious Oxford Institute for Energy Studies point out, developed countries are extremely reluctant to write what they fear will be a blank cheque. Another hindrance is that few countries – or more likely none – would admit to any liability for climate damage in Africa, which would put them on the hook for potentially unlimited claims.

Provided they see the results, international lenders are more than happy to take the plunge. After a slow start, some emerging nations have been deluged by concessional, leveraged and other forms of finance for solar projects, with some like the Maldives in the Indian Ocean attracting several times the required funds.

Cleaner cooking
At first sight, the delivery of clean energy in any form into Africa is a huge task. Currently, reports the IEA, a staggering 600 million Africans – 43 percent of the entire population – lack access to electricity. To achieve universal access, 90 million people a year would have to be hooked up to the grid for the first time and no less than 130 million a year would have to be weaned off ‘dirty cooking’ that uses wood and other biomass fuels. By any standards this would require a monumental effort.

Rwanda is fairly typical of the region. In 2017 nearly 80 percent of households used firewood for cooking but, with a bit of luck, less than half will do so by 2024. This is the result of some complex financing under an initiative that is jointly funded by the Development Bank of Rwanda, the Energy Development Corporation and the World Bank’s Clean Cooking Fund.

If Africa can wake up to the potential of solar and other renewables, the prospects are impressive. By 2030, estimates the IEA, the four big renewables – solar, wind, hydropower and geothermal – would deliver more than 80 percent of new power generation. This would be vital for the most energy-deprived rural regions, where more than 80 percent have no access to the grid. In these areas the IEA sees mini-grids and mainly solar-powered standalone systems as the most viable.

“The global clean energy transition holds new promise for Africa’s economic and social development,” argues the IEA. And that view is gaining support. Twelve African countries, representing over 40 percent of the continent’s total CO2 emissions, have signed up to a net-zero goal by 2050 and nearly all African countries are pledged to the Paris Agreement. After all, universal access to affordable electricity is a vote winner.

Battered economies
Fossil fuels aren’t going away though, either as sources of domestic energy or export revenues. Vast reserves of natural gas, as much as 5,000 billion cubic metres, await approval for development in Africa. If the permits are signed, the fuel will be used to power new industries and to rescue battered economies, like that of Mozambique. One of the poorest countries in the world, Mozambique shipped off its first consignment of natural gas to Europe in November after waiting for three years for funds from abroad to help it recover from cyclone Idai that devastated large swathes of the country.

In an interview with Bloomberg Green in November, President Filipe Nyusi made no apologies, arguing that export revenues would pay for the greening of the economy. This is a familiar refrain in a situation distorted by the war in Ukraine. Other African nations such as oil-rich Algeria have signed deals to deliver gas to Europe. And LNG terminals are being developed or expanded in Congo, Mauritania and Senegal ahead of Europe’s determination to wean itself off Russian gas by the end of the decade. All this is happening alongside solar projects.

Historically, the presence of fossil fuels has been fraught for some African countries like oil-rich Nigeria. After decades of mismanagement, corruption and neglect, revenues from hydrocarbons are plummeting. The governor of the central bank, Godwin Emefiele, said last year: “The official foreign exchange receipts from crude oil sales into our official reserves have dried up steadily from above $3bn monthly in 2014 to absolute zero dollars today.”

One of the attractions of renewables and solar in particular is that they are politically as well as environmentally cleaner.

Dating apps are still a great catch for profits

It is a truth universally acknowledged that the trajectory of online dating in recent history has gone from awkward and slightly embarrassing to undeniably mainstream. From the staid and somewhat hush-hush world of personal ads in the newspaper and the formal dating agencies of the 1990s, to the inevitable transition of these models into the smartphone space, online dating is now so much the norm it seems rare to find single people in any age group who haven’t sought romance via an app.

What’s your type?
Dating has never been easier, quicker, or more accessible, with apps catering to almost any niche. In the UK alone, from Muddy Matches for countryside lovers to the plant-based Veggly exclusively for non-meat eaters, if the main apps aren’t your thing, ask and the internet shall provide. Like so many other facets of daily life, we have outsourced our dating requirements to the internet, and there is money to be made. One of the earliest proponents of the online dating zeitgeist was Match.com, a company that built up a reputation for serious dating rather than the later Tinders and Grindrs of the world, which tended towards quick and easy dating (and later became the gateway into millennial hookup culture).

