A digital revolution
05/27/2020
The financial services industry is working to catch up with the digital revolution to innovate, modernise, and create a more efficient playing field
Image: kimson/shutterstock.com
As Peter F. Drucker once said: “If you want something new, you have to stop doing something old”. Innovation is crucial to the success of any company in the current world. In the financial services industry some say regulation stifles innovation but others disagree.
The asset servicing industry is an innovative one but there are challenges around creating user-friendly platforms and tackling the costs of enhanced technology.
Jennifer Peve, managing director of business innovation, the Depository Trust & Clearing Corporation (DTCC), identifies that distributed ledger technology (DLT) and cloud computing are two examples that have been top-of-mind for many firms, although take-up has been somewhat slow.
“This lag is sometimes due to the fact that many systems that are implemented within firms have a community, and moving that community to a new technology can be time consuming and costly, so the benefits of any new technology implementation have to be compelling,” says Peve.
Innovative trends
Much of the innovation in the industry is coming from enhanced technology solutions. This includes DLT, machine learning, artificial intelligence (AI), cloud computing and natural language processing. As well as this, data-based decision making, real-time and automated platforms are on the cards. DLT technology is an enormous enabler for new and innovative blockchain business models in the financial services industry. Niv Graf, head of service delivery management, Software Daten Service, says: “Given the technology is going to convince customers and users, it will cause fundamental disruption in the industry.”
However, Graf explains there is still a long way to go; in the short to mid-term, data-based decision making, legal tech, legal robots, robo-advice and all other kinds of AI-technologies will make the difference.
Weighing in on this, Albert Bauer, managing director, Citco Fund Services, comments: “We live in a post-execution, post-transaction world, so real-time results are relative on the client side. We do have some services that are real-time deployed, but we do not necessarily live in that world. We have seen a huge change in adoption of the cloud in terms of what it can do and how to move our workloads there. It has allowed us to innovate by creating new platforms and transferring some of our old platforms to the cloud.”
Bauer continues: “Machine learning and robotic process automation (RPA) are some of the things we have adopted in a big way into a package that we call smart automation. We are trying to help move the business and the users to move from mundane risk patterns to exception-based management. There is very little value in data entry or data transfer between platforms, so we have tried over the last few years to automate all of that, and the RPA technology has made it a lot smarter.”
A user-friendly experience
Innovating and creating highly efficient ways of doing things does not come without its challenges. One such challenge is creating a platform that is user friendly. The financial services industry is quite complex, with many systems focusing on one area of automation. Peve says: “Utility-based solutions have broad appeal and have been successfully adopted by many firms.”
Elsewhere, Graf highlights that since more people (especially in poor/emerging economies) are and will be using financial services, an easy-to-use user interface/platform is one of the key factors for expanding the client base.
He affirms: “Creating an easy-to-use platform which is understandable for broad sections of the population is definitely a challenge if it should offer more than just ‘trivial’ financial transactions like simple payment transactions.”
Designing user-friendly platforms and interfaces that are easy to use with intuitive navigation is a major challenge in this industry, as investor protection is the top priority.
Graf says: “Easy handling, fast in execution and yet avoiding serious mistakes - that is the challenge to be met. That’s why innovation is not the challenge but the solution – the integration of new technological possibilities such as AI helps to successfully meet this ambiguity.”
“We are in the centre of a digital revolution in the banking sector that is trying to catch up with other industries that are modernising much faster.”
“Creating and designing an innovative, user-friendly platform is by no means an easy job. It is important to have an excellent on-boarding process that does not have a steep learning curve.”
He adds: “Users nowadays expect every interaction with a financial institution to be simple and easy. But it shouldn’t be so effortless that users can easily make mistakes with their money.“
“We need to help them make good decisions and make them feel safe in the workflow, combined with an attractive design.”
Potential barriers?
While industry participants are working towards employing enhanced technology in order to innovate, how are startups with potentially new, innovative ideas being welcomed to the industry?
Bauer observes that the industry has become more open to startups, and the barrier to entry has lowered.
