Agility a must in negociating the way ahead
It seems logical before discussing the likely future look of capital markets in the fastencroaching world of digitalisation to take a moment to consider the starting point. Digitalisation affects capital markets globally across all asset classes from traditional bonds and equities to alternatives including private equity and hedge funds.
This cross-asset international sector has already been highly digitised, but process automation, natural language processing and voice treatment have reached new heights in the recent past. A huge further acceleration has taken place over the last five years.
Questions are often raised about the industry's response to new regulation and new technologies, specifically whether it has been strategic and tactical or reactive and short-term. In strategic terms, investment banks are well aware that digitalisation is key to achieving success in the new landscape. But most of the answers provided to date remain tactical, and fail to tackle the full spectrum of the digital transformation. Most attention is still focussed on the front-end side and the user experience, and while this is clearly important, the full digital value chain has to be considered.
I never tire of saying that there are three key components in any overhaul undertaken to meet the challenges faced in modern banking. One is the user experience referred to above. Two is infrastructure in general and data storage in particular. Three is application programming interfaces (APIs), the digital world’s equivalent of Lego, giving access to data regardless of the underlying technologies, and thus supplying the building bricks needed to craft the future of finance. Fusing all three together will help eliminate the departmental siloes that have traditionally dominated our industry and hampered its development.
Is there a need to redefine and transform capital markets? Digital transformation is a long-run process. Despite the progress made to date, there is still room for improvement! In most major companies (including Societe Generale). Information is still largely siloed by legacy systems and processes and accessing it remains painful or costly, or both, as our very demanding clients request instant access to a great deal of information.
Where do we see the biggest challenges coming from? Capital markets companies have to adapt quickly and become more agile. This is due to two big challenges.
Firstly, the growing hegemony enjoyed by web giants in all sectors of the economy. With agile techniques, light infrastructure, huge client databases, almost unlimited financial resources, and platform business models, they are beginning to develop banking activities which could disrupt the existing industry and quickly become serious competitors for incumbents which have not fully woken up to the changing reality. If those incumbents remain half-asleep, they will lose market share to the new challengers seeking to eat their lunch.
Secondly, as is endlessly discussed here and elsewhere, regulation has put the banking sector under pressure over the past decade, with a direct impact on costs. Those entities which are best prepared “digitally speaking” will be able to execute these deep transformations to the way they do business, enabling them to continue servicing client demand more quickly and more cost-effectively. So what needs to be done to address the challenges that the industry has identified?
The pursuit of true agility via the application of technology has become a must. This must be accompanied by a transformation in our industry’s mindset.
We must replace legacy systems, legacy processes and legacy thinking. We need to work together efficiently and to be as transparent as possible in the way we do business. We need to remain value-orientated in the investment of every single euro. We need to complete projects in a considered, reflective manner. We also, dare we say it, need to stay humble. It is clear that we are not, after all the turmoil of the past 10 years, masters of our universe. We are gatekeepers, servants and custodians.
At Societe Generale, we have already put all our business-to-business (B2B) products and services onto the SG Markets platform (www.sgmarkets.com). We will continue to accelerate this approach, as we look to prove the notion that obligations imposed by security and compliance requirements can be turned into opportunities to deliver better services.