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EY | WSJCC PodcastTech-Enabled Transformation Across Financial Services
0:24:36 START AUDIO
Yang Shim:
Brad Carr:
Mark Riley:
Customers want more than experience as they engage with
the financial institutions. It isn’t about the interaction, but how
do you ultimately connect interaction to the trust in that
process? When we think about the digital experience for the
customer from a financial institution perspective, we need to
think about the end-to-end orchestration from interactions to
the trust, and that orchestration with the right operating
model that drives the outcomes.
There is a great threat of being left behind. It is perhaps an
existentialist moment.
Speaking there with Yang Shim, EY’s global financial services
technology leader, and Brad Carr, managing director of the
Institute of International Finance, discussing the real and
urgent need for financial services to adopt digital
transformation. Welcome to the Connect, Transform podcast
series, a collaboration between the Wall Street Journal
custom content and EY. I’m your host, Mark Riley, general
manager of innovation and corporate ventures for Dow Jones.
In this episode, we ask Yang and Brad to discuss how financial
services can embark on technology-enabled transformation in
a post-pandemic world. Welcome, Brad.
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Brad Carr: Thanks Mark, delighted to join you.
Mark Riley:
Yang Shim:
Mark Riley:
Brad Carr:
Welcome, Yang.
Thank you, Mark, glad to be here.
So, we know that the financial services sector is facing
disruption from FinTech innovators at the same time that
COVID-19 is causing people, some of whom are new to the
internet entirely, to look for online alternatives to pretty much
every aspect of their lives. In a way, it’s a perfect moment for
financial institutions to harness the power of technology and
jump into digital transformation, because customers are
hungry for it, but can they move fast enough, and how can
financial institutions give customers what they want while also
benefiting from the upside of lowering costs and improving
efficiency? A long question, but Brad, I’d like to start with you.
Mark, I think there is an opportunity there, indeed, but I think
it’s more than that. I think it’s actually a necessity, and there is
a grave threat of being left behind, it is perhaps an
existentialist moment, because we do see that consumer
preferences, consumer behaviours, have shifted so
dramatically and so urgently this year. Really, the COVID
pandemic has seen an acceleration, and I think an
amplification, of a lot of the trends that were already
underway, but also there’s the notion of the internal barriers
to digital transformation.
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Mark Riley:
Yang Shim:
To some extent I think a number of those have dissipated this
year, because the urgency has just been so extreme that it has
perhaps helped to galvanise the institution, galvanise the
enterprise, and overcome some of the barriers that might
otherwise lurk for digital transformation.
So, Yang, you recently wrote on EY.com about how to
accelerate transformation in the post-pandemic world, would
you agree with Brad?
I concur with Brad in terms of a continuing journey on the
customer-centric model. So, customer preferences and
adoption rates have changed significantly coming out of the
COVID pandemic. We, recently, at EY, we have done an EY
COVID survey that was done in October 2020, and, you know,
several things came out from a consumer perspective, 68% of
the respondents focusing on their financial wellbeing, but
also, we expect 40% increase in banking, more in online, as a
result of the pandemic.
Right, and the consumers continue to push for the
relationships over the campaigns and thinking through from a
financial institution perspective the hyper-segmentations, and
personalisations, to capture those markets. The technology
from financial services today isn’t ready to catch up with the
pace of the consumer needs and adoption today, and I think
that’s something that we will continue to talk about from how
do we evolve the innovation and collaborations with the third
parties in the technology ecosystem to deliver faster.
The second item that we’re seeing is the industry
convergence and the competition that we talked about
earlier. The non-traditional and destructive competitors that
are coming into FS
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space, and the aggressive pace of adoption and expansion of
the electronic payments that continues to introduce big tech
firms to the financial services sector. So, what that leads to is a
fundamental operating model assumptions that have to
change with these rising competitive pressures, that the firms,
the banks and the insurance and then institutions, need to
think about what is the future-proof business strategy and
business model that needs to be there to survive?
A couple of years ago we embarked on our UI next wave
research around consumer and financial services, the key
takeaway for us was to, consumer financial model moving
towards the more subscription model, how do you provide
the right product at the right moment, hypothesis. So, I think
what they lead to, for us, going through COVID, is much more
of institutions looking at, as a services model, open banking,
as well as looking at a big tech, like an infrastructure, to
enhance their experience layer to support. So, those are some
of the trends that we see from the convergence.
