Digitalisation in the Asset and Fund Management industry: opportunity or necessary evil?

The 11th Swiss Fund Day, on 10 Nov 2016, was a great opportunity to take stock on how digitalisation is impacting the Asset and Fund Management industry, and assess the impact(s) of the emergence of FinTech startups for established players.

Insightful presentations from Consultancy Roland Berger as well as testimonies from the various industry players made it abundantly clear that things are moving fast and you need to be part of it, if you don’t want to be left behind!

I have summarised some highlights of the various presentations (with the contact details for each of the speakers). Reach out if you want to engage with them.

Digital All-the-way in Asset/Fund Management industry

Robert Buess, Partner, Roland Berger AG, Zurich

Wolfgang Hach, Senior Partner, Roland Berger Gmbh, Munich

1) Digital disruption is a cross-industry reality:

  • Financial services are at the beginning of the transformation cycle (just behind the automotive industry) whereas other industries like the Entertainment and Music industry, and to some extent the Travel industry, are close to the top of the cycle
  • Transformation is characterised by two phases touching first the B2C and B2B2C services, and then B2B with development of online market places
  • Transformation in Financial Services will be more profound as it is a non-physical industry, hence potential the entire-value could be digitalized

2) Tech giants entering the space are a mid-term threat as they plan to revolutionize the industry and have a number of significant strengths playing in their favour:

  • Customer basis
  • Technological leadership
  • Strong financial basis (i.e. cash-rich)
  • Strong connecting point with client (payment)

3) Key trends affecting the Asset/Fund Management industry – Digitalization is only one of them:

  • Regulatory changes / stricter rules
  • Professionalization of investors
  • Changes in the value chain
  • Digitalization

4) End-to-end digitalisation and blockchain present huge potential for innovation and increased efficiency, which will result in new business opportunities and better services for clients

End-to-end digitalisation Blockchain
New interface

Digital/automated processes

Enhanced collaboration

Fully digital automated transactions (zero cost)

Higher security

Integrated eco-system

5) End-to-end digitalisation should be seen as enabler, with 6 dimensions to be considered:

  • Customer experience (meeting digital expectations)
  • Customer interface (control of client touch-points through the digital channels)
  • Efficient provision of services (control of infrastructures)
  • Collection and use of data (smart data / big data analysis)
  • Digital ecosystem
  • Business processes and synchronisation of partners Interfaces

Improved client experience and increased efficiencies will bring cumulative effects.

6) Blockchain also seen as particularly relevant for Asset/Fund Management industry with the power to potentially remove the need for intermediaries:

  • Application interfaces: KYC, provenance of luxury goods, payment system for platforms, Exchange of specific info
  • Smart contracts: software code, electronic institutions, rules executable by machines, autonomous certainty
  • Distributed ledger: private, public or any combination thereof
Blockchain features Field of application Advantages
Identity Land/premises, passports, luxury goods One digital identity
Irreversibility / keeping track of history Internal audit chain Secure and traceable transactions
Near/real time execution Settlement and new event trigger Trigger-based undisputed execution
One data source Proof of contract One single source of the truth

The impacts for the Asset/Fund Management industry are numerous:

  • Improved customer experience
  • Improved security (one golden source of truth)
  • Improved process efficiency (reduced costs)
  • Consolidation and reorganisation of infrastructure (reduced back office resources)
  • Ecosystem efficiency with interrupted value-chain, resulting in a global market for every single step of the value chain

7) Market places will occupy the client interface

Client relationship model is evolving from the classic model where banks decide what is being presented to clients and clients gravitate around the bank branches, to an intermediary stage where clients are surrounded by various channels (branch, call center, ATM, internet, mobile app, social media) and eventually to a final stage where clients have total self-determination to choose the channel(s) and the product(s) totally independently from the banks (through market places).

