I was doing a project some years ago for the OECD, looking at how to regenerate the electronics industry in the UK in the face of heavy competition from Asia/Pac. One of the most memorable interviews that I did was with the head of a disk drive factory
in the UK. With increasingly automated processes, the machines that automated manufacturing processes were no longer being built in the UK, as they had been when steam engines and hydraulic presses were invented. The new machines for automation were being
built in Asia/Pac, and those machines had two buttons – a red one and a green one. As the UK no longer “makes the machines that makes the machines”, then UK industry was competing against other countries on the basis of who could push green buttons the cheapest.
When you look at the financial sector – areas like payments or financial markets – the industry is faced with a similar challenge, whichever country you happen to be in. How can you operate at least as efficiently as anyone else but do it cheaper? If you’re
using the same software or hardware as your competitors, the challenge that you face is - how can you operate it cheaper? Going back to “making the machines that make the machines” –otherwise maybe known as a “do-it-yourself” approach – is no longer a viable
option, because the market has achieved scale, national borders no longer act as an economic protection, and new regulations are breaking down many of those national borders in any case – just look at PSD and MiFID in the EU.
So – as with that view of the electronics industry - will success in the financial sector come down to being the organisation that has the lowest costs for pushing that green button – being the organisation that can move a greenback cheapest?