Thank you
Published: September 16, 2024
Leda Glyptis
First Derivative LinkedIn profile
In fact, I rather love it. I love both the accumulated knowledge and experience it implies (and the scars… there is definitely some scar tissue here) and the acknowledgement of continued presence in a space and during a time of great change. Working in technology functions inside and for banks in a period spanning three decades (ahem) and covering everything from green screens to AI is a hell of a ride, let me tell you.
We have changed a lot. We have done a lot. We have achieved a lot.
And yet, we are yet to transform. Despite all our good intentions and hard work.
Hear me out here.
Banks and FS institutions have always leveraged best in class technology when it seemed suitable and value-additive. Always.
This is something we have been consistently good at.
In fact, financial services players have been pioneering and embracing technology for connectivity, speed and accuracy whenever and wherever it appeared beneficial to do so.
From ATMs to algo-trading, there are numerous examples of FS players adopting transformative technology that changed both ways of working (offering tools and means that changed the way the work was executed) and the business of banking (creating new products and pricing realities).
When the digital era started and the moment in time that we loosely describe as fintech was upon us, a series of technology advancements (largely around system to system to person connectivity) and ways of working came together to create a ‘digital wave’ that, at first, if we are honest with ourselves, looked like so much trouble.
The technologies that allowed for apps, real-time processing and connectivity were fairly exciting but also came with a price tag to build (doesn’t everything?) and the threat of reduced margin from thereon out.
I recall sitting in a meeting around how one could price Transfer Agency work in an API-first, connected world where humans did a lot less of what they used to do and get paid for.
Where do you start with the pricing exercise? Do you start with what it costs you to run the new service? What it cost you to build the new systems? What it still costs you to run the old systems, in parallel to the new systems? Or do you start from what you used to get paid and try to hold onto that margin for dear life?
Now… play this discussion out across the entire industry, in every vertical where new capabilities didn’t just create net new opportunities but they also created an expectation for increased speed and transparency and reduced price.
That’s less fun for everyone involved.
So although we were all extremely excited by ‘digital’ when it came into our lives, that excitement was never pure. There were always other considerations in play. In fact, the last twenty or so years of this phenomenon, era, stage of life or whatever you choose to call it, have so far had three distinct phases:
I jest, but the first phase was undeniably marred by the constant fear of disintermediation. Digital capabilities were seen, appreciated and understood as something potentially useful but also fundamentally potentially dangerous as, it was perceived (and, at the time, that seemed like a no-brainer) that challenger brands in the form of Venture-backed startups would swoop into the juiciest parts of the value chain and solve problems in a way that added value, was fresh and sexy and kept the price tag small as these challengers were not burdened by the costs and complexity of legacy estates, be it human, operational or tech.
That, needless to say, didn’t quite happen.
In consumer banking there was a lot of disruption and a lot of noise but disintermediation has definitely not happened and even the most successful brands are still playing in highly familiar ways, occasionally in extremely narrow verticals and otherwise seeking volume plays like the rest of us.
And that is even more true the deeper one goes into banking, away from consumer banking to the more complex, more opaque and less widely known world of syndicated lending… custody… fund accounting.
We are back to pricing TA work, my friends, and although nobody disintermediated us there are challenges and opportunities galore.
So pricing TA work is where we should be, because the hardest things about new technology are not, contrary to what we thought at first: understanding it and building it but rather… pricing it once it is built and keeping the rest of the estate under control (and by that I do mean culling old systems in the name of operating stability and reduced cost).
But the point remains: the thing we were afraid of did not happen.
In consumer banking it hasn’t quite happened yet despite all the activity because the business models are yet to prove themselves in a way that really changes the industry.
In the post trade world, it hasn’t happened because we have actually been the authors of most of the transformation.
There is a saying in Greek that ‘fear is the last bastion of the dispossessed’. Never underestimate how much being afraid of something may propel you into action. And all the chat around disintermediation 20 years ago has meant that actually innovation and digital teams have appeared across the FS world and have put their heads down and gotten to work.
And although I will not for a single moment suggest it has been smooth sailing, it is undeniable that great things have been done. I spent a very enjoyable morning hearing about BNY Mellon’s AI solutions a few month’s back when I visited my old haunts and thoroughly enjoyed seeing the announcement of Euroclear’s digitally native note, leveraging DLT and aimed at pointing new technology towards improving market efficiency and connection. This is the stuff we were dreaming of back when we started our journey: the big, established, systemic players taking the technology of the era in their stride to do the work.
That is the most important thing by the way: innovating in lock-step with the paradigm of the era in order to do the work. Not frills, not sideshows, not nice-to-have-but-not-useful activity.
Rather building innovative solutions that are useful as they are current.
It is happening across the industry. And it is not being done to us.
Actually, I don’t think it would be an exaggeration to say that most of the innovation in this part of the FS world came from within. And it has been amazing. And if you had told me that this is what would happen a few years back I would have bitten your hand off in breathless anticipation.
This is what we were all hoping would happen. And it is happening.
And yet.
This isn’t quite the ‘and they lived happily ever after’ part of the story.
We have gone through a period of a couple of decades of ever-tightening cycles of technology innovation and adoption at scale. The world around us is rapidly changing and, with it, everything else is also changing. That is true both in terms of how quickly new capabilities become widely accepted in the economy around us and in terms of what we consider a normal baseline as professionals and consumers (I had to explain to a younger colleague that the best rate in the UK market for a savings product at the time of our conversation, was a bank that didn’t have an app and he looked at me like I suggested he put his money in a snake pit in someone else’s garden and then set it on fire). And both of these trends matter.
Having had the dubious honour of needing to explain to senior bankers a decade plus back what an API is, I can tell you the task was much easier once said senior bankers in question shopped on Amazon, used Uber and paid for their children’s spotify accounts.
But I digress.
We’ve done ok from a shaky start and we are getting better at this stuff each day.
But.
But but but.
We are immersed in an economy that moves faster than us still despite our acceleration. We are faced with customer needs, particularly in the B2B space, that bring immense complexity as we need to manage liquidity, FX exposure, geopolitically-induced market volatility in a world of real time access, 24/7 connectivity and cyber threats of staggering creativity.
So we’ve done well but that doesn’t protect us because the terrain keeps shifting. And although we can continue applying the creativity we have acquired to-date the reality is that to increase the pace of technology adoption to that required by both the markets we wish to serve and the bad guys we wish to stand fast against, what got us here won’t get us there.
First Derivative have been navigating the realities of business change amid competing priorities from the start of our industry’s digital journey. We have been the partner of choice for some of the largest FS entities globally.
Chat to us today about how we can help you with the challenges ahead.