8) FinTech startups are active over the entire value chain Front-to-Back and are putting pressure on fee, with 3 areas particularly relevant to Asset/Fund Management industry:

  • Robo advisors: relying on ETFs as growth factor
  • Comparison platforms: seen as source of unbiased advice and driving price transparency
  • Crowd investing: alternative markets for investment outside control of banks and funds

9) Conclusion: digitalization presents many challenges but brings new opportunities

  • Take client perspective as the only anchor point and fight to occupy client interface
  • Invest in blockchain as it will provoke radical business innovation
  • Disrupt your own business before thinking of disrupting the industry

Opportunities and threats of digitalization (UBS)

Karsten Illy, Head Fund Operations, UBS Asset Management Switzerland

1) A number of mega trends at play:

  • Digitalisation
  • Mobile and social networks
  • Artificial Intelligence and robotics
  • Big data analysis
  • Internet of Things

Digitalisation seen as new/changed business model based on digital technology to produce new revenues and adding value to the client.

2) Opportunities:

  • Client Relationship Management
    • Leverage online media: to run more cost effective media campaigns and lead generation process
    • Test marketing on social networks: to optimise our content and to get additional insight on clients and how they perceive/react to our marketing efforts
    • Online fund platform (e.g. Fond Center): to offer product information and data (inc. risk analysis) and comparison functionality
    • Robo-advisor (e.g. UBS SmartWealth) to test digital advisor model 24/7 with human touch and automatic KYC
  • Product Innovation
    • Smart contracts: smart bonds on blockchain, eliminating the c/p risk
    • Social investment platforms: exchange of ideas and analysis of projects, duplication of models to increase impact
  • Improved infrastructure
    • Artificial Intelligence: to automate manual work (trade processing and client service) but also work on knowledge-based analysis (Investment research and decisions)

3) Threats:

  • Cyber crime and need to put in place adequate security
  • Creating appropriate innovation culture and maintaining it, while at the same time recruiting the digital-talents

4) How UBS is responding to these:

  • UBS Innovation Labs (WM Attic in ZH, Level 39 in LDN, UBS Y in ZH, and another lab in SG)
  • Series of challenges (Future of Finance Challenge) to identify ideas/start-ups active in the space and help them develop:
    • Customer Experience Challenge
    • Superior Offering Challenge
    • Secure Banking Challenge
    • Banking Efficiency Challenge

Impact of emerging technologies on the fund industry (State Street)

Akbar Sheriff, Founder State Street’s Emerging Technologies Center, State Street

1) Running BEACON programme to digitalize its core operations, to make things leaner, smarter and in the right place:

  • Best –in class Services & Solutions
  • End-to-End services delivery
  • Agile methodologies
  • Client–centric design and execution
  • One view of the client
  • Next generation technology platform

Example of initiatives: run through reporting processes during the day and let clients see progress in real-time so it removes the problems of having all clients calling when the process finishes and the reports are produced and discover there is an error that forces the process to run again. Instead clients are informed real-time and can take action if they spot something is wrong. Process is visible through an app (clients can even access through mobile phones).

2) Innovation through new business:

  • Helping clients solving the data challenge: clients have too much data, find it hard to get good insight and are looking for solution to ensure they don’t miss something important (mitigate the risk regulators come 6 months down the line and challenge their (in)action as they had the data!)
  • Identify new opportunities through problems faced by our clients:g. Machine Learning where adaptive algorithms replicate human approach to complex problems (classification of data, optimisation of decisions and interpretation of data) – machines are trained by teams of PhDs who code the logic the machine needs to apply to be able to replicate the analysis they are doing, so the machine can do it alone.

