The technologies and securities services of tomorrow
Innovation has always been a hot topic in the world of investment funds. It looks for operational efficiency with increased automation, new services, and better risk management. The client experience is an accelerator. Asset managers, the main clients of asset-servicing banks, are under strong cost pressure.
They are also confronted with new behaviour patterns from investors seeking both financial performance and savings investments that mean something, while taking advantage of new distribution channels.
Securities services providers therefore have a key role to play in supporting their clients, as their ability to grow is strongly linked to their suppliers’ ability to innovate with the maximum flexibility.
COVID-19 has enabled the securities services business to further accelerate its drive towards digitalisation by making electronic signatures widespread, for example, and making tools available which allow to interact remotely and digitally with all stakeholders. However, this acceleration is not enough to meet the ever-changing needs of clients and investors. New, emerging technologies mean progress for this business in terms of its business model and new services. Digital acceleration and technology will therefore contribute to changing its landscape. Which technologies will have a real impact, and how?
Data, a strategic asset...
Artificial intelligence and data management have become essential, regardless of the business sector. GAFAM (Google, Apple, Facebook, Amazon and Microsoft) have paved the way in these areas and the successful companies of the future will certainly be the ones to master these two themes best. The explosion of data associated with increasingly powerful computing and backup capacities will enable banks to offer additional services to their clients. They will also be used internally to automate time-consuming tasks and improve risk management. Cloud access is a necessity.
…which must be safeguarded
In today’s world, where billions of pieces of financial and non-financial data circulate every second, cybersecurity is a major issue. Although data offer a unique opportunity for stakeholders, poor risk management can destroy one's best efforts. Compliance is costly—but non-compliance even more so. In 2018, £38 million worth of fraud was avoided in the UK through the Banking Protocol1, a joint initiative by police and banks to identify and protect potential victims of fraud. Banks are the trusted partners of their clients in this area.
Tokenisation and its ability to change our business models
The tokenisation of the economy is certainly a hot topic for discussion, due to its highly revolutionary nature. The expected profits for investors, distributors, asset managers and asset-servicing banks are significant, provided they are agents of change. The difficulty lies in the need to collaborate and manage a common impetus. Tokenisation can lead to changes throughout the entire value chain, whether it be in the primary, secondary, post-trade or digital custody market.
Depending on where you are positioned on the value chain, tokenisation can generate operational efficiency gains. Take the cost of processing fund units or bond issues, or securities settlement systems, for instance. In addition, it will provide greater transparency and faster execution between the various stakeholders.
Financial services will thus need to partner up to create platforms in order to offer digital services to their clients. Digital custody will be a new activity that will complement traditional custodian bank offerings. New players are already positioning themselves in this sector and competing with traditional players. Asset-servicing banks will need agility and a strategic vision to enable them to evolve over the coming years.
Ecosystems: an innovation accelerator
The propagation speed of innovations has become exponentially faster. Opening up information systems is therefore essential, in order to keep up and take advantage of these innovations. Open banking is an accelerator and, above all, an opportunity to boost innovation. Exclusivity is no longer an option in this decade. Open banking is necessary to allow access to the outside world – the Fintech world – by creating value partnerships.
Societe Generale is investing in open innovation by signing partnerships with start-ups, universities, research centres and venture-capital funds so that its clients can benefit from recent innovations. From a technological point of view, APIs (Application Program Interfaces) are used to make these connections and generate value-added services. Asset servicers act as conductors, directing the orchestra to achieve an outstanding performance. Based on this observation, platforms such as Amazon or Uber could be applied to asset management in order to multiply flows.
Corporate culture: the greatest asset
Corporate culture is a key value when adopting technology. Technology is the same for everyone; it is a tool and not an end in itself. However, the speed with which it is acquired and used will make all the difference in creating value for the benefit of the client. Here is where corporate culture plays a distinguishing role. It is essential for companies to create an environment that is conducive to gaining and sharing knowledge, ideas and approaches, so they can develop talent that will enable them to meet their future challenges.
Asset-servicing banks of the future will be companies with talented staff who will be able to take advantage of new technologies to innovate, will be obsessed with the client relationship and will keep human values high on the list of priorities.