App makers tap into what scientists call the ‘social reward response’ when we swipe through matches

Online investment platform XTB has ranked the top 10 dating apps by revenue per million users and it is by this measure that Match is by far still the most lucrative of them all, raking in $25m per million users, or an impressive $2.4bn per year, four times the revenue of its next competitor, Zoosk.

Another key rival, eHarmony, closes out the top three – all of them key players in the ‘serious dating’ market and known for their paid-for subscriptions that promise more matches and people looking for real relationships. The rest of the table is a mixed bag in terms of what you might call user commitment, including familiar names like Bumble, which was founded by ex-Tinder employee Whitney Wolfe Herd and touted as the ‘feminist’ dating app (in hetero matches, the woman makes the first move).

Apps more commonly thought of as hookup-heavy in the table include Tinder, Grindr, and Plenty of Fish. These apps are all free to download and the vast majority of users remain on free profiles. But even with non-paying users, advertising is a considerable revenue stream as with any other form of social media. Although at first glance the table appears to show separate dating brands, in reality half of the players on the list are ultimately owned by Match Group, which gives it an enormous share in the dating market today.

The ‘social reward’
Tinder’s crucial win was the swipe – bringing with it almost a gamification of dating. Later patenting the idea, the app asks users to ‘swipe right’ if they like the look of a profile, or ‘swipe left’ to reject it. Knowing what we know now about the tiny dopamine hits we get with every ‘like’ or comment on social media, combined with the drive we have for new content that keeps us scrolling, Tinder tapped into the addictiveness of infinite novelty with the irresistible carrot of potentially finding a match.

By reducing the matchmaking process into a series of simple swipes, a yes or a no, Tinder took away the seriousness and committed feel of online dating as it used to be, and made it light-hearted and low-stakes, easy to pick up and put down. With the flurry of dating apps came an increase in marketability. Hundreds of millions of us aren’t just using the apps as a product – we are the product.

Our attention is valuable and marketable, and advertisers know this and exploit the profitable elements of the free versions, while app makers tap into what scientists call the ‘social reward response’ when we swipe through matches, which keeps us coming back. Whether those using the apps are looking for ‘the one,’ or just anyone, our need for human connection is one of our deepest biological drivers.

Even though paid subscriptions are still in the minority compared to freebie users, with online dating here to stay, getting an ad in front of even a tiny proportion of that user base is still a match made in heaven for advertisers.

The route to a winning partnership

Businesses today are constantly faced with the challenge of keeping up with changing consumer needs. Many brands are turning to Banking-as-a-Service (BaaS)-enabled embedded finance solutions to gain a competitive edge, and it is revolutionising the way they develop relationships with their customers. A recent survey by Aion revealed that 41 percent of BaaS adopters are motivated by increased revenue when launching an embedded finance offering, alongside the ability to launch new products and business models.

With the promise of embedded finance accessible to any brand, choosing the right BaaS provider is critical. While many BaaS providers will offer cost-effective, API-based technology, providers that combine this with products based on the right banking licence and necessary regulatory and compliance expertise are able to offer a more comprehensive suite of solutions. Brands must do their due diligence to ensure their potential partner can deliver the products they need.

Spotlight on customer experience
The success of any business relies heavily on providing a seamless customer experience (CX). To improve CX through embedded finance, brands must have a deep understanding of their customers’ challenges and pain points in order to provide solutions that meet those needs. To that end, Aion’s study revealed that 28 percent of businesses wanted to see their BaaS provider showing a better understanding of their customer journey to create a truly frictionless experience. By offering a smooth customer journey, brands can reap various benefits such as generating new revenue streams, increasing customer basket size, and building stronger customer loyalty.

