Digital technology is re-writing the rules on how service providers interact with their clients across a range of consumer industries. Suddenly, the idea of letting the customer do more in the servicing process is becoming prevalent, be it self-check-in booths at the airport or self-check-out counters at the supermarket. Key functions that were previously performed by the employees of an organisation are being replaced with self-service-enabling technology. This function meets the most common attribute required by clients and consumers in the 21st century: speed.
This model is also creeping into banking and financial services. As per usual, retail banking has taken the lead where technology is enabling customers to check their own financial statements, file mortgage or loan applications, find out their credit score etc., all through an online portal.
In June last year, PwC published its annual digital banking consumer survey, which asked 4,000 consumers how they think and feel about a variety of different banking channels and activities. The survey found 15% of respondents are now mobile-dominant with their banking activities, up from 10% in the same survey in 2017.
Seeing this progress in the retail banking and everyday consumer space, it’s unsurprising that the self-service model is being explored by the global custody and fund services industry.
Do it yourself
Financial services firms are increasingly implementing digital technologies in order to automate manual, human-led processes that have been criticised for being too error-ridden and costly. The move towards smart contracts and distributed-ledger technology (DLT) has presented a new opportunity for custodian banks to grant client access to their own data, and could mean a transition to a self-service relationship.
“With digitisation, we have found the more we can give back and put in the hands of the client, the better experience they’ll get,” says Thomas Nielsen, chief digital officer, global transaction banking, Deutsche Bank.
“The development of smart contracts is accelerating this, but at the end of the day who are you going to trust to validate and carry out those functions? This is where digitised securities services firms can remain relevant.”
At its core, self-service is all about taking what a provider previously performed and having the client achieve the outcome they want by giving them more control over the process, without the intervention of human support which could slow things down.
“For a lot of large custodians, a massive percentage of day-to-day functions are straight through. You have hundreds of thousands of inquiries that you deal with a month,” says Aaron Todd, BNY Mellon’s core digitisation leader. “As you increase automation, you increase self-service. You free up resources that go to the next incremental value add. That shift is a continual process to improve efficiency of the organisation and redeploy resources,”
Todd adds, however, that self-service goes beyond asking the client to do the custodian’s job for them.
“Self-service is not about taking an internal process and forcing them [clients] to do that, as populating them with information and expecting them to regurgitate it doesn’t work well. But when it is done right, it has become the preferred solution as people want that access and information directly and immediately,” he explains.
“In many cases, exposing the information the client would get by calling in and making the availability of that easier is step one. The second is getting more proactive data, i.e. warnings, are you proactively alerting the client? Or give the option to the client to filter what information they get.”
Data has quickly become one of the most valuable weapons in a financial firm’s arsenal throughout all manner of operations and trading decisions. For fund managers, data is needed to enable more effective fund distribution, accurate regulatory reporting, portfolio analytics and operational efficiency.
Custodians sit on mountains of data, with access to data across multiple markets, financial intermediaries and counterparties. The challenge for them is how to make use of this data and find a way to monetise it. Solving this puzzle can help them differentiate themselves from their competitors.
Providing tools for clients to access their own data along with analytics on investment and risk trends can be seen as a first-step for developing this self-service model, and custodians have told Global Custodian that they are beginning to invest significantly to help build this out.
“There are two key change agents that will drive further progress in this [self-service] area,” says Pervaiz Panjwani, EMEA head of custody and fund services, Citi. “One is accessibility of data, and by this I mean investment in the platform, ease of access, completeness and quality of the data. This will fast pace the adoption of self-service for relevant functions in securities services.”
The second catalyst that Panjwani identifies is change in legacy behaviour. “Given the lack of investment in the accessibility of data, it has been easier to pick up the phone and get up-to-speed information from your custodian rather than logging on to a platform to get the info you need.” However, he says, given the growing presence of self-service technology in our daily lives, there is pent-up demand for clients that want access to their settlement information, their trade status, and trade fails to be simpler.
