In today’s Technology and Business Landscape Digital Disruption is and has been a buzz phrase for many years. In particular, we have seen the impact on Financial Services, as well as many other industries. Nevertheless, in some of the more established markets and segments of Financial Services there has been a mixed outcome to the new digital age.
Along with Digital Disruption there has also been much discussion for the past few years on the impact of FinTech within Financial Services. It seems Core banking is at the fore of this focus for both FinTech and Digital Disruption, such that the Transfer Agency space has not seen the full impact of the revolution.
Within Transfer Agency we have seen many companies choose to extend the lifespan of current, legacy systems. However, as Fund investors have become more 'tech savvy‘, and the demand from Regulation continues to grow, many organizations now find that they cannot move forward as the market and their clients demand (see Fund Servicing in the Millennial Age).
FinTech companies can offer alternatives and we have seen impacts on established market participants. Nevertheless, many FinTechs are not focused on the fundamental aspects of Transfer Agency and therefore they do not always cater to the needs of the key players. The same is true for those offering a transition to the digital market.
However, it has been found that with the rush to be digitally ready many companies have not received the expected Return On Investment. To be digitally ready you first need to be on a stable core platform that offers a global foundation for current and future needs. This requirement is one of the strategic elements that any next generation system for a Transfer Agent should provide.
We only have to look at the various banking groups across the globe who have struggled to add digital to their legacy core banking systems (see Outage for Bank following refresh) to see the impact of adding digital to legacy. Those groups with a more robust and scalable platform have been more successful in their digital role out.
So, will Digital Disruption impact upon us here in the Transfer Agency segment and if so how? Will legacy systems be robust enough to handle the new digital requirement? The TA industry is at a crossroads.
When we look at the role TA plays in the funds industry, it is often seen as an activity that must be performed, but one that is rarely done with eagerness due to the perceived costs involved. We know that regulators are placing significant challenges on all participants, but is this preventing a move to digital?
Within Financial Services and Transfer Agency (TA) many commentators have expressed themselves to be doomsayers, prophets or participators in the current vogue of technology speak. Is Fintech the way forward or can incumbents use their current providers to move into the digital age?
For many the burden is adding additional risk but moving forward with digital will, is there a regulatory hindrance that is inhibiting the move to digital in established markets? Is regulatory compliance a smokescreen and do today’s Transfer Agents have more fundamental issues preventing a move to digital?
To date we have not seen the expected Digital Disruption in the industry as incumbents and Fintechs have focused their attentions elsewhere. However, I now expect this to change and the TA with the best technology provider will evolve to meet the market need for digital. With a robust and scalable platform behind a modern TA, opportunities exist to improve revenue streams and take the market lead with a best-of-breed offering.
However, as noted above, legacy systems are not necessarily capable of supporting an additional channel without a risk of further stability issues. These platforms have grown their own eco-systems to such an extent that they require ongoing maintenance to ensure a BAU state for the business. The addition of the digital channel may, or may not, be the ‘straw that breaks the camel’s back’.
So, is FinTech going to be the silver bullet for us in TA for digitisation? When researching what is ‘Fintech’ for TA I was amazed to find that the search engines were returning results from 2008. Is that true, if we type “Transfer Agency Fintech” the industry has not progressed in over 8 years, or has there been a period of stagnation?
Whilst this is the case in Europe and the US in particular there is evidence that Fintechs and incumbents are successfully moving into digital in other regions (see Thai Bank plans for 2016). I, for one, feel that here in Europe we have been slow to grasp the opportunity that digital presents.
Consequently, as incumbent Fintech and other providers have been slow to move to digital, who will act as our disruptor? Will there be ‘true’ disruption from a new source (be it a Fintech or a new entrant (eg Apple) or will it be the use of existing technologies in a new way?
The area can provide our first glimpse of this disruption is technology that is already established and more than 20 years old, namely distributed ledgers. The advent of Bitcoin (and associated Blockchain technology) has given this old concept a new lease of life.
The idea we can take from Blockchain is that it offers the end investor a simplified experience when engaging with their service provider. In turn the service provider will need to support this evolving technology.
To move forward then we need to look beyond our existing legacy platform, identify where simplification for eco-system and/or platform can take place. We have seen that many applications have spawned their own eco-systems and customisations to meet the demands of a dynamic market and energetic regulators. As such, these legacy systems are not in a place where they have the agility and ability to update quickly. There is the need to have support (often critical life support) and costly deliverables to allow for the upgraded version to be delivered to the market place. Is this suitable for those who want to move into the digital space?With a simplified enterprise wide system, it is much easier for the platform provider to react where needed, to service their partners by being engaging with their consumer and drive efficiencies within their business to keep costs down. We have, in Oracle, seen examples of success our customers enjoy now after simplification to a single global application.