Brands must do their due diligence to ensure their potential partner can deliver the products they need

For Tricount, a pioneer in group expense management, adding the ability to let users reimburse expenses through in-app bank-to-bank transfers was the key to creating a smoother CX. Designed to make splitting expenses between family and friends easier, Tricount leveraged BaaS to remove the final layer of friction in the reimbursement process. According to co-founder Guillebert de Dorlodot, “Repayments with direct bank transfers were a long-awaited feature for our Belgian users, and we believe this is one of the first PSD2 integrations that truly makes sense for consumers.”

What business expect from BaaS
Research highlights that brands value swift implementation and a quick time to market from their BaaS provider, with 34 percent stating they would like to see these traits in BaaS providers. While speed is essential, for many BaaS adopters, the price still has to be right. Access to cost-effective services was a key concern for a further 31 percent of respondents, who stated they would like to see their provider moving towards more cost-effective services, while 20 percent of businesses not using BaaS cited cost as a key barrier to implementation. When surveyed about their other considerations when picking a BaaS partner, businesses named compliance and security as well as a lack of understanding about the products at their disposal as their main concerns.

The role of banking licences
The type of licence held by the BaaS provider determines the banking products they can offer. For instance, those with an Electronic Money Institution (EMI) licence can facilitate payment services, transferring funds, settling purchases and issuing electronic money. Alternatively, a full European Central Bank (ECB) banking licence allows BaaS providers to offer a more comprehensive range of financial products, such as holding of deposits and lending. 28 percent of BaaS adopters would like to see their BaaS provider offer products based on a full banking licence, and more than half, 58 percent, of respondents believe that BaaS providers with access to a full range of banking products based on a banking licence alongside their tech offering would be the ones to shape the BaaS market in years to come.

When looking at different BaaS providers, understanding their licence and how it can potentially impact the types of products they can offer is important before moving forward.

A challenging time for mergers

Regulators across the globe are increasingly adopting a tougher stance on merger enforcement in defence of national and international competition. Already, shifts in competition laws in the UK and Canada, and a re-application of current laws in the US and EU, are enabling regulators to address concerns about concentration in markets, entrenching of dominant positions and removal of dynamic competition.

Meanwhile, many jurisdictions are expanding their investment and subsidies screening regimes. The remainder of the year will prove pivotal as both regulatory and legislative changes take effect, making it increasingly difficult to have a deal cleared. As the global picture for deal-making changes, there are a few key points corporates need to be aware of in the merger control process.

Increased scrutiny
According to the White & Case Global Antitrust Merger study, the European Commission (EC) is more likely to block a merger than ever before. In 2022, the EC issued two prohibition decisions, compared to none in 2021 or 2020. The EC also published a guidance paper encouraging national competition authorities to refer certain transactions for review, even if they fall below the standard thresholds.

In the US, antitrust enforcers under the Biden administration are actively challenging more cases, attempting to block vertical transactions, and scrutinising acquisitions by private equity firms. In Australia, tougher merger control enforcement is manifesting in longer review periods.

In 2020–21, the Australian Competition & Consumer Commission (ACCC) extended the benchmark timelines from eight weeks to 12 weeks for phase one, and from 20 to 24 weeks for phase two. Similarly, there has been a hardening in the approach taken by the Competition Markets Authority (CMA) in the UK.

In 2022, the number of phase one cases referred for an in-depth phase two investigation, abandoned, or resolved with remedies, outnumbered those that were unconditionally cleared for the first time.

In the Middle East and North Africa (MENA) region, the Saudi Arabian competition authority blocked its first deal on substantive grounds, and Morocco issued a $1.1m fine against Swiss and French companies for failing to notify an acquisition. Competition authorities across the MENA region are ready to scrutinise deals more closely, and parties should expect more merger control enforcement for the time being.

Regulatory divergence
Since the UK formally left the EU the risk of divergent views between the EC and the CMA has increased, exemplified by the recent Cargotec/Konecranes merger. While the EC cleared the transaction, the CMA blocked the merger, considering the same remedy package insufficient to address its concerns.

Likewise, the recently announced Booking/Etraveli merger was cleared by the CMA in phase one, but is currently being investigated by the EC in phase two. With this context, the divergence between the CMA and the EC will continue to be a risk that companies must manage, in addition to potentially divergent trans-Atlantic views. For example, in Cargotec/Konecranes, the US Department of Justice, like the CMA, considered the parties’ proposed remedy package to be insufficient even though the EC accepted it.

