CHAPTER 15

Wrap Up and Looking to the Future

Introduction

This final chapter is split into two main parts.

The first section provides a high-level summary of the challenges that Financial Services firms will need to address to increase the likelihood of successfully implementing the new emerging technologies listed.

The second section provides a summary of how the emerging technologies can either help or hinder the challenges of the financial services that were documented in Chapter 4 at the start of this book.

Summary of Key Themes and Challenges

This first section provides a high-level summary of the challenges that Financial Services firms will need to address to increase the likelihood of successfully implementing the new emerging technologies listed.

Firms Need a Clear Business Reason to Implement Any Technology

There are many stories of firms (not just in the Financial Services) implementing new technology for the sake of the technology as opposed to implementing technology to meet some type of business or strategic need.

This means before embarking on a technology implementation (whether is an emerging technology or not) then a firm must have a clear business reason to implement the technology. These implementations need to be viewed as a large strategic change and will need to be treated with the same amount of respect.

New Technology Should Be Implemented Gradually

There is a clear tendency to try and implement new technology too quickly. This is because people get “carried away with the technology.” This is especially true in Financial Services. However, implementing any new technology is a challenging process and it should be taken gradually with regular point reviews.

Therefore, it is normally advisable to perform some sort of pilot implementation to assess does the technology work?, does it offer the benefits promised?, and does the firm have the skills to implement the technology? The results of the pilot study can inform the rest of the implementation although even once the pilot study is completed then a gradual rollout plan should be implemented. This allows the firm to understand the technology and associated impacts as well as build confidence, momentum, and a return on investment with senior management.

Do Not Under-Estimate the Regulatory Complexity When Implementing Technology

Financial Services is currently governed by a complex set of regulations. It is also expected that the amount and complexity of regulation will continue to increase for the foreseeable future.

While there is little specific regulation regarding the technology trends covered in this book (although this could change if any of the technologies become mainstream or there are significant issues with technologies), there is still a sizeable amount of existing regulation that is very relevant. For example, complex data protection legislation across many jurisdictions, increasing operational resilience regulation, increased sustainability regulation in the EU and recently published guidelines around Cloud Computing.

Therefore, when implementing new technology (or making any change to it) then it is important that firms fully understand the regulatory landscape and ensure that they are accommodated for it during implementation.

(At a general level, firms need to have a regulatory compliance intelligence or research capability where they constantly monitor for new, changed, or removed regulation so they can make the necessary changes to the product base and operating models to ensure they continue to comply).

Firms Need to Be Aware of the Growing Cyber Risk Challenge

A number of the technology trends require firms to open their technology infrastructure to the outside world. For example, remote working allows staff access to nearly all parts of a firm’s technology to perform their work. Likewise, if a firm uses Internet of Things (IoT) devices to provide self-servicing then this will mean many different devices which will be running different operating systems and applications will have access to the inner parts of the firm’s infrastructure.

This means firms are at risk of a variety of problems such as viruses, Trojan horses, phasing, denial-of-service, password attacks, SQL injection attacks plus many others. If these issues are not managed properly then the firm is at risk of a variety of major problems. For example, customers’ accounts being hacked and their money being removed, client personal data being stolen, technology systems being unavailable, and a significant loss of reputation in the marketplace.

Therefore, when implementing new technology it is important that security measures (covering technology changes, people being suitably skilled, and the required processes and policies) are designed as part of the implementation and not added as an after-thought at the end.

There Are Also Other Risks Than Just Cyber Risk

In addition to Cyber Risk (see above), the new technology will negatively impact all risks that could impact a firm. For example, adding new technology increases operational risk because the technology and operating model is more complex. Secondly, the new technology is very reliant on data so a firm’s data risk increases. Furthermore, this complexity will increase the regulatory burden on a firm and its associated risks. Finally, a firm’s financial risk profile will increase because (while most of the technologies will reduce costs or increase revenue) there is often a long payback period which could be impacted if circumstances change in the environment (such as regulatory change or major drop in market values).

Therefore, similar to Cyber Security, when implementing new technology all risks must be assessed and managed during the implementation to ensure they are mitigated as much as possible before implementation. Risk management should not be covered as an after-thought.

