Financial firms worldwide are grappling with a common challenge: A new generation of technologies is reshaping the industry, and they must determine how these advancements can be applied to their business. We spoke with Michael Tae, corporate vice president and chief transformation officer at Broadridge Financial Solutions, about how firms are formulating their approach to technologies like blockchain, the cloud and quantum computing.
Which new technologies are most prevalent in financial services and how are they being applied today?
The cloud and digital technologies, in particular, are rapidly becoming ubiquitous. Broadridge’s recent Next-Gen Technology Survey of 1,000 C-suite executives on the buy side and sell side found that firms are using the cloud to underpin their IT infrastructure and to improve scalability and resilience. When we talk about digital, firms are digitizing client communications but also digitizing processes across the middle and back office, which is leading to operational efficiencies and also a growing volume of data that can drive process improvements and strategic decisions.
While financial firms are using Robotic Process Automation (RPA) to automate manual processes, they are also applying AI and machine learning to the large digitized data sets they hold. Blockchain and DLT have seen more gradual uptake, but are gaining momentum now, particularly for use cases like tokenization of assets in the repo markets that reduce the cost of intra-company trades.
How do firms prioritize which areas to apply next-gen technologies to and where to invest?
Firstly, firms are still facing an ongoing regulatory and compliance burden, so anything that makes compliance simpler and less expensive is a priority area. Secondly, resiliency was the big theme in 2020. Firms were suddenly dealing with a rapid move to home-working while at the same time coping with the ongoing volatility we’ve seen in the markets this past year. A third area is around improving security and risk management. These are all use cases where next-gen technologies can add value, and firms are prioritizing them as a result.
How will next-gen technology transform financial firms’ day-to-day operations and business models over the next five years?
In terms of front-to-back office efficiencies, firms will need to offer a more digital, omni-channel experience for their retail and institutional clients. We are also seeing a growing trend where firms are looking to technology vendors who can offer solutions across the front to back office to rationalize and simplify their tech stack and create efficiencies. In terms of operating model, we see more focus on the benefits of mutualization. By mutualization we mean a model through which participants more quickly gain access to new technologies, scalability and resiliency while saving time, money and risk. They do so by sharing in the benefits of an industry solution provided by a reliable, trusted and independent third party, allowing them to free up resources to drive value through the business’s other core functions.
We hear a lot about AI, blockchain and cloud services. Are there any other new technologies you see having a big impact on financial services in the years ahead?
Quantum computing, while in its nascent stages, offers the ability to apply enormous computing power to analyze large volumes of data extremely quickly. This has the potential to solve complex problems and benefit the industry in many ways. Optimization problems in particular are a use case that is showing promise. Quantum also provides ways to enhance cybersecurity through more secure encryption methods. We may be some way away from widespread commercial use, but the technology holds great promise.
What can companies do to build and support a culture of innovation?
Talent acquisition and retention is key to this. Recruitment policy needs to highlight diverse and creative thinking as well as experimentation, data analysis and interpretation, and strategy development. It is also vital to have staff who can combine a deep domain knowledge of industry processes with an understanding of how complex next-gen technologies work, and what is possible. The best people to spot trends and gain insights from data are the people who own a particular process, or who have a deep understanding of the firm’s clients and operating model, rather than just a knowledge of technology or data science.
With a growing emphasis on diversity, sustainability and social responsibility, how can companies harmonize those efforts with their innovation goals?
Diversity and inclusion are a cornerstone of the innovation process. Innovation starts with coming up with as broad a range of ideas as possible, then having a methodical process to identify which ones have the greatest potential. Employing staff from a diverse range of backgrounds and thought processes is naturally going to generate better ideas and there is a large body of research that links diversity with greater innovation and indeed financial performance. It’s not just about hiring a diverse workforce and expecting innovation to magically take place though. Creating an inclusive work culture is an essential way to empower employees of all backgrounds to feel that their contributions and ideas are valued.