The European Commission is more likely to block a merger than ever before

A number of legislative changes and court judgments this year will affect merger review both substantively and procedurally. In the EU, the EC plans to expand the categories of cases that can be reviewed under the simplified EU merger control procedure. Meanwhile, elsewhere in Europe, the UK government has put forward proposals to reform various aspects of the merger control regime, and also impose certain obligations on ‘Big Tech’ in relation to deals they do.

The new Department of Justice (DOJ) and Federal Trade Commission (FTC) Merger Guidelines are expected to be released in the US, forming a key framework for the US antitrust agencies when reviewing transactions. In Australia, the ACCC proposed changes to the substantial lessening of competition test which will encourage additional deal scrutiny. Finally, across the MENA region, a new merger control regime will come into force in Egypt and new competition laws are already being enacted in Jordan and Lebanon.

Countries across the globe are adopting aggressive and expansive stances towards merger enforcement, creating a challenging merger clearance environment for businesses internationally. The EU’s Foreign Subsidies Regulation will also add another layer of complexity to M&A deals this year, and businesses can expect a lengthy transition period to adapt to the requirements of the regulation.

Undoubtedly, the merger control landscape is becoming progressively more complex. However, with increased planning of the merger control and wider regulatory processes, businesses can avoid potential surprises along their path.

More than ‘a gambling token’: Could stablecoins be crypto’s legitimate future?

We got David Barrett, CEO of EBC Financial Group, into the studio to discuss the impact of rising interest rates on liquidity and on the derivatives market – but in our pre-interview chat, we asked about an issue the company had experienced when it had been incorrectly associated with a crypto trading platform. That’s how we found out what David really thinks about tokens and coins, why EBC doesn’t touch crypto – yet – and how stablecoins could transform transaction settlement.

World Finance: Now David, before we started filming, we were discussing crypto and you said, ‘All coins are the best marketing scam that’s ever been invented’ – I wonder if you could expand on that view a little bit?

David Barrett: I don’t think crypto as a sector is all bad – I think there are parts of it that are going to be very influential on the way that markets develop.

Tokens and coins – I just don’t get.

I’ve read the white papers, I’ve been to seminars, I’ve listened to people that are converts, and I don’t understand it.

Buffett calls them gambling tokens, and I really think that’s a pretty good summary of what they are. I think if you look at how the crypto market developed, it came to the fore at a time when we’ve got more polarised politics that we’ve ever had, we have a greater wealth gap than we’ve ever had, we have more people that are disenfranchised from the system than we’ve ever had. So selling something new that’s going to solve all those problems?

Crypto coins and tokens, NFTs, are a fantastic example of how to sell something. But I think the quality of what they’re selling – personally I don’t think has enough of a real world impact that they’re anything other than just a gambling token.

World Finance: EBC itself doesn’t touch crypto at all – is it purely because of this view?

David Barrett: No no, not at all! EBC is there to provide products for its clients, and client demand – and regulatory acceptance! – will obviously allow that.

The problem with crypto as a UK-based broker – the first one is the regulatory side. So the FCA, I kind of feel has been hampered by the government in terms of how they regulate it, and formulating a good regulatory environment.

That will come, but at the moment I think it’s kind of piecemeal.

I think the actual volumes that brokerages are seeing in crypto – the tokens and the coins – is much less than anybody would like to admit.

And I think probably the most important thing for us – outside of regulation – is banking. Banks don’t like it! We are lucky enough to bank with a tier one banking institution, we have full corporate banking, and we are very, very aware of what they do and don’t like. And being involved in crypto, being involved in the exchanges, paying, receiving from them – they’re very, very sensitive to. And that makes it very difficult for us as a regulated broker to jump in with both feet without thinking.

World Finance: But putting coins and tokens aside, you do see potential in crypto?

David Barrett: I’m a massive believer that the true gift of the crypto market is stablecoins. Their ability to impact things like settlement, credit risk, on the ledger custodial type businesses, can be immense.

