Analogies, uncertainties and opportunities: Securities services experts debate where we are on the digital transformation journey and what direction we are heading

Securities services providers remain on a long digital transformation journey, but some experts believe the industry doesn’t really know where it is going.

While I may not always like the inability to directly quote an expert from a panel operating under Chatham House rules, they can often evoke the best public commentary on the realities of securities services. 

One such panel occurred last week at The Network Forum as a group of industry veterans discussed digital transformation and ‘navigating a new era’ in a fairly general, but important, overview of this key area of evolution for asset servicers. 

Prompted by a keynote from Leda Glyptis – inspired by her book Bankers Like Us – just moments before, the panellists revisited the digital transformation topic which crops up at most conferences with an air of begrudging acceptance that the road to get to this promiseland of transformation is paved with challenges and uncertainty. 

“We’re looking at where we need to be, trying to find a destination, but then being flexible as to how we get in that direction because things change… the challenge we’ve got at the minute is that we don’t know where we’re going. We’re sat in the car, we’ve done what we can do, we’ve got the greatest car, but we don’t know as an industry where we’re going,” said one securities services expert.

“We need to be agile organisations that can adapt – this change is not going to stop, so we need to keep up.”  

This was one of the many analogies – often involving cars actually – used on stage to describe the journey and the difficulties the industry is having due to legacy technology, budgets and organisational agility. The struggles are magnified when comparisons with the retail banking world are made. 

“I do think that for a time we were shielded… it was  a retail problem,” said another speaker. “We could laugh at them for having to spend so much money on things that wouldn’t necessarily bring in new money. And I think it’s fair to say that because the economy is digitised around us, the pressure that was coming in retail is now touching our world.” 

The digital transformation journey has been one which started many years ago, but the age-old issue of legacy technology rears its ugly head repeatedly when any kind of overhaul is suggested. There are ample forms of exciting technologies and opportunities out there in the forms of AI, machine learning, distributed ledger technology and the cloud, but these are long established institutions who have built up layers of these systems over a long time and seemingly cannot simply turn those off and start a new one. Though one speaker suggested this could be the only way forward. 

“You will not get the operational efficiency until you turn things off… because the sunk cost for maintenance is staggering. So those efficiencies won’t come by adding things, and I think that’s the hard decision of working out what to turn off, what to do differently.”

Another speaker compared digital transformation to the parallel data journey the industry is on. “I think we found this a lot in data when we realised we had so much data…but then actually realised that the data is pretty badly organised, and so we realised that all this data analysis that we were doing was actually also bringing out a lot of probably rubbish. So we had to go back and really sort out the data first before you could do the data analysis. And I think digital transformation is exactly that.” 

Though some kind of collaboration and mutualisation was touted as a way for the industry to move forward collectively, this remains another reoccurring theme largely immobile outside of areas like proxy voting. 

“What we give up, what we hold on to, and where we see our value [is important] and I think there is revenue opportunities in the value and we need to recognise the utility and live it out, because otherwise we will not be agile enough. Otherwise we will not be able to afford as an industry to get to where we need to get to.”

This journey and the new technologies available seem to fill experts both with fright and excitement – let’s call it frightxcitement – in that they are unlikely to get disrupted, or for the competition to race ahead too much, but clients will continue to make demands and the pressure will be on and increasing with each passing year. Then add in frustration because it’s not going to be a direct revenue generator, which also makes it challenging from a budget point of view. 

A quote I really liked: “the art of the possible is endless, but there isn’t necessarily clarity strategically, or in the market, what the end game is”. 

So ultimately there were more questions than answers, but at least this uncertainty is there for all to see, in a way that potentially moves the dial in terms of coming together and sharing ideas for the industry to move forward together into an age of digital assets, AI and quantum technology – the latter which is another fascinating future development that will make for some exciting panels in the future.