How the financial services industry is preparing for tomorrow

This article first appeared in the Autumn 2017 issue of The Record.

This is a time of transformation for the financial services industry. Technology advances, cultural shifts, cybersecurity threats and regulatory change have brought a pressing need for banks to rethink the way they work. And innovative new capabilities, enabled by the financial services-ready cloud, are helping them transform their business for the better.

Microsoft’s commitment to helping banks take control of their future will take centre stage at Sibos 2017 in Toronto, where industry experts will be on hand with cutting-edge demonstrations, discussions and insights. Underlining Microsoft’s role as a trusted partner in the industry’s transformation, Microsoft CEO Satya Nadella will deliver the closing plenary keynote speech on 19 October.

“Banks are having to transform as a growing number of non-bank, cloud-native competitors go after their value chain,” says Peter Hazou, Microsoft’s director of business development, Financial Services. “A lot of powerful new technologies, from machine learning and cognitive chatbots to advanced analytics and blockchain, are coming to fruition at the same time within the scope of the cloud to enable them to do that.”

Customer-centricity is a key focus for banks, and today’s advanced analytics and artificial intelligence (AI) technologies can deliver the contextualised insights that make it a reality. “Customers expect banks to understand their personal needs, their business and their context, and to offer relevant products and services that will help improve their lives and businesses,” says Hazou. “Banks inherently have the information flows to achieve that insight because they interact with all parts of the economy. But traditionally they haven’t been able to harvest all those insights effectively. The power of the cloud lies in being able to deliver those data-driven insights, derived from advanced analytics and AI capabilities, to deliver a seamless experience and surface the next best conversation to have with the customer.”

To deliver customer-centricity, employees need to collaborate seamlessly across the information siloes that traditionally exist in banking organisations – something that is increasingly pressing as banks compete with cloud-native, ¬non-banking entrants. Microsoft has mapped the journeys of different bank roles – or ‘personas’ – to enable a strategic approach to empowering employees. “Customer-centricity entails a journey around many areas, from product development to customer service, and banks need to find the most efficient and effective way to coordinate those journeys,” says Hazou. “It’s not about the feature and function of the technology bankers use; it’s about their journey to accomplish their business goals. For example, mobility is not simply about having a smartphone. It’s about working in a mobile way, in proximity with the customer, with full access to the bank’s core systems in a secure way in full collaboration with colleagues. That can’t be achieved by adding new technologies as they emerge. It has to be a strategic intent that addresses how bank employees work.”

As banks work to adapt to a changing industry amid emerging risks and increasing regulatory requirements, they face a pressing need to optimise their operations and rethink the ways they make money. “Since the financial crisis, many banks have implemented a lot of manual processes to meet regulatory compliance deadlines,” says Hazou. “But enabling a more secure and effective environment means addressing the way they do a lot of things such as risk compute and handling data models. A lot of banks are now optimising their operations by leveraging the cloud as a secure, scalable environment for their computation. They’re using advanced analytics to drive action from all the data they have and capabilities like natural language recognition to democratise that data and make it easy to use.

“As technology has advanced it has also created a global, interrelated supply chain and for banks, the traditional ways of making money have changed or diminished. Now, in the face of new competitors, banks need to reinvent their business model and they need product development to fulfil that. Banks need to collaborate better to ideate about problems, opportunities and solutions. This will involve a lot of new technologies, such as AI and robotic process automation to enable more scalable products.”

More challenges loom in the immediate future, with increasing opportunities for banks that have the capabilities to take them. For example, the implementation of PSD2 in 2018 will create an API economy that that opens the industry still further. “Banks have distinct domain experience and competency in certain parts of the solution, but clients’ requirements are broader,” says Hazou. “In the future, banks will have distinct competencies in certain areas but they will need to be much more open as a platform and integrate other partners into the solution. They need to develop new products to tap new wallets, developing new business models in areas like pay-as-you-go and the internet of things.”

In addition, changes to the payments infrastructure in the US and Europe will mean banks need to transform their traditional on-premise, batch-driven payments processing to compete in a real-time payments environment. “Traditional bank data centres are not oriented to the 24x7x365 operation needed to process real-time payments,” says Hazou. “In addition, real-time payments are by and large an optional service and not a regulatory requirement. All banks are expected to adopt it, but without the ‘regulatory requirement’ marker that would make it a budget priority, banks will be looking for low-cost solutions to enable the service. The cloud is the perfect solution for that.”

Microsoft has invested significantly in ensuring the financial services-ready cloud provides a secure platform for solutions to the challenges banks face, and it is working with new technologies such as blockchain to provide proofs of concept in areas such as trade finance and identity documentation. At Sibos, visitors will be able to explore the strategies and technologies to help them address their challenges.

Ultimately, Hazou says, each bank will use the technologies it needs to enable its own transformational journey. As a trusted partner on that journey, Microsoft’s focus is on enabling the business outcomes each bank requires. “It’s a matter of how these technologies coalesce into solutions for clients,” says Hazou. “Banks need to fundamentally consider what their business model should be going forward, given the changes in the financial services environment. Everybody has to find their own path based on their clients, their business, and the strategy of their bank. We have the technology that can help with that and the Microsoft Azure cloud is the platform that will facilitate it, enabling banks to create powerful solutions that will prepare them for tomorrow.”