Rather than when we say T+2, that’s trade date plus two days, which is the normal settlement period in something like FX – there’s no reason with the application of ledger and stablecoins and instant transfer that you can’t bring that down to what we would call T+0, which means it’s near instant.

We probably need the central banks to come up with central bank digital coins, because the legitimacy that they bring will help a lot. But I think as soon as you get those digital coins from the central banks in place, what you should be able to do is evolve a system where it’s almost instantaneous.

And the beauty of doing that is that you significantly reduce your credit exposure to other institutions, to your clients. But also the ability to make that market more efficient by making it more fluid and safer is a much better place for everybody to be.

World Finance: David Barrett, thank you very much.

David Barrett: You’re welcome.

Higher rates spell an end to suppressed volatility – so check your leverage

David Barrett is CEO of EBC Financial Group; the award-winning liquidity provider for institutional and professional traders. After discussing how interest rate increases are affecting the markets in general, he focused on derivatives: how liquidity providers are becoming more cautious about liquidity and leverage, the probable return of greater volatility after a decade of artificially suppressed rates, and how traders need to be more circumspect about what they’re actually trading. You can also watch the final part of our interview with David, where he discusses his views on the crypto sector.

World Finance: David, we’ve spoken about the impact of rising interest rates on the market generally; how is it affecting derivatives specifically?

David Barrett: If you look at the market in general, you could argue on the surface that not a lot has changed. But I think if you dig a little deeper, I think that’s not true.

I think the fallout particularly in say, the banking sector in the US, the regulator has heightened its approach, and it’s heightened its scrutiny of what’s going on. Only recently the US has launched more stringent capital and reserve rules, based around what happened to the three regional banks earlier in the year.

I think regulators in general are being more circumspect about what’s going on with companies within their industries’ balance sheets. We’re regulated by the FCA in the UK – I’ve worked for regulated companies for 30 years, and I’ve never seen so much introspection on the financial resources and how you manage those resources.

I think liquidity providers are being a little bit more cautious about liquidity – in terms of the leverage that they’re offering. And I think, you know, there’s no doubt that the depth of liquidity when the market picks up pockets of volatility is a lot less than it would normally be. And I think that tends to be a fallout of the previous instances of pain that we’ve seen in the markets.

World Finance: Any advice you can offer to traders in this new environment?

David Barrett: I think you’ve got to accept that the way that the market is functioning has changed somewhat. So, whereas people would broadly be bullish on certain parts of the market – let’s say stock markets. Indices have been a very acceptable way of reflecting your opinion of what the market’s doing.

I think we are coming much more into a stock picker’s market. I think you have to appreciate the state of a company’s balance sheet, its liquidity, and its ability to get through times of stress much more now than before.

I think leverage should be reduced, because I do believe that volatility has been supressed for so long, that we’re getting to a point where that could easily change.

Historically interest rate differentials have been a big driver in FX, because everything’s been homogenised to a very low level, then we’ve had very low realised volatility in FX. And that’s just starting to change. And you can see – the dollar/yen’s moved significantly over the last 12 months or so. That’s mainly driven by an interest rate differential, because the Bank of Japan is pretty much the only central bank that’s not gone the same rate hikes of everybody else.

So I think people need to be more cautious, with less leverage. I think they need to be more circumspect about what they’re actually trading.

And I think they should be aware of heightened volatility and what it does.

Markets have very much mean-reverted over the past two or three years, and I suspect if we start to get trends in markets, they may keep going more than they have done.

World Finance: And how about regulators? Would you recommend any changes, or do you forsee them making any?

David Barrett: I think the regulator is becoming much better at appreciating how the market works. I mean, if you look at brokerage, which is what we do, their appreciation of how the sector works, how it makes its money, how that impacts on the end user – it’s much better than it’s been, ever.

So the UK FCA are just about to bring in a consumer duty package, which is there to heighten people that are selling financial products and their impact on their clients to the firms that are doing that.

And I think that kind of deep dive and circumspect pressure will continue from regulators all over the world.

There will be a lot more pressure for clarity of: what you’re doing, how you’re offering it, and how it impacts the end user.