The third point is the cost transformation, resiliency, and
efficiency. You know, what we see from our clients’
perspective, they’re doing pretty much three years’ worth of
digital transformation in the last three, four months,
particularly around their operations and resiliency, but mostly
around their employee experience, as well as the virtual
workforce, and they’ll bring everything together to operate
going forward from the new world that we live in. The cloud
adoption, the business cases for the legacy, modernisation is
increasing.
With that, the trust agenda is very important still for our clients
and the banking perspective. With the new marketplaces and
connected economy, much more connected to the emotional
trust connection to the consumers as well as building a new
functional capability to gain trust like the digital identity, and
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Brad Carr:
then continue to focus on the privacy protection, and lastly I
think the M&A aspect of a trend is continually happening, as
many of you have heard from Morgan Stanley, e-trade, Eaton
Vance merger, P&C and BBVA announcement, so, how do we
effectively go through the mergers and acquisition and then
be able to continue to support customers and go through the
digital transformation will be a key topic.
I think when we sum all this up, what we are seeing from the
technology perspective is much more platform-based
approach to accelerate that digital transformation. Looking at
modular, micro-services enabled composable multi-talent
utility-based platform and architecture that is underpinned by
cloud technology, AI, and then so forth, I believe the
perspective around the platform we will see more of what
we’ll call a collaborative model with the FinTech and new
tech, versus the disruptive model that we have seen for
continued innovation in the marketplace.
I probably would have said, pre-COVID, that we were five
years away from having a situation where all consumer finance
was really done on digital platforms. Maybe that’s now
something like two years, and I think the question that a lot of
financial institutions need to face is whose platform, or do you
want to be the platform, because you’re going to have
platforms that are provided by some of the big tech firms, the
likes of the social media companies, ecommerce providers
and the like, and they’re going to offer the opportunity for
banks or insurers to be able to provide products onto those
platforms, effectively re-bundled with services that they
provide across other walks of life.
Or you see some firms looking to be the platform. A number
of the major European forward-looking firms have sought to
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Mark Riley:
develop their own platforms. Itaú Bank, in Brazil, is one that’s
quite aggressively pursued this, and their CEO, Candido
Bracher, spoke with the CI of digital interchange in
September, and he talked about this dilemma of product or
distribution. That you either take a backseat and provide
product that’s going to go on somebody else’s platform,
acknowledging that firstly there’d be some margin pressure,
but secondly I’d probably add, the moment you lose the
customer login, you lose the customer, and that rather, you
know, Candido has seen for his firm that they want to be the
platform.
They accept that that means that they’re going to have to let
others, other banks, other insurers, FinTechs, sell product on
the Itaú platform to Itaú customers. Really, that’s the
customer-centric choice in this dilemma as a means of
ensuring that you’re staying front and centre with your
customer, that you are ahead of the game, and I think that’s a
great reflection, really, or a great summation of the strategic
dilemma that firms are facing.
Some will find their own niche as a product provider, some
will have greater aspirations of wanting to stay customer-
centric, and in wanting to keep the login you’re also going to
need to be able to do digital identity, which I think is one of
the really foundational technologies, alongside cloud that
Yang spoke about, it’s really going to be central for the
industry going forward.
Let’s stay with the customer experience, Yang, how can
financial institutions improve the digital experience for
customers? What do today’s customers actually want?
Yang Shim:
Brad Carr:
Yes, the customers want more than experience as they
engage with the financial institutions, and what I mean by that
is it isn’t about the interaction, but how do you ultimately
connect interaction to the trust in that process? So, I think
when we think about the digital experience for the customer
from a financial institution perspective, we need to think about
the end-to-end orchestration, from interactions to the trust,
and that orchestration with the right operating model that
drives the outcomes.
So, if you decouple some of those layers, you know, you were
to move from the experience layer to, ultimately, the decision
layer to provide the right products at the right moment
concept, and really bringing the solutions and the products
that’s underpinning what the process and data that’s
complied with the regulatory compliance, and all that
underpinning with the common platform and modulated
platform, they can accelerate the speed of a delivery to the
customer.
So, I think some of the key things that we see from
accelerated platform perspective is much more thinking about
the platform, not necessarily just the products, but also to
Brad’s point, how do you ultimately rent the IP in this
ecosystem with third party? Then when we do that, and then
when you innovate in that ecosystem, how do you ultimately
create that trust agenda to make sure that the consumers are
trusting the institutions, and I think with that is ultimately
driving the value from the data that you have gathered from
that connected economy as well as the connected ecosystem
to see what value you can create to the customer.
