At Sibos the other week there was an interesting Big Issue Debate: “Disruptive innovations transforming the financial services”. The disruptive innovation debate featured Eileen Burbidge (UK Treasury Fintech envoy), Eric Pradier (Hewlett Packard VP) and Sanoke Viswanathan (Chief Administrative Officer and interim CIO for the corporate and investment bank at JP Morgan). The panel gave some insightful observations around disruptive innovation in the financial services sector and in this post i thought i would summarise the notes that i made capturing the 10 points highlighted by Sanoke from JP Morgan.
The theme underlying Sanoke’s overall viewpoint was that the financial services industry is not in the midst of a technology shift or another technology cycle, rather this is a time of technological acceleration. What i found interesting were the arguments that Sanoke proposed that differentiated this technology cycle, phase, acceleration – whatever you want to call it – from previous ones.
A Perfect Disruptive Innovation Storm in Financial Services:
In short the following 3 trends are happening at the same time and stirring things up like never before:
1. Behavioural Changes
When it comes to technology, employees at banks (and across all industries) are asking “why can’t we have access at work to the same type of technology that is available to us at home?”
Sanoke highlighted how a large proportion of the global population now have super-computers in our hands, access to information and virtually anything we need at our fingertips. Interacting with Apps is now a part of everyday life for anybody with a smartphone, and this is fundamentally changing the way people want and expect to do business. Sanoke described how this is dirving a “shift in behaviours and a thirst for doing things differently“.
2. Unprecedented Investment in FinTech
Historically there have been many innovative companies in financial services, what is different now are the unprecedented levels of interest in this sector.
Interest from venture capitalists, angel investors, corporate venture funds…the list continues. All of which are resulting in record levels of investment in the FinTech sector. Sanoke explains how “you need capital with a different risk appetite to foster innovation to try different things”, some of which fail, but one or two of which can be transformational.
3. The Absolute NEED for Incumbents to Act
Sanoke talked about how banks are under pressure from various forces (margins, capital, liquidity) and as a result they need to find new ways to grow and become more efficient. He indicates how change “Its not a nice to do, its a must do“!
Disruptive Innovation is being Enabled by Technology
Sanoke drew attention to the potential of 5 technologies for both banks and FinTech startups. He went on to reiterate the importance not of one technology or process, but the power of the combined technologies and the creation of a ecosystem.
4. Big Data – Data is the new oil!
Simply put, organisations are recognising the power of data. Banks such as JP Morgan are increasing their data capacity and as Sanoke puts it “its not how much data we have or how we process it, but what we do with it”.
5. Robotics – Not the R2-D2 Type!
Here Sanoke outlines how software bots, which can run all day and 365 days a year, can be used to automate, manual, repetitive and tedious tasks so that employees can concentrate on more value added services and deliverables. In the future, machine learning will enable the bots to learn, make sophisticated decisions and interact with both employees and customers.
6. APIs – Application Programming Interface
APIs are widely recognised as being transformative since they enable new interactions between partners and businesses, and will therefore change the way business is done. APIs allow interactions in an indepth manner so that data and code can be exchanged between institutions – you can now work off each others platforms without needing to sign into proprietary web portals or applications.
Exposing data through APIs, says Sanoke, will allow FinTech starups to plug into the data, build applications using the “new” data and contribute towards the overall financial ecosystem.
7. Cloud Computing & Cloud Storage
Sanoke proposed that the cloud is ubiquitious and allows computing and storage to become elastic. The Cloud changes the dynamics of who can be in business and enables historical models of fixed and intractable hardware costs and capacity to be removed. This empowers incumbents and startups alike and provides huge opportunities to the overall ecosystem.
Sanoke explained how distributed ledger technologies will make a big difference to the financial services industry and how at JP Morgan they are working on a 3 tiered approach:
- Working with partners on specific use-cases and pilot projects
- Investing in blockchain start ups
- Creation of a internal centre of excellence so that people at JP Morgan know what they are speaking about!
Lastly Sanoke talked about how the power of distributed ledger comes from everybody using and adopting the technology. The opportunity for JP Morgan, Sanoke mentioned, was to have a solid understanding and foundation in the technology standards and protocals and actively contributing towards the development thereof.
Disruptive Innovation due to a Changing Mindset
9. Cultural Shifts
Interestingly Sanoke described how the conversation is changing at JP Morgan, and other institutions from one of dismissal of new technologies to curiosity. This shift in mindset across the financial industry has resulted in a different dialogue happening particularly at incumbent institutions, and this argues Sanoke is a huge shift.
Sanoke went further and claimed that as the industry wholeheartedly embraces this cultural shift “innovation that happens from large enterprises will dwarf innovation happening outside of it, a huge wave of innovation that is coming!”
10. Technology Breaking Down Traditional Silos
Finally Sanoke talked about was around changing roles and responsibilities within the bank. He shared how the hard silos that have traditionally existed between front, mid and back office functions are now disappearing. Now people don’t care about where they come from in the organisation, but focus on how they can better better serve their customers.
And what is breaking down these traditional barriers and business function silos? Technology! Sanoke spoke how technology has historically not been seen as important, but it is now. Technology is enabling collaboration both within organisations and among different organisations. At JP Morgan, and other banks, they are becoming more collaborative about the solutions they offer their customers – now, the solution does not always have to come from within the bank, and the banks are more open to sourcing solutions from external providers. The traditional boundaries therefore of who is building and distributing solutions, within the financial ecosystem, are changing.