‘Interest rates now aren’t high… the reality is we’ve had it incredibly easy’ says EBC CEO

David Barrett is CEO of EBC Financial Group; the award-winning liquidity provider for institutional and professional traders. In the latest issue of World Finance he said that interest rate increases are the most significant trend affecting liquidity today – he joined us in the studio to talk more about how the rapid hikes are affecting the market, why the change is long overdue, and how actors who are already calling a top on interest rates are tempting a second round of inflation. David also discusses the effect of rising interest rates on derivatives, and his view on the crypto sector.

World Finance: David, you said in the latest issue of World Finance that interest rate increases are the most significant trend affecting liquidity today – could you tell me more about that.

David Barrett: Yeah, I think in a year where we’ve had an awful lot going on: AI has been a predominant headline, if you look at what’s gone on in crypto, you look at what’s gone on in world markets in general – you know, the US had three bank failures in March. There’s been a lot going on, but I think the predominant driver and influencer on all of those things has been US rates.

We’ve had a significant increase over the last 12 months, and even last night we had another increase from the Fed, although many people think that that’s probably enough. Rates have influenced and dominated the movement in pretty much every corner of the market, I think.

World Finance: We’ve had a decade of near-zero rates – what kind of behaviours became normal in this incredibly long period of time?

David Barrett: Yeah, it was a long period of time! And I think if you look at why it came about, it was perfectly justified. I think the authorities at the time of the crash in 2007-8 – I actually think they did a fantastic job!

I worked at an institution that was in the middle of that, and it was clear to all of us there just how poor the conditions in the market were. But I think it went on for too long. The biggest problem the world has had is that it’s decided that low rates are the new normal and it would carry on forever – and that’s clearly not true!

I mean, rates now aren’t high. Rates are more like what we would consider an average over the past few decades. But compared to where a lot of industry has grown up in the last 10 or 15 years and has really developed and survived in an environment of low rates, it’s come as a very big shock.

World Finance: So it’s not really that we’re entering a new normal – we’re entering the old normal again.

David Barrett: Yeah, I think it depends on who you ask. If you ask me, this is normal! Where we are now is much more like the normal that I could express as normal. I don’t think having artificially supressed interest rates is a normal environment.

I think it’s politically expedient! But it’s just not justifiable. And when you get something like inflation come along, lower rates create a huge problem, and solving them, you have a pretty blunt toolbox.

You know, higher rates will work against inflation, it will solve it. Being a blunt tool it tends to break a few eggs as it’s going along, and we’re seeing that now.

The consumer has been hit, but not perhaps as hard as you would think.

You know, always it’s the lower end of the economic stack that gets hurt most. And if you look at the way that inflation has taken hold and you look at the things that are being affected by it, consumer confidence is only one of those things.

I personally don’t think inflation will go away quickly – if anything I think we’re actually clueing ourselves up to maybe a second round of inflation. And that would be very damaging for markets, because they’re already trying to call a top on interest rates, they’re already predicting that the Fed’s going to start cutting at some point.

I personally am in the higher for longer and beware if we get more, camp.

The causes of inflation this time are different, and I think that the solutions and the time it takes to get rid of it is going to be a lot harder than people want it to be.

The reality is that we’ve had it incredibly easy for a long while, and it’s not as easy. And I think part of the problem for people in general is accepting that things have changed – particularly if they change for the worse, and not for the better.

A revolution in the beautiful game

Valeriy Lobanovskyi is generally recognised as the greatest football manager of the Soviet era and then, later, Ukraine. Though undoubtedly there is an army of armchair pundits who pronounce Johann Cruyff as the undisputed great for his re-establishment of the Netherlands’ ‘Total Football’ philosophy at Barcelona in the 1990s, I would be tempted to go further and crown Lobanovskyi the father of the modern game.

Taking on the role of manager at his former club, Dynamo Kyiv in 1973, within a year, he guided them to their first Soviet Top League title in three years. He would go on to help the team win it another seven times during his tenure. In the post-Soviet era, Lobanovskyi is credited with five Ukrainian National League titles between 1997 and 2001.

But how is it that he led his team to glory on so many occasions? At least some of the answer to that question is not down to his career as a footballer, but off the pitch, as an engineering student at a significant place and during a significant time.