“We see new tech startups come into the fold all the time. We need to be mindful of them, as ultimately one of them could have the ability to change the industry in terms of the technologies, platforms and systems that are available out there,” says Bauer.
He adds: “Where it is not a core part of our business, so we may not develop it ourselves, we do make the barrier of entry a little bit easier for certain platforms and providers. It is a great place to start for the data to be shared with these partners in the onboarding and testing processes. If it is something we aren’t planning to offer or build ourselves, it makes sense to meet with startups and explore their offerings in order to provide more holistic solutions for our clients.”
Due to the existing complexity and with many potential global players very well established within the industry the entry barriers seem rather high.
Graf explains that the big players have already realised the speed and agility of new startups to be unmatched and thus many very promising co-operations are being formed. He says: “We believe that these cooperation models with win-win situations for small and big participants will be a key factor for either party in the future as well.”
Peve adds: “Size can be a barrier to entry, as well as costs. Any new system needs to be developed to be flexible, based upon a compelling use case. Otherwise, the cost to implement could outweigh the savings that it could bring. Startups may need to partner with incumbents to advance and grow, but the incumbents may not be open to change.”
A help or hindrance?
Over the past years, regulation has become more stringent and more complex. At industry conferences, one phrase that is mentioned frequently is “regulation stifles innovation”. However, Peve argues that regulation can actually be a driver of innovation. This is as mandates typically do not state the technology or solution required to achieve compliance.
She adds: “Firms can decide the best solution to meet their business needs and achieve regulatory compliance.”
Similarly, Bauer states: “I wouldn’t say regulation is a hindrance, but it can be a hurdle at times. You have to be mindful of measures like the General Data Protection Regulation in Europe. Some regulators have a more watchful eye than others, and we have had to jump over a few hurdles with some of the regulators in different jurisdictions when transferring to the cloud.”
He continues: “So I would not say it has been a hindrance or a barrier, but it certainly makes us think twice and be a bit more mindful in our approach when making the regulators comfortable with our development.”
Graf adds: “Further regulation is often solely perceived as a financial burden, but it also fosters standardisation, which finally finds its way to cost saving. As a first step regulatory demands lead to increasing process costs – so process/product/technology innovation is a must to guarantee stable or increasing margins.
Regulation can, therefore, be a chance for innovation and new, ‘disruptive’ technolog
The asset servicing industry is an innovative one but there are challenges around creating user-friendly platforms and tackling the costs of enhanced technology.
Jennifer Peve, managing director of business innovation, the Depository Trust & Clearing Corporation (DTCC), identifies that distributed ledger technology (DLT) and cloud computing are two examples that have been top-of-mind for many firms, although take-up has been somewhat slow.
“This lag is sometimes due to the fact that many systems that are implemented within firms have a community, and moving that community to a new technology can be time consuming and costly, so the benefits of any new technology implementation have to be compelling,” says Peve.
Innovative trends
Much of the innovation in the industry is coming from enhanced technology solutions. This includes DLT, machine learning, artificial intelligence (AI), cloud computing and natural language processing. As well as this, data-based decision making, real-time and automated platforms are on the cards. DLT technology is an enormous enabler for new and innovative blockchain business models in the financial services industry. Niv Graf, head of service delivery management, Software Daten Service, says: “Given the technology is going to convince customers and users, it will cause fundamental disruption in the industry.”
However, Graf explains there is still a long way to go; in the short to mid-term, data-based decision making, legal tech, legal robots, robo-advice and all other kinds of AI-technologies will make the difference.
Weighing in on this, Albert Bauer, managing director, Citco Fund Services, comments: “We live in a post-execution, post-transaction world, so real-time results are relative on the client side. We do have some services that are real-time deployed, but we do not necessarily live in that world. We have seen a huge change in adoption of the cloud in terms of what it can do and how to move our workloads there. It has allowed us to innovate by creating new platforms and transferring some of our old platforms to the cloud.”
Bauer continues: “Machine learning and robotic process automation (RPA) are some of the things we have adopted in a big way into a package that we call smart automation. We are trying to help move the business and the users to move from mundane risk patterns to exception-based management. There is very little value in data entry or data transfer between platforms, so we have tried over the last few years to automate all of that, and the RPA technology has made it a lot smarter.”