I want to add to a couple of the points that Yang made there
that I think are really crucial, and firstly if we can talk about the
focus on data and the criticality of data in the digital economy,
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and some of the sensitivities about data and who you trust,
and there were a couple of really striking points that came out
in the Bank of England’s Future of Finance report a year ago.
There are two of my favourite charts in it that I often cite, and
one calls out the, I guess, if you like, the propensity of data
within particular industrial sectors to be vulnerable or under
threat from new competitors, and in that it identifies financial
services as probably the most sector where data is rich and
valuable, and also where it’s under threat that a new entrant is
able to get in and replicate and accumulate data.
It also showed that banks were the most trusted party with
consumer data. There was a survey there where people had
been asked, “Who do you most trust with your personal
data,” and 86% had said their bank, whereas the other 14%
were a mix of tech companies, social media firms, energy
retailers, and the like. So, there is, on one hand, a threat to
the level of the data superiority, if you like, or data richness
that the banks have, but they do have a great opportunity to
leverage the very high level of consumer trust that they hold,
and what does trust look like in a digital environment?
We used to be able to identify people in person, you’ve got a
lot of small businesses that are suddenly having to reinvent
themselves into the digital economy and how they identify
their customers online. I think there is an opportunity, and we
see it at the IF and together with the Open ID foundation, and
what we’ve called the open digital trust initiative, as a means
to be able to, essentially, leverage that capability in
protecting data as a trusted verifier of customers, and to bring
that into the ecommerce environment.
I think that’s going to be a really crucial part going forward,
but I think it is an area of opportunity for banks to leverage
that existing capability as a means to ensure that they are
relevant
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Mark Riley:
Yang Shim:
not only for their consumer customers but also for their small
business merchant customers.
Let’s get down to brass tacks, once an organisation decides to
embark on a transformation journey, where should they start?
Yes, that’s a great question, Mark. So, I think we go back to
some of the things that both Brad and I mentioned with the
key fundamentals around how do you ultimately set the
strategy and operating model? We do this exercise with our
clients quite a bit around future back approach and clearly set
outcomes around what we’re trying to drive and continue to
keep focus on a customer-centric model, but overlay with
sound, trust, resilient and efficiency operating model that can
address the transformation.
So, when that strategist said, “There are several things that
have to come from both cultural perspective and change
management perspective to be successful with that operating
model.” One is to mobilise the right talent, and then give the
right platform and experience for that future workforce to
accomplish that strategy and operating model. I think we’re
seeing a lot more integration with business and technology all
together. This isn’t just about technology enabled, but
bringing that business together and creating the agile
environment that you can scale to drive that outcome.
We talked about the technology and platform strategy that
will continue to evolve, but evolution with many of the
financial institutions thinking about going to public, hybrid
cloud, and all the things that they are architecting is cloud by
design that think through not only a customer experience but
also the regulatory compliance issues, and I think a couple of
things
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Mark Riley:
Brad Carr:
that we already spoke of, but one thing that we do see, a big
change management from operating models in the
institutions are that to improve the speed of delivery the
whole third party open ecosystem we discussed, how do we
ultimately make sure that we are very connected but also
creating an environment that all parties are driving for that
outcome based model?
I think those things are very important as we go through the
transformation journey and where they can start.
Brad, what’s your advice?
You need to have a technology perform in place, and if you
don’t already have that then you need to put those
fundamentals, those foundations, in place, but you need to
couple that with the leadership and the internal culture
transformation as well, and in that it needs to come from the
top but it also needs to not rely on one person. It can’t be a
case of, “We’ve put in place a chief digital officer, or a chief
innovation officer, and now everything’s done.”
There was a great piece highlighted by a Georgetown
professor, Chris Brummer, during the year, about this
fundamental challenge of how does an organisation both
achieve economies of scale in its operations and with data,
and at the same time achieve personalisation with customers?
I think cloud as an enabler for sophisticated analytics is
absolutely crucial for that, and it’s why I probably put that
alongside digital identity as, you know, those two real
foundational keys, but you need to have the organisational
culture.
Mark Riley:
Yang Shim:
You need to have a board that is innovation-savvy as a key
organisational enabler for the strategy to really take hold.
So, it all comes down to ROI?
Yes, so, before I get into an ROI I think it’s quite important to
refer back to what Brad mentioned around the executive
sponsorship, but more importantly it’s not a single executive
accountability to go drive that ROI, and understanding the
agenda and what’s really driving a particular executive
through everything that we talked about to say what’s
important for them, and how we drive that outcome-based
model. So, I think the good example is we talk quite a bit
about the trust agenda, and when you decouple that trust
agenda, we can at minimum look at three different executives
that are involved to go drive that agenda in the context of the
platform economy that we have discussed.