He was born and grew up during an age of grand technological optimism in Kyiv, an age perhaps best characterised by a competition not decided over the kick of a pig’s bladder, but over which of the two Cold War rivals, the Soviet Union or the US, would break free of the earth’s atmosphere first.

It was a competition that the Soviets won, of course. Kyiv was the centre of this technological revolution taking place. In a 2011 article on Lobanovskyi by Jonathan Wilson, he says: “the first cybernetic institute in the USSR was opened there in 1957 and quickly became acknowledged as a world leader in automated control systems, artificial intelligence and mathematical modelling. It was there, in 1963, that an early prototype of the modern PC was developed.”

Lobanovskyi’s analytical mind, coupled with a chance meeting in 1972 with statistician Anatoliy Zelentsov, resulted in the co-authored book The Methodological Basis of the Development of Training Models, which offered a science-based breakdown of the game. The book, published shortly before Lobanovskyi’s death in 2003, forms the basis for many of Lobanovskyi’s pioneering methods, which have included video analysis ‘field research,’ tracking players’ fitness levels, and providing a more comprehensive plan for helping players achieve and maintain peak physical condition. He also ensured his players were capable of playing several different positions, to maximise the overall flexibility of the team allowing it to adapt to the changing pattern of play on the field.

A lot of this may seem well ahead of its time. That’s because it was

To this end, he is also credited with the diamond midfield formation, in which the midfield is arranged with one attacking midfielder up front, one defensive behind and two wide midfielders to provide multiple options for attack. This formation was adopted with great success by many teams thereafter, including Carlo Ancelotti’s AC Milan.

Alongside Zelentsov, Lobanovskyi conducted advanced pre- and post-match analysis with every conceivable statistic on each player and element of the game recorded, up to and including the exact measurement of each football pitch Dynamo played on.

A whole new ball game
If you think about the game today and where we are technologically at this moment, a lot of this may seem well ahead of its time. That’s because it was. It is difficult not to see direct parallels with the work of Lobanovskyi and Zelentsov and technology like ‘Deltatre Opta,’ a modern video analysis system adopted by the UEFA Champions League utilising AI to provide actionable insights into team performance and individual player behaviour and analysis for its coaches.

The global sports analytics market, which includes AI applications, was valued at $1.9bn in 2018 and is projected to reach $4.6bn by 2025 according to a report by KPMG. Many clubs around the world are today investing heavily in AI and data analytics for everything from player performance to scouting for talent. Which is hardly surprising considering the considerable amount of money involved in modern-day football transfers (see Fig 1).

For a team established by the Soviet secret police in 1927, Dynamo Kyiv found in Lobanovskyi a man whose love of the game was tempered by method, by the weight of a game’s many variables, by strategy and, perhaps above all, by result. He and Zelentsov were football’s original scientists, collecting data in a Kyivian Soviet Laboratory and testing their hypotheses out on the field. It would be trite to say that these men were ahead of their time. They were exactly where they needed to be. And yet, history does have a tendency not to repeat itself, but to rhyme, as Mark Twain would have it.

I write this as we have now caught the second wave, upon which space travel, artificial intelligence and love for the beautiful game ride high above us, three topics upon which we can reliably chart the progress of humankind. Perhaps once we have revisited the moon and used AI to solve the most complex problems we face, then we can turn our attention to conjuring a straightforward explanation of the off-side rule – though I rather suspect if I asked OpenAI’s ChatGPT for an answer on this right now, it wouldn’t hesitate.

Striving for perfection
It is heartening perhaps to recognise that we are capable of embracing these optimistic, nascent periods where we rediscover who we are and reimagine what is possible, even amid the catastrophe of conflict and climate change, and in the wake of a global health crisis. Football may seem a trivial thing in light of these topics, but try telling that to someone like Lobanovskyi.

Wilson recounts that upon winning the Supreme League Title, a young Lobanovskyi, then 22, said: “a realised dream ceases to be a dream.” It was a curious and dour remark, but reflects a man whose vision went far beyond league titles.

Winning on its own, was nothing. Perfecting a formula for winning well, was something. His dream was of the future and he brought it to the game he loved.