Chris Evans summarises the relevant trends in IT which are impacting on the international financial services industry and considers their implications for financial services businesses .
Cloud computing (read IT supplied as a utility) is going to have a profound impact on business; greater probably than that of the internet over the past 10 years. The good news for those prepared to understand the implications (and embrace them) is that Cloud represents a tremendous opportunity to reduce costs and improve services and competitive advantage. The bad news for those that ignore the implications of Cloud is that increased competition will come not just from existing sources but also from 'left-field' and at pricing that will appear impossible to match.
In the late 1990s I was invited to talk to an audience of business people at a Channel Islands Institute of Directors' function. The topic was anticipating the likely impact of the internet on business. The main thrust of my talk at the time was to identify the coming risks and opportunities facing the retail and media sectors. I recall saying something like 'doing nothing wasn't an option' and my final slide had a picture of a steamroller on it and underneath the caption 'do you want to be part of the steamroller or part of the road?’
The response at the time was mixed. There is always the risk that those of us in technology are perceived as harbingers of bad news but 12 years on it is clear that there have been some spectacular winners and losers in both retail and media (and other sectors) as a result of the disruption brought about by the internet.
One reaction that does stand out in my memory came from a well-respected lawyer, who on hearing the concept of cross-border internet retail proclaimed that it wouldn't work for the simple reason that it would not be clear in which country the contract of sale had been struck!
What makes that interesting is that it perfectly demonstrates how quickly the regulators and legislators catch up when business changes to take advantage of new technologies.
The driving force behind the rapid adoption of the internet was the massive efficiencies and economies gained from the move to routed data networks from 'switched voice networks’ before them. These benefits are magnified with the growth of Cloud.
There are other trends at work here and their combination is creating a business environment that could be described as the perfect storm. The impact of risk and opportunity is likely to spread far wider with Cloud adoption than that which we experienced with the internet on retail and media before it. And I firmly believe that financial services, whilst protected to some extent by regulation and jurisdictional dependencies, will not be immune to the new economic order that is rapidly evolving.
In the first phase of disruption the internet had most impact on communications and media content. We had seen the evolution from vinyl records through cassettes to CDs – all still tangible products to sell in return for the industry’s investment. The internet enabled music (and indeed videos) to be rendered in a digital format and the market, channels and rules changed overnight.
Cloud, being the second phase of disruption, will ultimately impact on all business processes.
The rate of innovation in technology is very fast and furthermore it is increasing. The adoption rate by business is also extremely fast for successful innovations and this has led, in turn, to mass commoditisation, which very effectively destroys many value-add business models – music, newspapers, advertising, agencies and brokers for example.
Commoditised technology is readily absorbed to the point of invisibility. Consider how unlikely (never mind absurd) having an electric motor in a disposable vibrating toothbrush would have appeared just 10years ago. Who could have imagined that motors would ever be so small and so cheaply mass-produced that they would become disposable?
As technology gets delivered as a service and replaces the need for servers, on-premise computer rooms and licences (not to mention personnel), so business functions will also be delivered as a service. Allow me to introduce a new acronym aaS – ‘as a Service’ because I believe that we are rapidly entering a revolutionary change in the way businesses are structured. Cloud brings us SaaS - Software as a Service, and what you see already happening with technology, in other words the ability to dispense with the hardware etc is going to happen to every other business function that is not part of the organisation’s core proposition. Businesses will simply, and much more cost-effectively, be able to concentrate on selling their services and buy everything else from other service providers.
CRM as a service is well established but over time many other non-core business functions will also be more effectively delivered this way.
Taking the value concept to its logical conclusion, expertise will coalesce into silos that will deliver their own specialist services. This will get repeated over and over creating a web of interconnected business functions and processes and a far deeper and multi-faceted environment than the internet today, which is largely a web of information depositaries.
Ultimately businesses will be working in close cooperation to meet the needs of the market and enable them to concentrate on their core proposition. Long-term relationships of today will give way to shorter term ones that are created in response to specific customer requirements. It’s quite possible that relationships will be created on the fly to meet the demands of one single transaction.
Today’s business is focussed on ensuring that processes within the organisation are sufficiently effective to provide an acceptable ‘customer experience’ as is possible. These processes are designed around fixed products or services. The concept of end user customisation started by the web and allowing customers (via portals for example) to configure information delivery according to personal preference will develop (driven by Cloud technology) into customer configuration of products and services themselves.
As this develops the boundary between business and IT will disappear. More importantly processes communicating with each other both within and between businesses with minimal or no human intervention will start to evolve at a similar pace to technical innovation. At that point, where business is developing as fast as the underlying ‘intelligent’ technical platform, customers will get an ever-increasing choice and quality of services at super competitive pricing. None of this can or will happen in isolation and a web of loosely federated businesses will evolve to create increasingly frictionless business.
Only those businesses that can respond quickly enough will be able to meet the needs of this new type of on-demand market. Of course it will also only be those businesses that have separated their core functions (those that are essentially valued by the client) from the functions that have become commoditised and can best be delivered by specialist service providers.
It is fair to say that this brave new world will in all likelihood come to financial services somewhat later than other economic sectors. In highly regulated businesses there is often less scope for wholesale automation of a process such as in KYC or compliance or if there is an opportunity it may well have to wait for the regulators to catch up. Security of information is another factor that leads some organisations to treat moving to the Cloud with some trepidation. Client data (and its safe custody) is a very serious trust issue and mismanagement in this area can have tremendous repercussions in brand damage.
However, as illustrated earlier by the reaction from the learned lawyer to the concept of internet retail, regulators and legislators will be forced to catch up when commerce chooses to take advantage of new technology - and I would argue that it won’t take long.
Not long ago we were introduced to the Global Village, the traditional market and channels to it underwent a revolutionary change. Business can no longer be perceived as it used to be and whether those in it choose to adapt proactively or in response to the changing behaviour of suppliers or demands of customers, as I said in the nineties – doing nothing isn’t an option.
The winners will be those prepared to drive change, the survivors will be those who can adapt to the change and the victims will those who don’t, which takes us back to the steamroller…
Chris Evans Chris Evans is the CEO of Foreshore, a Channel Islands based Internet services company that provides secure hosting, email and data storage solutions to financial services companies worldwide.