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2017 | Buch

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Digital Transformation in Financial Services

verfasst von: Claudio Scardovi

Verlag: Springer International Publishing

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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This book analyzes the set of forces driving the global financial system toward a period of radical transformation and explores the transformational challenges that lie ahead for global and regional or local banks and other financial intermediaries. It is explained how these challenges derive from the newly emerging post-crisis structure of the market and from shadow and digital players across all banking operations. Detailed attention is focused on the impacts of digitalization on the main functions of the financial system, and particularly the banking sector. The author elaborates how an alternative model of banking will enable banks to predict, understand, navigate, and change the external ecosystem in which they compete. The five critical components of this model are data and information mastering; effective use of applied analytics; interconnectivity and “junction playing”; development of new business solutions; and trust and credibility assurance. The analysis is supported by a number of informative case studies. The book will be of interest especially to top and middle managers and employees of banks and financial institutions but also to FinTech players and their advisers and others.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Unbearable Lightness of Banking

Abstract

The traditional business model of banking, and of most of the financial services incumbent companies now operating in the global financial system, were designed and developed on the basis of a number of “leverages”—both tangible and intangible. These “leverages” have contributed to the success and dominance of current set of incumbents, but also to the cyclical crisis that over time brought this industry to his knees. These “leverages” have now become even more unbearable and a new kind of lightness is in need, in order to reinvent the financial services industry to face the challenge of the many digital disruptions to come—as technological innovation is now changing the system once and for all.

Claudio Scardovi

Chapter 2. Synapses in the Global Financial System

Abstract

As traditional business models appear increasingly unable to cope with the new digital ecosystem and the challenges brought by innovation across multiple dimensions, so traditional frameworks of competitive analysis looks in need of reshaping, if not of a more radical change. The synapses framework of analysis is built on five key pillars: advance data/information management, applied analytics and machine learning/AI, a new way of doing business in a richer, more value adding, multi-stakeholders way (dubbed “interconnecting by junctions”), new solutions and use cases that create truly incremental value for the overall economic system and, finally, trust—e.g. the importance of being credible and with a good reputation in an upcoming age of digital uncertainties, cyber risks and warfare, loss of privacy and of individual conscience and many others. This is particularly true for the financial services, an industry built on the pinnacle of the intangible—as money (already digital) gets unregulated, with new services offered by unknown digital dotcom.

Claudio Scardovi

Chapter 3. In Transformation We Trust

Abstract

Incumbent banks are facing a crucial challenge as they need to embrace digitalization and aim for a significant transformation of their business and operating models, overcoming all kind of constraints driven, for example, from creeping legacy IT systems, silo-ed business divisions and central support functions and the cultural resistance well engrained in an industry that has been heavily regulated for decades and, maybe, too protected by the attacks of non-traditional competitors. One key element of this challenge is represented by trust and credibility—and by how banks will be able to successfully recover them in full. As trust is becoming and even more important factor in an increasingly digitized global financial system, cyber security and cyber trust are becoming one of the most serious risks banks will need to face and overcome.

Claudio Scardovi

Chapter 4. Cyber Capital at Risk

Abstract

In a world of finance that is progressively de-materializing (as everything gets digitized, not just money, but everything from the branch network, to the back-office processes and paper work, to the people supporting sales and advice) the fifth element of trust and credibility gest even more critical, albeit in a different a different shape. As cyber risk becomes dominant in the digital-based global financial system, so it becomes digital trust and its nemesis cyber capital at risk. On this basis, and with a very strategic perspective, banks and other intermediaries will be called to allocated scarce digital trust and cyber capital at risk across products and segments, innovation opportunities and applications, and to invest in cyber-security as to maximize the return they get on their cyber-capital at risk—given its impact on business and clients.

Claudio Scardovi

Chapter 5. Digital Transformation in Payments

Abstract

All main fundamental functions played by the global financial system are potentially ripe for disruption. A disruption mostly introduced by digital innovation, but not only, as a full spectrum of technological changes are happening across multiple fields and converging into a new future steady state that is difficult to predict. The payment sector looks like the first and most obvious entry point for new FinTech challengers—encompassing a number of innovations that extend to the creation of crypto currencies and of new “rails” where transactions can be cleared and settled—potentially without any role left for traditional financial intermediaries (including Central banks) and in real time and at almost zero costs. In an increasingly frictionless, timeless and super transparent digital payments systems, new revenues opportunities are however manifesting, with new extended roles for the “controllers and miners” of data—banks but not only (or not necessarily), with an intermediation (interconnection) role extending to all kind of goods and services.

Claudio Scardovi

Chapter 6. Transformation in Funding

Abstract

Digital transformation in banking is promising to turn upside down the function of funding, in both retail and wholesale worlds. It will also bring about social discontinuities and changes in the way we live, contribute to, benefit from, the current prevailing capitalistic system—with many people at risk to be left behind. On one side, new web-based funding initiatives are promising a new “cyber capitalism” that will be open to many people, if they just have few pennies and a good wi-fi connection. On the wholesale front, greater transparency and liquidity should allow greater and better opportunities of funding for small and medium businesses. And in retail banking, new solutions could be built around the core deposit-taking business of banks, with great opportunities to create new value but also impacts on unemployment and inequality.

