On 19 January 2016, the government chief scientific advisor published Distributed Ledger Technology: beyond block chain. This new report points up the potentially huge possibilities of distributed ledgers. Distributed ledger technology is quickly becoming recognised as perhaps one of the most significant disruptive digital technologies to emerge in recent years.
It has the power to transform the ability of governments to improve human welfare; transform the financial services sector by reducing risk and transaction costs while increasing transaction speed and transparency; and, transform the competitive landscape in other sectors of the economy where both intangible and tangible assets are registered, goods exchanged and services provided.
One bank-backed distributed ledger focused entity has announced the completion of an experiment involving 11 of the world’s largest financial institutions. Participants reviewed the technology’s potential to execute financial transactions instantaneously across the global private network without the need for a centralised third party.
The use of artificial intelligence behind so called ‘robo advisors’ is being investigated. Clients can answer online to questions on investment objectives and risk appetite. Algorithms then produce asset allocations and the opportunity to flex inputs and outcomes.
Impetus for investment
Without a doubt, technology is changing the way business is conducted. There are a number of key drivers for investment in technology across the financial services sector, from enhancing the customer experience to cutting infrastructure costs by streamlining ‘back office’ support; reducing fines from regulators by enhancing operational risk management; and, combating the threat of financial crime.
We anticipate intensification of demand for cyber risk professionals as banks, wealth managers and insurers require a broader range of skills from their risk management talent to prevent cyber threats and data security breaches.
Moreover, as cyber risk is not only an issue for the financial services sector, we anticipate increased demand for insurance covering cyberattacks and, as a corollary, growing demand for those who can manage and underwrite cyber risk at insurance firms.
The insurance industry is being transformed through the use of technology to positively impact ROI by decreasing costs, improving customer service and to target prospects and clients with greater accuracy.
Within the asset management space, firms are focusing on IT platforms as a means of interaction with customers. While in the retail banking and consumer finance space, the larger players are investing in innovative payment solutions in response to increased competition from the likes of Apple Pay, Google Wallet and digital ‘challenger’ banks.
Strategic and competitive advantage
We anticipate an increased focus on emergent technology as a strategic and competitive tool. It is therefore certain that in 2016 financial services firms will increase spend on technology and associated operations.
Consumer demand is stimulating transformation programmes. We see this particularly in retail banking and private wealth management, where consumer appetite for on-the-move transactions and advice acts as a spur for established banks to revise their technologies and distribution models. At the same time a branch network is important to other client segments such as small and medium sized enterprises.
In a bid for better customer insight we are also witnessing financial services firms collecting more data and using data analytics to examine and predict more complex relationships. This will stimulate demand for individuals who can build new data infrastructures and exploit big data.
Offshore and onshore call centres will be replaced in part by the latest in artificial intelligence technology.
In wholesale banking and institutional asset management, distributed ledger technology will transform deal confirmation and settlement and is likely to significantly reduce the headcount in middle and back-offices. Many systems will be cloud-based.
We also anticipate insurance firms will review their technology infrastructures, underwriting, distribution and digital capabilities in a bid to reach customers quicker and more effectively.
A significantly transformed workforce in terms of number and skillset will lead to questions regarding the location of employees and size and design of workspaces.
Innovation and change programmes will bring with them new ways of working and the need for individuals to learn fresh skills. This will place further demands on HR professionals to advise the ExCo and Board on organisational design.
Executive and Board challenge
Upgrades to legacy systems will stimulate demand for programme managers, data architects and for people who can translate mobile and digital technologies into effective customer propositions.
Organisations must have the right people at board level to ensure technology is implemented strategically and make certain that the benefits and risks are fully understood. Executive management and Boards therefore face the challenge of navigating increasingly complex risks stemming from technology. This is being driven by various stakeholders including government, regulators, industry bodies and shareholders.
NEDs and senior advisors with a strong understanding of technology are important to help the board ask the right questions and make appropriate decisions on strategy, resource allocation and risk management.
The challenge is to ensure human resource management systems and processes deliver the right talent in the right place, at the right time, at the right cost and to have a positive impact on employee engagement and therefore retention.
Financial services firms will have to broaden their search geographies internationally while also recognising that the appropriate talent may be found outside the financial services sector.