How are post-trade businesses coping with implementing strategy towards becoming more digital? How are legacy environments adapting to change?
Most, if not all, post-trade businesses are in various states of transforming themselves into being more digitalised at their core. The commercial challenges faced by not accelerating this path to become more technology focused able to be nimble and reactive to future change, can in the mid-to-longer term be quite destructive to existing business models.
The challenge as always is not in the willingness to change or the vision of what future success looks like, but in the execution. It’s important to have strong leadership and direction from the top. At Commerzbank, we have this support.
Our 4.0 strategy testament to the kind of wholesale transformation we are aiming to achieve. Having this commitment from the top and moreover, a culture of change is paramount to being successful going forward. We created, for example, a digital campus populated and represented by all key business areas from the bank. An agile environment whereby, colleagues can learn and fail fast, an environment which encourages innovation and thinking in different ways.
In general, understanding all of the business drivers of the legacy platforms at a particular organisation is fraught with difficulty. It is usual that a business case is premised on being able to collapse and retire legacy environments and strip out the associated cost and complexities. It is also true that consideration is given to the management of potential operational risk. As these platforms have aged so too have the people that support and run them. In any event, as the process to unravel these legacy platforms begins, what was first thought of as relatively straightforward to retire becomes a far more complex issue to address.
Traditional thinking has, for the most part, sought to replace system ‘A’ with system ‘B’. Replicating all the associated process, interfaces, and reporting. More modern thinking looks to perhaps leapfrog this and almost start from scratch using the technological advancements of today. The reduced cost point of some of the new and emerging technologies is, in some instances, so great that being able to perform wholesale transformation becomes more of a reality. An alternative strategy is to perhaps run modern technology platforms alongside legacy environments and when internal comfort, scale and efficiency looks to be a reality, start to roll out and operate on the new digital platforms in place of older technology.
We’ve seen some recent market announcements regarding delays to blockchain-based technology implementations. Do you see this? Will blockchain solutions ever take off into the mainstream?
It is clear that distributed leger technology (DLT) has the potential to bring to bear some very far-reaching efficiency across the board and in the future may be a key catalyst for change. It can serve to eliminate, for example, all of the numerous, time consuming, repetitive and costly reconciliations which exists throughout the industry, much of which is duplicated at multiple points throughout the value chain. It is also very clear that for these solutions to ultimately succeed, it needs a widespread adoption across many of the affected industry participants. We have seen many examples of innovation from organisations. It is my belief that with DLT technology the industry should be looking to produce solutions that encompass end-to-end solutions and not just address parts of the value chain. This will also help to encourage wider adoption with core market infrastructures.
What I see now is that people are really beginning to see the potential benefits of having played in a variety of in-house ‘sandbox environments’, or by participating in various consortia. There seems to be a switch in focus towards trying to apply and solve some of the core market infrastructures in order that adoption and new operating models become a real and tangible alternative. Having a solution which addresses only part of the value chain may solve a specific niche problem but may create a real difficulty in standardisation across the eco-system, and may not provide a solution which can be successfully integrated with legacy environments.
Why do we still talk about finding ways of integrating and operating alongside some of the legacy environments? Expecting the level of change and adoption across multiple participants and market infrastructures as well as their clients, to happen all simultaneously is somewhat of a fanciful thought. What is important however is continuing to push the boundaries of discovery and working collaboratively to tackle solutions, which would allow the end-to-end transformation to become more of a reality, and enable the collapse of complete parts of the industry’s legacy technology platforms.
Once the core market infrastructure has found these solutions which address a large number of components of the value chain in a single instance, adoption will soon follow. I believe more encompassing solutions will emerge in the coming two to five years and within seven to 10 years we’ll probably see more widespread adoption and value generating business case in the post-trading landscape.
What are the key technologies emerging in post-trade and how are they being utilised?
Of course outside of DLT, there is much talk about when it comes to big data and advanced analytics. Artificial intelligence (AI) and robotic processing automation (RPA), and how it will affect the industry. These are again all very good technological advancements with potentially some significant benefits.
At Commerzbank, we are exploring ways to enhance highly manual, repetitive processes. For example, a variety of experts perform multiple repetitive keystrokes in excel or other systems, spend time getting an answer before being able to speak to a client. Further advancements in RPA could, for example, enhance not only the monotony and predictability of process but also allow the expert to engage with clients much earlier on, therefore speeding up the process. Saving time which can then be better used to understand and optimise processes in order to transform the existing client experience. Many of these types of manual tasks are not only time consuming and repetitive but all have a very prescriptive and well-defined output which lends itself to RPA.
Underpinning all the potential success of these technologies is the need for robust and accurate underlying data. Applying AI or RPA to bad or incomplete data can lead to bad machine learning or incomplete and inaccurate processing. It is paramount for organisations to address this and have a cohesive strategy which addresses the core data components within the organisation and for it to be applied consistently across their ‘data lakes’. Having large numbers of systems and multiple legacy platforms often with the same but similar data representation can lead to challenges.
Big data and data analytics in financial services will play a significant part in shaping a better understanding of the client. It will help shape and focus new products and services for clients. With the advancement in data science, huge data sets can be compared, contrasted and correlated in quantities beyond manual human capability. In the same way, our high street supermarkets have been using our buying patterns and behaviour to target us with products or discounts which we are interested in. This all serves to enhance the client experience and interaction with the provider.
How do the next few years look in post-trade services?
The future of post-trade services, while containing many challenges is currently an exciting place to be. With technology seemingly advancing at a very fast pace, with clients seeking digital interaction in, for example, the same way we interact with our smartphones and tablets, instantly, intuitively and comprehensively. It all sets a backdrop of wholesale transformation. One where both organisations can adapt and prosper along with their clients.
Those organisations that have the right strategic thinking, coupled with a culture and “tone from the top” of embracing change, as well as leaders who mobilise its workforce to achieve common goals for the benefit of its clients, will ultimately be winners in the new digitalised era.
The definition of transformation stated in the title above ‘a marked change in form, nature, or appearance’. There will be marked changes in both the products and services offered, there will be changes in the manner we connect and interact with one another going forward. More information will be accessible, and with increased transparency. All ingredients which can make that trusted bond stronger between a service provider and its clients. The form will be more electronic and instant with a look and feel which is far more advanced and intuitive than before.
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