Capital Markets Enterprise 2021: Digitalizing for competitive advantage
Aug 30, 2021 by Nathan Snyder
Aug 30, 2021 by Nathan Snyder
Having been invited to speak at the Trading Tech Summit Virtual 2021, I asked my remote audience the following question: “How fast can you bring a new financial product to market?” We’ll get to that in just a moment but first, the backstory.
As a response to fallout from the financial crisis, some banks cut costs to chase profit while others decided to modernize their way to higher margins. The modernizers did well but, unfortunately, the majority of banks have a return on equity, which is lower than their cost of equity, calling long–term financial viability into question.
We used to make a big deal about large companies taking over small companies. Now we’ve started talking about fast companies overtaking slow companies. Too big to fail might still be in business, but cumbersome contenders are just too slow to compete in this two-horse race.
So, given the situation I thought it might be interesting to poll the virtual audience and get their views on size, speed and market differentiation, a move which transformed my keynote into a lively Q&A session.
The overwhelming response was, “We could do that for you in a year or so”.
Which is disappointing but unsurprising. However, we got a clear view of the two-horse race thanks to a quarter of the total respondents who said, encouragingly, “Within a month”. This illustrates the growing divide between cost-cutters and modernizers.
Traditionally, banking projects are planned so they deliver valuable or meaningful code into production within a financial year. Not surprisingly, banks are trying to leave the traditional model behind. And the 25% who said that they could get a new banking product to market in a robust and risk-managed way within a month are making valuable headway.
The vast majority of attendees confirmed that they’d already made a start and most of the others were about to. That said, it was surprising to see a small number still planning to build everything in-house.
Clearly, one of the main barriers for organizations creating these business cases is the length of time to reach their break-even point. Even if you're buying into a third-party utility, making that change internally is a massive investment and, often, the return is spread over several years. The business case is strong but getting buy-in requires a step-change in thinking.
Of those who made a start, very few had developed a comprehensive strategy. As an industry, we can become reactive to sales trends. Remember the robotic process automation (RPA) boom? RPA companies invested heavily in product sales, then approached both the technologist and the operations users. And now, the hyperscalers are following suit and we’re seeing a boom in cloud adoption. It’s important for companies to set their own modernization strategies.
Assess your unique situation. An agile provisioning of banking technology is about cultural change; melding business and technology in a new way of working and appreciating that it will accelerate business change. Once you’ve identified your PoC, celebrate, promote the results and get others excited about it. Because without cultural change, tech change will be conspicuous by its absence.
Traditionally, we discover a bold new frontier and all race toward it, eager for first mover advantage and insights into different ways to tackle the problem. But, eventually, the industry converges and we get multiple organizations tackling the same problem, the same way, showing no signs of differentiation. At that point, the non-differentiating services need to be commoditized and outsourced.
Put simply, it's about delivering value faster, enabling business change and improving profitability.