One will be very much so around the consumer-centric, the
emotional intelligence that has to be driven by a trust agenda.
Typically, digital officer, marketing officer and innovation
officer who’s driving that agenda for the revenue perspective
and the growth mindset with driving that from the trust, but
also when you get into the technology and product
development and product management, the functionality of
the trust that they were going to deliver to our customer,
that’s quite important for them, and then the last part is the
ethical portion of our data privacy and risk officers that
continue to look at the cyber security, privacy, and other
agenda.
So, when you combine all those things, how do you ultimately
go through the transformation, and you can drive the
outcome not only for the consumers but also internally to
measure that
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Mark Riley:
Brad Carr:
everyone’s marching towards the same success? So, I think
that’s quite important from a journey perspective. I think the
biggest thing I see from the ROI is really having the right
cloud business case. We talked quite about that today, and
it’s not about the cloud migration, it’s about how do you
verticalize the cloud by your proposition and linking that into
the creation of the revenue.
Also, many of the business cases related to the Greenfield
area, traditionally when we’ve gone through the cloud
discussions with our clients, but it’s more around having the
right business case for the legacy modernisation and tying
that into that outcome and then continuing to see the capital
agility of your efficiency and savings, but also have the right
strategy to say, “We’re going to put that capital back into the
investment and then continue to focus on the growth.”
I think the last part is, from an ROI perspective, I think the
talent aspect of a return is very important, so it may not be
associated with, directly on the balance sheet, but given what
we talked about, the platform economy, it isn’t about all
technology. It is about having the right human capital that’s
surrounding that technology platform. So, can we have that
talent agenda and upgrade in the right place and right
operating model to drive that ROI, I think that’s another thing
that’s important for us to think about.
So, Brad, from the perspective of the Institute of International
Finance, is this the right advice?
I think I would probably emphasise in terms of cloud that we
need to be thinking of this in terms of the opportunities that
this is the key, underpinning enabler for. We’ve done a lot of
work
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Mark Riley:
Yang Shim:
looking at the adoption of machine learning and artificial
intelligence technology, and there are a lot of fantastic
opportunities in getting better at credit risk, credit monitoring,
better at fraud detection, better at combating financial crime
and money laundering, where I think we need to be honest,
the industry spends a lot of money in combating money
laundering, but our interdiction rate is not great.
We need to get better and smarter, and fundamentally we
need cloud as an underlying basis to be able to bring
together all of the different data sources that in some cases
are splintered within an organisation, or siloed within an
organisation, in some cases are splintered across borders, but
you really need cloud as an enabler to be able to bring
together the depth and richness of a dataset, at which point
those algorithms can give you a much better detection
interdiction rate, a much better enabler for enhanced risk
management. So, I absolutely agree with Yang’s points.
So, Yang, just to conclude, can you just summarise EY’s
perspective on risk and technology?
Sure. First of all, thank you, Mark, and then Brad, and from an
EY perspective around transformation, I think everything that
we talked about we can summarise into maybe three
categories that we focus on, and how we interact with our
clients, how do you ultimately get return and realise the
transformation? So, number one, human at the centre, and
this is very critical for our clients, to have their purpose and
strategy and their operations in mindset with the human
experience.
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Mark Riley:
Yang Shim:
Brad Carr:
Mark Riley:
The second will be to innovate at scale, and this is a
continued dialogue that we had around the ecosystem
partnership, connected economy. How do we bring this
disruptive technology to be a more collaborative way of
bringing the value proposition together to our consumers?
So, that’s an important factor, and then the last part is
deploying technology at speed, and this is all about the pace
and adoption that we’re seeing in the market, and financial
institutions coming out of the old way of operating and really
opening up their culture and working with their partners to
provide that speed to the customer, because, to Brad’s point,
they are the institutions who have the most trust from the
consumers.
That is a quite important factor for them to be very successful
with these three things in transformation.
So, thank you, Brad, thank you Yang, for your time.
Thank you Mark and Brad and thank you for the discussion
today.
Thanks Mark, thanks Yang, great to speak with you both.
Thank you Brad, great to see a consensus from both our
guests, and as ever COVID is accelerating many trends. The
key messages are to remain customer-centric, show
leadership, and the time, if ever, is now. Thank you for joining
us on this episode of Connect, Transform, a collaboration
between the Wall Street Journal custom content and EY. I’ve
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