Claudio Scardovi

Chapter 7. Transformation in Investment Management

Abstract

Digital transformation is shaking up investment management at least on four fronts. It allows the extended participation of people to the international world of capital markets, further pushing the limits of the concept of a “(cyber) capitalism” open to everybody. Secondly, it further contributes to develop the trading battlefield into a war among machines and AI-powered algorithms. Thirdly, it changes the world of advisory in money management, as robots are becoming better and nicer at this job. Not to mention, finally, the impacts on the back and middle office activities that are becoming more and more “industrialized by digitization”. Very large pay offs are at stake for markets and societies alike, but also new risks, as algorithms tend to think alike, even more than human beings, with potential effects still not fully understood and just partially addressed. Successful transformation will rely on this optimal relationship between men and machines.

Claudio Scardovi

Chapter 8. Transformation in Lending

Abstract

Lending is at the core of banking, and has been determining its fortunes and misfortunes—over the cycle and across Countries. Digitization could however even change this more traditional of paradigms, as banks could be successful (or not) in the future, on the basis of their decision on what digital lending model (if any) to have, and on what risk screening and underwriting process will determine their future origination, pricing and management strategies. Whilst impacts on non-banks originated lending volumes has been so far limited, the impacts introduced by alternative credit risk scoring and rating models are already impacting the credit market, potentially bringing to a better management of the inherent trade-off between risk and return.

Claudio Scardovi

Chapter 9. Transformation in Risk Management

Abstract

Risk management is a quite critical, but less well known, function played by the global financial system. It allows for the valuation, pricing, transferring, holding, hedging, covering of risks—of a financial or pure nature. Whilst banks and other traditional intermediaries are running the “new” risk of being competitively leapfrogged by emerging digital players, even their risk management function needs to develop and innovate, to allow them to retain their competitiveness in their core businesses—starting from the lending one. Risk management has evolved in the past by quantum leaps: getting more quantitative, statistics-based, and then more holistic and proactive. It now needs to turn “digital”, promising to revolutionize not just the world of banking, but the way corporates and individuals manage their own financial and non-financial risks, via the financial system—with a more augmented, meaningful and integrated definition of “risk management”

Claudio Scardovi

Chapter 10. Transformation in Insurance

Abstract

The international insurance sector has navigated the global financial crisis in a much easier way vis a vis the banking one. More limited restructuring and liquidation activities were required to ensure its survival. However, within the global financial system, it now looks to be the most impacted one—as the technological innovations and the related digital disruptions are posing an unprecedented number of competitive threats. The level of discontinuities expected in the insurance sector suggests how the transformation challenge (and related risk) for insurance companies could be the highest in the system, and requiring an even more radical re-thinking of their business and operating model. Their “synapses” opens up a number of opportunities as well, as the new data and intelligence available and the new interconnection plays could allow not just to create value for multiple stakeholders, but also address the very “old” risks being underwritten—dramatically reducing or eliminating some of them. The question is then whether insurance companies have a better chance than FinTech to do that and how they can justify and secure a fair share of profits on arising new risks.

Claudio Scardovi

Chapter 11. Digital for the Greater Good

Abstract

Whilst most of the current debate on media is on the many legacy issues inherited from the global financial crisis and on the further challenges that re-regulation is posing on incumbents, digitization is acting becoming the major force for change acting in the global financial—and potentially for the benefit of the overall society. Customers, first and foremost, should be benefiting, albeit with some new and little understood risks arising, mostly driven by the uncertainty introduced by uncontrolled innovation and by its (somehow related) regulatory arbitrage. Eventually, a new form of “digitally inverted pyramid” could ensue, introducing new systemic risks and unbearable lightness. Even more importantly, a critical issue to address to make sure the “great disruption” will bring about a greater value for the multitudes will be around the ownership, management and utilization of data—avoiding the insurgence of few “big brothers” that could build a quasi-monopolistic positioning in the market—hence stifling competition value sharing for customers. Still, aside from these risks, the digitization disruption is going to change our ways of living—potentially for the better.

Claudio Scardovi

Chapter 12. The Synapses Challenge Ahead

Abstract

In a global economic system dominated by the increasing unpredictability of key strategic, financial, industrial and operating variables, it looks like a safe bet to assume that the global ranking of the top financial institutions by market capitalization will change a lot in a five to ten year time horizon. This “volatility” should apply to the size of the financial service sector of Countries as well—with dire scenarios for most traditional players. Still, their extinction is far from being assured as change is possible, even for the most “old style” incumbents. But the old game of “big, full blown IT and operating model changes” is long gone. Challenged incumbents could find a better approach to digitize their business by following a sandbox approach, characterized by small tests and pilots in separate physical and technological environments. Organization and leaders will also need to change themselves, and be more agile, as their technology, and focus on the critical components that can ensure their relevance, in a world potentially dominated by robots.

Claudio Scardovi

Backmatter

Titel: Digital Transformation in Financial Services
verfasst von: Claudio Scardovi
Verlag: Springer International Publishing
Electronic ISBN: 978-3-319-66945-8
Print ISBN: 978-3-319-66944-1
DOI: https://doi.org/10.1007/978-3-319-66945-8