Digital transformation of the financial services industry and a move towards fully digital operating models by banks and wealth managers have already begun to reshape the global sector
The next decade is likely to be a period of profound change in financial services and an unparalleled era of tech-driven innovation with new business opportunities, as well as greater competitive threats and the rapid decline of once-accepted business models and propositions.
Given these dynamics shaping the sector, the market is likely to be owned by banks and wealth managers that fully embrace the powerful benefits and the inherent agility which only cloud-based digital operating models such as software as a service (SaaS) and/or business process as a service (BPaaS) solutions can deliver. The winners will not just be the banks themselves, but their clients and customers. They will have a far better range of products and services delivered more efficiently and through true multichannel capabilities.
One significant example is what Avaloq calls the democratisation of wealth management products. The sheer power of digital processes and data analytics is allowing financial institutions to open up previously high-end products and services to a much wider customer base. Consumers are getting access to dedicated, sophisticated products more commonly available only to affluent and private banking clients. The goal is to deliver personalised products and this is only possible through cloud-based BPaaS and SaaS solutions.
Institutions are already delivering compelling improvements in efficiencies and a much richer customer experience
Multitude of challenges for banks and wealth managers
In an exceptionally fast-paced, increasingly digital business world, which more and more is also being shaped by new regulations and compliance demands, the need to respond to changing market conditions and offerings quickly has created a multitude of challenges for banks and wealth managers.
Regulations such as the Second Payment Services Directive (PSD2), for instance, and new processes including distributed ledger technologies (DLTs) are requiring financial institutions to completely re-engineer their underlying infrastructures. This is compounded by growing levels of customer engagement over channels such as WhatsApp and Twitter, the need to embed environmental, social and governance principles into operating models, the rise of artificial intelligence and machine-learning, and the drive to deliver ever-greater levels of personalised services to all customers across the value chain.
Open Banking and PSD2, as well as regulations such as the General Data Protection Regulation and Markets in Financial Instruments Directive II have come into play at a difficult time for established institutions across Europe, with many facing reduced revenues in the wake of the financial crisis. PSD2, which allows regulated third-party providers to access a client’s bank account information and/or request payments, has attracted a host of new providers and technology companies into the financial services space.
Customers, particularly younger demographics who are far more digitally savvy, are embracing these new opportunities and engagement channels, and are navigating towards service providers that offer the most open, easy-to-use and interactive platforms.
In this environment, underlying IT platforms not only need to be able to scale depending on workload, they also must be able to integrate with third-party applications seamlessly through multiple application programming interfaces, or APIs. If banks and wealth managers do not offer high levels of integration, then there is a real risk they will lose customers and market share.
In addition to new regulations, the rise of the crypto asset class and the DLTs that underpin them also represent a challenge for financial institutions either looking to offer relevant products and services such as bitcoin to their clients and/or those looking to capitalise on DLT-based business processes. This will develop even faster in the coming years, Avaloq believes, leading to faster and cheaper transactions, reduced credit risk and, consequently, an increase in the number of assets and their liquidity.
On top of this, Avaloq foresees an explosion of asset classes and the tokenisation of alternative assets. Entities that are currently non-bankable will be tokenised and made tradable. This will move the industry to a pure, end-to-end digital experience with all types of assets.
Managing this increasing complexity and cost of a best-in-class IT infrastructure is a distraction for financial institutions that would like to focus on their clients, service offering and remaining as competitive as they can.
Transformation of front, middle and back-offices
As the financial services sector undergoes a near-constant stream of innovation and new ideas and new competitors, many players have moved to SaaS and BPaaS solutions that allow them to transform and digitise their front, middle and back-offices.
In doing so, they are not only futureproofing their businesses against the changes impacting the sector, but also capitalising on them by integrating with third parties and developing an even richer relationship with their clients. Customers in turn are responding very positively to these changes, with greater levels of client retention and customer loyalty.
In this highly dynamic environment, it is vital that financial institutions work with a trusted partner to understand an institution’s particular needs, while also having detailed understanding on IT landscape management and financial industry application domain knowledge.
Avaloq is a market leader in BPaaS and SaaS solutions for the global financial services industry. Around 160 banks and wealth managers, with more than CHF4,500 billion in assets managed worldwide, trust Avaloq, its products and extensive experience. In November, the firm was recognised as a leader in the 2019 NelsonHall NEAT vendor evaluation for wealth and asset management services, one of the most comprehensive such assessments globally.
This was the second major award given to Avaloq in the past few months for its wealth management capabilities. In September, it was named overall winner in the 2019 XCelent European Wealth Management Technology Vendors awards report, Europe’s most influential market accolade and further testament to the market-leading capabilities of the Avaloq banking suite.
With the pressures mounting on margins and client retention, many banks and wealth managers are not just digitally transforming their core banking platforms, they are getting their platform providers such as Avaloq to manage both the IT and back-office operations using their own software delivered as SaaS, a model referred to as BPaaS. The result is institutions are already achieving straight-through processing rates that are near 100 per cent, with automation dramatically reducing the risks of human error, and delivering compelling improvements in efficiencies and a much richer customer experience.
For more information please visit www.avaloq.com