New Skills and Capabilities Will Be Required

The new technologies will require firms to develop new skills and capabilities to support them. This does not just cover the technology staff “on the ground” who will develop, implement, and support the technology, but also senior management who will need to understand the technology because it will allow them to how it could be used strategically going forward.

If a firm does not develop these skills then it will always be reliant on external contractors, consultants, and software vendors.

Therefore, when a new technology is being implemented then the project plan must ensure that the required skills are developed in-house before go-live.

Staff Losing Their Jobs Is Part of a New Technology Implementation

On the opposing side to the section above, it may be necessary for staff to lose their jobs when new technology is being implemented. This is not pleasant for all parties involved. Therefore, it is important as part of the implementation that if staff are losing their jobs then tasks must be scheduled to ensure that process is as “pain-free” as possible and that staff departing are treated as tactfully as possible and that all relevant legislation is followed correctly.

Firms Need to Build a Robust Infrastructure to Support the New Technologies

To ensure that the technology can work then firms need to develop a robust infrastructure to support new technology.

This can be looked at as four parts:

For nearly all firms, updating their operating model is a massive and challenging activity. This means that when looking to implement new technology firms fully investigate what needs to be done before committing to implementation costs and deadlines. Also during implementation firms will need to monitor the progress of this work to ensure that any issues and slippage are identified immediately so they can be addressed quickly.

Data Is Now Even More Key Than It Was Originally

Data is already a massive part of Financial Services and all firms currently struggle with ensuring that they can obtain complete, timely, and accurate data as well as ensuring that they can process it as required.

However, all the new technologies detailed in this book will increase the strain and importance of data. This will require more data and more complex processing.

There is a variety of examples. NLP will need constantly updated lexicons to ensure it can continue to “understand” what it is being told. Self-servicing needs accurate client data otherwise it will not be able to service clients. Machine learning needs (a very large amount of ) data for the development and testing of its algorithms and models. Firms will need accurate data on both their operations and their products’ investments to allow the “green” or sustainable scores to be calculated.

Therefore as part of technology implementation, firms will need to clearly understand what data is required and where they can obtain it. This will then allow them to develop technology, processes, controls, and so on to ensure the data is sourced by go live.

New Technologies Have Social Acceptance Issues

At a general level, there is always some type of social acceptance for new technology or change generally. For example, it took many years for Automated Teller Machines (ATM) to be accepted by all parts of society.

This is no different for new emerging technology.

This means that firms need to be aware that some of the customers, staff and other market participants may be uncomfortable with the new technology. For example, some customers (mainly older generally) are ill at ease speaking to a computer so if a firm is implementing NLP for client servicing then it will need to ensure there is an option for the customer to speak to a “human.” Likewise, some customers are unhappy with using digital currencies so a firm may still need to support cheques, notes, and coins. Finally, a large number of people are nervous about firms using Machine Learning techniques to try and manipulate them which means firms will need to be very clear on how Machine Learning is being used for.

Therefore, as part of the implementation, firms will need to think about whether implementing new technology will cause any social acceptance issues and make necessary provisions for them before go-live.

The New Technologies Interact and Rely on Each Other

While this book tends to discuss and debate the technologies in isolation, it is important to stress that all the emerging technologies do interact with and rely on each other.

For example, Machine Learning will need input data to allow it to run its models and this input data could be provided from a Natural Language Processing website, self-servicing, or a variety of IoT devices. Once this data has been received then it will need to be stored somewhere which will need Big Data (which in turn needs Cloud computing to host it because of the vast amount). Finally, once the models have been run then the results need to be outputted somewhere and this could be an NLT response, self-servicing response, or an update on an IoT device.

Therefore, firms need to be aware that if they are looking to implement a new emerging technology then they may need to implement other technologies to allow it to work.

Looking Forward to How the Emerging Trends Can Help or Hinder the Financial Services Industry

This final section provides a summary of how the emerging technologies holistically can either help or hinder the challenges of the financial services that were documented in Chapter 4 at the start of this book.

Therefore, in summary, it can be said that the new technologies provide real benefits for customers (through improved servicing and products as well as increased choice from new entrants) but they will cause material problems for firms regarding the operating models, ability to support the required data and their risk profile. There are also issues around regulation, trust, cost/profitability, and workforce changes that are hard to predict accurately at the moment.

Table 15.1 Summary of future challenges for the financial services industry