A golden age for technology

Guy de Blonay July 29, 2020 10:35

In a very broad sense, the unthinkable happened as Covid-19 broke out - most of the world decided nearly simultaneously to suspend all activity. Lockdowns have started to be eased in certain parts of the world but there is still a lot of uncertainty around the shape of the recovery and the risks related to a second wave of infections.

Amid all this uncertainty, one aspect of it all seems clear: The financial technology revolution we have discussed in the past remains firmly in place with the pace of change now accelerating. In a recent survey, 75% of Fortune 500 CEOs said technology transformation has gained speed following this crisis.

Obviously, economies will start to re-open and activity will gradually go back to normal at some point. But in some areas, we believe the evolution in company, employee and customer behaviour has reached a tipping point. There are three sub-segments in the financials and financial technology space that look particularly promising to us: digital payments, remote working and cloud computing.

The transition to electronic payments has been a key theme in the portfolios for some time. The decline in retail sales is a headwind for the sector in the short term. But longer-term, in the words of Gary Cohn – former director of the US National Economic Council, “Covid-19 is speeding up the death of cash”. The World Health Organisation has pushed electronic payments as an alternative to banknotes – a potential vector of germs and - in the UK cash withdrawals have halved since the outbreak. E-commerce is another driver of the transition to cashless societies as the closure of stores has pushed merchants and consumers to migrate to online platforms. Overall, the low penetration of card payments and e-commerce in developed economies bodes well for the growth prospects of the sector.

Working from Home (WFH) and Cloud Computing represent another promising sub-theme. WFH is now socially and professionally acceptable. Jes Staley, Chief Executive of Barclays, said that “the notion of putting 7,000 people in a building may be a thing of the past”. His views were echoed by a recent CFO survey from Gartner. 74% of respondents said they would move 5% or more of their on-site employees to remote positions once the lockdowns are lifted. The first winners of these changes are likely to be the companies that provide tools for employee collaboration. But remote working also means employees have to access data and application outside the traditional security network.

All things digital – including WFH - need the cloud to deliver their functionality and services. Cloud is also a driver of business resiliency which is coming at the top of the CEO agenda in a context where the pandemic has disrupted the operations of financial services institutions worldwide. While some companies had to send their entire IT staff back home, cloud infrastructure providers have demonstrated they could ensure continuity of service for mission-critical systems. Mass adoption of cloud computing should also benefit the broader ecosystem of software and services providers that help companies such as financial institutions to modernize their IT systems.

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Guy de Blonay

Fund Manager, Global Equities, Jupiter Asset Management.