A user-friendly experience
Innovating and creating highly efficient ways of doing things does not come without its challenges. One such challenge is creating a platform that is user friendly. The financial services industry is quite complex, with many systems focusing on one area of automation. Peve says: “Utility-based solutions have broad appeal and have been successfully adopted by many firms.”
Elsewhere, Graf highlights that since more people (especially in poor/emerging economies) are and will be using financial services, an easy-to-use user interface/platform is one of the key factors for expanding the client base.
He affirms: “Creating an easy-to-use platform which is understandable for broad sections of the population is definitely a challenge if it should offer more than just ‘trivial’ financial transactions like simple payment transactions.”
Designing user-friendly platforms and interfaces that are easy to use with intuitive navigation is a major challenge in this industry, as investor protection is the top priority.
Graf says: “Easy handling, fast in execution and yet avoiding serious mistakes - that is the challenge to be met. That’s why innovation is not the challenge but the solution – the integration of new technological possibilities such as AI helps to successfully meet this ambiguity.”
“We are in the centre of a digital revolution in the banking sector that is trying to catch up with other industries that are modernising much faster.”
“Creating and designing an innovative, user-friendly platform is by no means an easy job. It is important to have an excellent on-boarding process that does not have a steep learning curve.”
He adds: “Users nowadays expect every interaction with a financial institution to be simple and easy. But it shouldn’t be so effortless that users can easily make mistakes with their money.“
“We need to help them make good decisions and make them feel safe in the workflow, combined with an attractive design.”
Potential barriers?
While industry participants are working towards employing enhanced technology in order to innovate, how are startups with potentially new, innovative ideas being welcomed to the industry?
Bauer observes that the industry has become more open to startups, and the barrier to entry has lowered.
“We see new tech startups come into the fold all the time. We need to be mindful of them, as ultimately one of them could have the ability to change the industry in terms of the technologies, platforms and systems that are available out there,” says Bauer.
He adds: “Where it is not a core part of our business, so we may not develop it ourselves, we do make the barrier of entry a little bit easier for certain platforms and providers. It is a great place to start for the data to be shared with these partners in the onboarding and testing processes. If it is something we aren’t planning to offer or build ourselves, it makes sense to meet with startups and explore their offerings in order to provide more holistic solutions for our clients.”
Due to the existing complexity and with many potential global players very well established within the industry the entry barriers seem rather high.
Graf explains that the big players have already realised the speed and agility of new startups to be unmatched and thus many very promising co-operations are being formed. He says: “We believe that these cooperation models with win-win situations for small and big participants will be a key factor for either party in the future as well.”
Peve adds: “Size can be a barrier to entry, as well as costs. Any new system needs to be developed to be flexible, based upon a compelling use case. Otherwise, the cost to implement could outweigh the savings that it could bring. Startups may need to partner with incumbents to advance and grow, but the incumbents may not be open to change.”
A help or hindrance?
Over the past years, regulation has become more stringent and more complex. At industry conferences, one phrase that is mentioned frequently is “regulation stifles innovation”. However, Peve argues that regulation can actually be a driver of innovation. This is as mandates typically do not state the technology or solution required to achieve compliance.
She adds: “Firms can decide the best solution to meet their business needs and achieve regulatory compliance.”
Similarly, Bauer states: “I wouldn’t say regulation is a hindrance, but it can be a hurdle at times. You have to be mindful of measures like the General Data Protection Regulation in Europe. Some regulators have a more watchful eye than others, and we have had to jump over a few hurdles with some of the regulators in different jurisdictions when transferring to the cloud.”
He continues: “So I would not say it has been a hindrance or a barrier, but it certainly makes us think twice and be a bit more mindful in our approach when making the regulators comfortable with our development.”
Graf adds: “Further regulation is often solely perceived as a financial burden, but it also fosters standardisation, which finally finds its way to cost saving. As a first step regulatory demands lead to increasing process costs – so process/product/technology innovation is a must to guarantee stable or increasing margins.
Regulation can, therefore, be a chance for innovation and new, ‘disruptive’ technolog
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