3) State Street created the Emerging technologies centre whose mission is to:

  • Identify new ideas
  • Explore them to get familiar with the technology and potential usages
  • Prototype new services thru:
    • internal development,
    • partnerships,
    • by joining industry consortia

Combination of the 3 steps necessary to ensure something useful comes out of any prototype phase

4) Recommendations

  • Stay informed and be part of the debate
  • Experiment internally and prototype commercial offerings
  • Engage services providers and infrastructure players to understand the technology
  • Be ready to jump on pilots when opportunities materialize / keep open-mind to experiment

Our way to digitalisation (Zurich Kantonal Bank)

Attila Makra, Head of Technology Innovation, Zuercher Kantonalbank

1) Technology megatrends

  • Socials and politics: Gen X, Gen Y, Millennials
  • Business and Marketing: compare, share, free access, independent decision
  • Technology and new services:
    • Big data and smart data: personalised client advice
    • Cloud computing: fast service, independent from location
    • Blockchain: efficiency, security, interconnectivity
    • Biometry: higher security, faster access
    • Artificial Intelligence: better services, self-provisioning, support to Client Advisors
    • Internet of Things: new digital channels through mobile
    • API economy: digital ecosystem access with cross-division services
    • Augmented Reality

2) Fintech trends / areas where Fintech startups are active:

  • Payment
  • Crowdfunding
  • Data management
  • Crypto
  • Investment and asset Management
  • Comparison platform / market place

Fintech startups either compete directly with a (or several) service of a bank (targeting end-clients), or position themselves as service provider to banks.

ZKB has two models of collaboration with FinTechs:

  • Client of the start-up:
    • Qunmram – Big Data platform for compliant cross-channel recording
    • Contovista – Digital Banking and Data Analytics B2B for Financial Institutions
  • (Lead) Investor in the startup (and potentially client):
    • Squirro -Advanced context intelligence and insights solution for data analysis
    • Investiere – Online startup investment platforms
    • SecureSafe – Online storage with file sharing and file synchronisation

3) ZKB approach:

  • Innovation lab in Zurich to follow and adopt the new ideas and make them fit with relevant business needs
  • Join consortium to collect experience (e.g. blockchain project)
  • Active participation in digital ecosystem (e.g. Swiss Fintech innovations)
    • To position Switzerland as leading center for FinTech
    • To drive collaboration and digital innovations in the financial services industry
    • To connect, network and raise awareness
    • To Foster open dialog with Fintech Startups and Corporates
    • To develop and implement solutions on topics of common interest

How BlackRock deals with digitalisation (BlackRock)

André Bantli, Head of Wholesale – Distribution Switzerland & MEA, BlackRock

1) Technology megatrends

  • Technology brings additional transparency (on prices primarily)
  • Technology allows asset light model
  • Technology reduces costs
  • Technology consolidates products (and reduces prices e.g. iPhone replacing 15+ other devices for half the price)

2) From “old economy” to Uber-style economy, to fully-integrated business model:

  • Speed of adoption for new technology is increasing: from 100 years for car and telephone to a couple of years only for smartphones and tablets
  • Online businesses have now more revenues and less costs than brick & mortar businesses

Next step: integrated business model like WeChat (“You name it, WeChat has it”) which regroups all sort of services whatsapp, facebook, skype, uber, amazon, instagram, tinder, investment services, and supports the growth of the e-commerce in China but increasingly outside China.

3) What is BlackRock’s approach?

Philosophy: technology helps to understand and manage risks and we are processing big data to generate alpha

Current initiatives:

  • Aladdin: cornerstone system, single platform providing risk analysis, trading and operational tools for investment managers
  • FutureAdvisor: robo-advisor B2B, grouping all accounts in one place to allow consolidated advice
  • BlackRock Fund Buyers Portal: online platform for funds

4) Where is future investment going?

  • Big data analysis and machine learning to improve the investment process:
    • Want to analyse unstructured Big data (email, tweets, results from Google search, broker reports, conferences)
    • Want to leverage our Human Capital to “teach” machines (broker report analysis to identify important information in paragraphs and then in words)
  • Aim: produce massive and complex data analysis based on Fundamentals (social media analysis, Glassdoor information), on Sentiments (text analysis) and Macrothemes (internet search) to identify the shares in which to invest

5) Conclusion

“Our competitors are not the banks, but the big technology firms”

Advertisements

One thought on “Digitalisation in the Asset and Fund Management industry: opportunity or necessary evil?

  1. Pingback: Relationship Managers: 3 steps to keep a job in the FinTech revolution that is coming | Lionel Guerraz' Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s