Smart Cities: Convergence and collaboration to build communities of the future
Cities are getting smarter, and the organisations operating in them must adapt. As new technology gets wired into the city, it’s revolutionising urban efficiency and improving the lives of citizens. At the same time, it’s set to fundamentally alter business and operating models. The job of the treasurer and the finance function more broadly is to support this change; to create order and clarity.
So, what is a ‘smart city’? It’s a city where governments are working to deploy advanced technology to achieve a step change in efficiency with consequent benefits for all citizens. The concept is rippling across many areas – including energy and the environment, buildings, infrastructure, mobility, health and even the governance of the city.
City dwellers can look forward to more convenient, healthy, safe and sustainable lifestyles. The Internet of Things, artificial intelligence, machine learning and distributed ledger technology are some of the innovations enabling an unprecedented level of connectivity and automation. The completely connected, fully intelligent city is still a way off, but urban authorities from London to New York to Singapore are working with business to apply technology with great success.
Just as smart cities will spawn new business models, so too they will streamline public sector operating models. In the automotive sector, connected cars are increasingly communicating with the urban environment, and companies are eagerly exploring new business models and revenue streams. Telecommunications companies hardwire the digital city. But in future will they enable the city’s evolution by moving from hardware into software? Turning to the public transport sector, there are opportunities to shorten journey times and enhance personal experiences.
When it comes to turning strategy into reality, it’s the treasurer’s job to support these new models. New ways of making payments and managing cash are needed. Treasurers must have a different – again technology-enabled – toolset that allows their organisations to adapt and thrive. They also need advice and intelligence about how they can achieve their organisations’ goals in the world’s diverse cities.
Together with my colleagues at HSBC, I have spoken to many clients all over the world – whether at conferences, in their offices or at the events we host. They tell us that with cities transforming at such a pace, they need banking partners who are committed to supporting them.
I am fortunate to be part of a bank that is investing substantially to help our clients prepare for the future at a time when the rate of change is exponential. As announced, HSBC is investing USD15-17bn in growth and technology over the next two years, specifically to help our clients prosper as they take advantage of greater digitisation and automation.
This report offers our insights into how smart cities are likely to change sectors, businesses and the public sector. As a bank with a wide geographical presence and deep sector knowledge, as well as being a driver of new banking technology, we are well placed to advise treasurers on the possibilities available to them.
What is ‘smart’ about a smart city?
Throughout history, people have flocked to cities in search of new opportunities to improve the quality of their lives. During the first Industrial Revolution, British cities received an influx of people from the countryside, seeking work in new factories. Prior to industrialisation, over 80% of people lived in rural areas.  For example, Manchester experienced a six-fold increase in population between 1771 and 1831, while Bradford grew by 50% every ten years from 1811 to 1851. In the United States, the second industrial revolution saw waves of migration to cities between 1870  and 1920.
The trend of urbanisation continues. In 1950, only 29% of the world’s population lived in cities. By 2014, this figure almost doubled, with cities hosting 54% of the population.  The United Nations estimates that by 2050, 68% of the population will be living in urban areas (see Figure 1).  This pattern of migration is expected to be consistent across both developed and developing markets.
The World Bank calculates that over 80% of global economic activity takes place in cities, and it is expected that city-fueled economic growth will continue. After all, cities are the engines of growth, the seat of our governments and home to many of the companies that power the global economy. The complexity of cities requires integrated yet dynamic solutions that enable governments and businesses to support this growth, effectively serve citizens and deliver increasingly better quality of life. These solutions must be relevant, realistic and reliable – while being rooted in cultural understanding. This opportunity to deliver new solutions makes cities viable, vital and attractive places for businesses that wish to participate in this growth by developing products and services that improve the lives of city residents.
It is therefore not surprising that the growth of city dwellers has been paralleled by the growth of technology. Today, as the much-discussed ‘fourth industrial revolution’ takes hold, businesses from different sectors are investing in innovation that will allow them to leverage technology to improve life in communities. With technology developing at an unprecedented rate, the commercial opportunities for companies to harness their potential to deliver on the changing needs and demands of communities and improve standards of living, has given rise to the concept of ‘smart cities’. 
The emergence of advanced technologies such as the Internet of Things (IoT), artificial intelligence (AI) machine learning (ML), and distributed ledger technology (DLT), among others, provides a previously unseen degree of connectivity and depth of data that can be harnessed by both businesses and governments for swift decision-making and strategic longer-term planning. By utilising comprehensive, real-time data, government agencies and private sector institutions are able to better understand citizen demand patterns – and are thus able to respond more quickly and cost-effectively. 
A completely connected, fully intelligent city is still a way away, but governments are working with businesses to apply technology with great success in many cities. The longer-term vision is for smart cities to positively impact all elements of citizens’ daily lives. The United Kingdom’s Department for Business, Innovation and Skills (BIS) considers the establishment of smart cities to be a process, rather than a static outcome, in which increased citizen engagement, hard infrastructure, social capital and digital technologies make cities more livable, resilient and better able to respond to challenges. The UK’s Department for International Trade (formerly UK Trade and Investment) illustrates how the smart city puts different systems at the service, and under the control of, the ‘smart’, engaged citizen (see Figure 2).
In a more recent report, McKinsey explains how data-driven smart city applications can impact quality of life across multiple dimensions – from making life more convenient, to generating jobs and bringing down the cost of living, enabling people to generally live healthier, safer and richer lives (see Figure 3).
Fig 1 - Growth of the urban population
Source: United Nations Department of Economic and Social Affairs, 2018 
Fig 2 - Putting the smart citizen in control
Source: UK Trade and Investment, Smart Cities Pitchbook, March 2016
Fig 3 - The impact of smart city applications on quality of life
Source: McKinsey, Smart Cities: Digital solutions for a more livable future, June 2018
7 United Nations Department of Economic and Social Affairs, World Urbanization Prospects 2018 – Our future is urban
9 McKinsey, Smart Cities: Digital solutions for a more livable future, June 2018
10 Smart Cities Background Paper, London: Department for Business Innovation and Skills