The UK’s financial services have entered a period of unprecedented turbulence, further enhanced by the Brexit vote. This has brought a sharper focus on to the wider challenges facing the more established players, namely driving down cost, increasing security and improving the client experience. All have technology as the key enabler.The tech sector , being dynamic and rapidly evolving, leaves a strong temptation to adopt the latest ‘breakthrough’ or ‘gamechanging’ application, but a key aspect of exploring digital business models and processes is understanding how technology can facilitate and streamline all aspects of the business, while supporting a longer-term strategy. Brexit makes this more imperative with the pressure on the financial services industry to diversify their USPs if they are to retain global pre-eminence. This diversification is key in before the potential regulatory impacts and talent outflow start to bite.
This risk of talent outflow is a focus of the Mayor of London. His office launched London’s Digital Future – Mayoral Tech Manifesto 2016 alongside the #LondonIsOpen campaign, to show international entrepreneurs and investors that London retains its entrepreneurial spirit and status as the top tech city in Europe.
Back to financial services – how should they monetise knowledge capital and innovation to ensure they stay profitable, technologically competitive and continue to pull in diverse international talent? Technology is the key enabler, particularly around providing a continually improving and seamless service no matter where the platform, staff and knowledge are based. As financial services companies are under cost pressure to run a more dispersed business, both through geographic footprint and 4-D teams (dispersed, diverse, digital and dynamic), clients’ requirements to feel safe are emphatic. Technology needs to ethically facilitate this. Recent incidents such as the hack of SWIFT and the loss of funds from a blockchain segment have an exponential impact on clients’ security fears.
Consumer driven demand for financial services to be innovative and shareholder demand for cost reductions have to be balanced against regulatory requirements. One can’t afford to be left behind; there is absolute expectation that financial services are on top of the new technological themes, such as block chain, yet capital requirements have a direct link to operational risk, which includes IT and IT processes. If systems or processes are flawed, the capital requirement could increase. Hence technological innovation needs to be carefully balanced.
According to McKinsey (5 questions boards should ask about IT in a digital world, July ’16), executives should be routinely asking these five critical questions relating to the organisation’s performance: • How well does technology enable the core business? • What value is the business getting from its most important IT projects? • How long does it take the IT organisation to develop and deploy new features and functionality? • How efficient is IT at rolling out technologies and achieving desired outcomes? • How strong is our supply of next-generation IT talent?
To the last point, I would add ‘and ideas’. How are financial services firms staying on top of all the new ideas being developed? How are they building both interaction with external technology firms and investment, into their business strategy? There has been an explosion in the number of new technology entrants, each typically offering aniche, nimble and flexible solution to a particular area of inefficiency, rather than a full service offering. One useful piece of reading material is the newWorld Economic Forum report (http://reports.weforum.org/future-of-financial-services-2015/executive-summary/), which reviews what the future holds for the finance industry, drawing on interviews and workshops with industry experts, global financial institution strategy officers and high-flying fintech innovators. Their findings suggest that the upcoming innovations will encourage a fundamental review of business models in financial services.
There is disruption to come and it is going to shake the industry to its core
Rachel Barnes is a financial services industry adviser to Synetec, one of the UK’s leading providers of bespoke software solutions.
References: World Economic Forum report (http://reports.weforum.org/future-of-financial-services-2015/executive-summary/) McKinsey (5 questions boards should ask about IT in a digital world, July ’16) London’s Digital Future – Mayoral Tech Manifesto 2016