Thursday 26 April 2018

Dan O'Brien: We didn't ask for change, but we're seeing it everywhere

Dan O'Brien
Dan O'Brien
Dan O'Brien

Dan O'Brien

By the middle of the next decade, fintech has the potential to transform how the financial system works - including the most mundane aspects of retail banking.

By 2025 tourism will have become an even more important industry than it already is, both for Ireland and the world. And there is even scope for an industry as humdrum as construction to change considerably over the next decade

Last week this column looked at how evolving population dynamics and technological change might impact on Irish businesses of all kinds out to the middle of the next decade. This week, the future of three specific sectors - finance, tourism and construction - is considered.


Although the financial sector in Ireland employs fewer people than tourism or construction, it is more important than either in the sense that all other sectors of the economy depend on it, to a greater or lesser extent. As such, big changes to the way finance functions is of relevance not only to those in the industry itself, but to almost everyone who is in business.

Fintech firms want to use technology to disrupt banking in the same way Amazon did to bookstores and Uber is doing to taxis.

The trend was noted by Jamie Dimon, the head of banking behemoth JP Morgan Chase, when he recently warned the shareholders who employ him that "Silicon Valley is coming".

The most important potential consequence of fintech is how it could change lending to businesses and individuals. Encouraged by the lack of credit from post-crisis banks, start-ups have attempted to fill this gap by offering to connect those who require cash with those who have a surplus of it.

This peer-to-peer lending, which takes place mostly online, can make borrowing cheaper and more easily accessible than obtaining credit from an old fashioned bricks and mortar bank.

Challenges for peer-to-peer lending are big, including, most notably, how credit worthiness is determined and how entities are regulated (a scandal at the Lending Club, the poster-child of peer-to-peer lending, shows that will not be seamless). But fintech undoubtedly offers the prospect of new ways for companies to raise capital and for individuals to get loans.

A second major possible change is to an ever more basic aspect of finance - the payments system. Although making up a small slice of each transaction, banks make large sums from fees on currency exchange, money transfers and the use of credit cards such is the sheer volume of transactions.

Currency Fair (headquartered in Dublin) and Stripe (founded by Irish youngsters John and Patrick Collison and now based in California) are examples of two start-ups that have been hugely successful in making payments over the internet easier and cheaper.

All this has led to predictions of a cashless economy where transactions are carried out by cards, mobile apps and online. Indeed, the Irish Central Bank believes a move in this direction would result in big cost savings on transactions (cheques, for instance, are a costly and slow way or making payments).

The innovations that fintech brings will change how the economy works. They will also threaten incumbents.

While established players will adopt new technology and may go on an acquisition sprees in order to protect their market share, changes in the sector look as if they amount to a permanent reduction in barriers to market entry (because providing at least some traditional services can now be done with a much lower cost base).

As a result, the retail banking industry is almost certainly undergoing major structural change and, in a decade's time, it will probably be less concentrated, possibly a lot less so.

That should give both companies and individuals more choice, and (if competition intensifies as it is likely to do) better value.

It also has the potential to lessen the too-big-to-fail problem. Although a more fragmented industry will bring its own regulatory challenges, the systemic importance of individual institutions will be reduced in a less concentrated industry.

With a near duopoly in Irish retail banking today, the sector has become a lot more concentrated over the past decade. Fintech offers the prospect of undoing that over the next decade, and of the possibility of generating more successes of the Collison's ilk along the way.


Tourism has been an increasingly important indigenous industry over many decades. As the sector expands globally to become the world's largest industry, there is every reason to believe that big opportunities await, particularly given this island's track record of attracting more overseas visitors per capita than lauded tourist destinations, such as Spain and France.

Visitor numbers to Ireland saw long-term growth in the years before the financial crisis and have been rising again since the trough in 2010. By all accounts 2015 was a bumper year for Irish tourism. A record 8.6 million visitors came to Ireland from overseas, surpassing the previous peak in 2007. They spent €4.2bn in the economy and paid another €1.3bn to Irish carriers to convey them here. For the first three months of this year a further 17pc increase in trips to Ireland was recorded, suggesting another very good year for the sector.

But as anyone in tourism knows, the sector is volatile. External events, such as an Icelandic volcano in 2010, can have a severe impact. So can more normal events, such as currency fluctuations. The depreciation of the euro over most of last year made Ireland a cheaper destination for Americans and Brits, contributing to the sector's strong performance. The decline of sterling since late last year, and the prospect of that currency collapsing in the event of a Brexit, poses a big near-term risk.

These inevitable risks aside, there are opportunities aplenty in tourism over the coming decade, not least in the potential to grow visitor numbers from emerging markets - the new middle-classes will be as hungry for travel and horizon-broadening experience as bourgeois-types have been from countries which have long enjoyed mass prosperity.

The world's most populous country with the fastest growing middle class presents the most obvious opportunity for the tourism sector over the next ten years.

Last week Tourism Ireland and 14 Irish companies visited China with this in mind. Outbound tourism there is rapidly expanding with millions of Chinese going abroad each year. The British/Irish Visa Scheme was a welcome development and has made it easier for Chinese people to visit Ireland, even if a lot more could be done to speed the processing of applications.

There is also plenty of chatter about a direct flight service between China and Ireland being launched, something that could really bring gains.

These new markets promise not only bigger numbers of visitors, which will boost the traditional tourism sector, but the increasingly niche-focus in leisure opens up opportunities for those who specialise in culture, sports and food to exploit.


The construction industry is rarely out of the news. The topic du jour is the need to build more houses. On that, everyone is agreed, even if how to achieve it is much disputed.

The ESRI has predicted that demographic changes mean that 25,000 housing units need to be built in the coming years on an annual basis. The Programme for Government sets this number as its target, with a harder commitment to build 18,000 local authority units by 2017.

Competing calls from lobbyists and interest groups to increase State intervention and provide tax cuts means that the Government will continue to have an active role, for better or for worse, in the sector.

But for the future of the sector, it's worth paying attention to productivity. In part because of its labour intensity, the industry has long lagged behind other sectors. But there are other reasons too.

In its 2016 Engineering and Construction Trends report, Strategy& (the oddly-named global strategy consulting arm of PwC) noted that builders have in the main been slow to adopt new technologies, such as the somewhat vogueish sounding 'Lean Construction Methods'.

One new tool is becoming more widely used. Building information modelling (BIM) software allows companies to simulate the construction process before ground is even broken and, once it has started, enables all information about building design to be in one location.

Of the newer technologies, the use of drones and 3D printing on sites offer the prospect of even more change to the way buildings are thrown up.

The starrier-eyed believe that large sections of buildings or even whole houses could be built from 3D printers. Being able to 'print' houses would go a long way to solving housing shortages when they emerge by sharply reducing construction lead times. Such technology may be some way off, however.

For all of the many changes being wrought by automation, the building trade may be one of the last industries to experience really serious disruption - after all, it's hard to see brickies, plasterers and plumbers who spend their days going up and down ladders being replaced by robots any time soon.

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