These two changes will most likely go hand-in-hand, Panjwani suggests. As custodians continue to invest in making their platforms accessible and easier to use, clients will become more confident in servicing their own requirements.
Data as a service
There are two approaches that can be utilised for this self-service model. The first is providing an access point that allows clients to look for their own data that can help them carry out further analytics. The second is for queries such as trade matching, trade processing, and corporate actions. This is more for enquiring about the status of the progress of the underlying servicing element, and asking for a data download for a certain process.
BNY Mellon’s Todd believes there are two main steps that can enable clients to access these data sets. “In many cases, exposing the information the client would get by calling in and making the availability of that easier is step one. The second is getting more proactive data, i.e. warnings, are you proactively alerting the client? Or give the option to the client to filter what information they get,” he says.
Custodians are reacting positively to this trend, and many have begun investing heavily in new technologies to facilitate the adoption of this model.
Application Programming Interfaces (APIs) have been identified as an enabler for this model, whereby an open-ended architecture can gather data sets across a number of environments into one and can interact with other systems.
“We have started to see client requests to access APIs for their data pulling systems that can help them enhance their own front-office decisions. Serving up data through an application-type software is definitely an area where the market will go and something we are investing in,” says Justin Chapman, global head of market advocacy and innovation research, Northern Trust.
These APIs can be tailored to specific business needs and requests, but could mean certain challenges for banks that have traditionally worked on a ‘one-size-fits-all’ basis. There would have to be a change in tack to ensure these APIs are flexible for individual requests.
“This event-driven architecture helps us to move into the middle-office, and data-pulling technologies can help in those investment decisions. However, the design of this architecture must allow flexibility around client needs and for their future demands. The key is to look at the end-to-end technology stack, see where you can apply self-service applications, and provide that data as-a-service,” Chapman adds.
Machines talking to machines
Data access tools have become a value-added service, providing clients the right tools to extract the information themselves in real-time and in a more personalised manner. To facilitate this, machine learning could be the technology of choice.
Panjwani explains Citi is currently piloting the use of new technologies such as chatbots and natural language processing (NLP) for securities services, allowing clients to get query responses much quicker than calling someone.
While chatbots can be utilised to answer fundamental questions, NLP can be deployed as a service to utilise search history and patterns based on the client. In order to do this, custodians will have to get as much machine learning into that system as they can and build those future response capabilities within the API.
BNY Mellon’s Todd also believes machine learning and NLP would be ideally suited to facilitate self-servicing. “For NLP, machines are talking to machines, and for the unstructured data it can become very valuable as you can take this info on scale, look at the history, real-time info, and begin to automate that. This could be for targeted info for the client, or translating an individual request into an active issue to look at. These are becoming more ubiquitous and more useful for self-servicing.”
As custodians look to build out their data-as-a-service capabilities, it will also help them stand out in a commoditised market.
“The ability to provide an event-driven application to help clients get that information is something that custodians could provide to help differentiate themselves. Clients will be looking to their providers to come up with opportunities to leverage those technologies for this model,” says Chapman.
Up the chain
As clients begin to take more control of the servicing element, how will that position the providers in the value chain?
With these new technologies potentially disintermediating certain functions traditionally performed by securities services providers, they will instead have to choose where in the value chain they specialise.
“The future of custody banking and securities services will largely centre around where in the value chain you can pick to serve, with more data being captured on a self-service basis,” says Deutsche Bank’s Nielsen. “The more commoditised functions of transaction banking and securities services will most likely become self-serviced, but the more high-touch and complex functions will still be carried out by banks.”
What this means is while the client will have greater control over the service of data, there will still be a need for a provider to interact with, especially around more complex data sets.
“Banking will become more like an airline service where you can check in yourself and drop off your bag, but you would always have a need for an advisor. There will always be a need for a personal discussion within the value chain, which custody banks will fill,” adds Nielsen.
By moving up the chain, the benefit for custodians is that they will be able to shift resources away from mundane, manual tasks and instead focus on automation and higher revenue projects.
“The reward of the investment in self-service tools offers both clients and us the capacity, and the ability to deploy resources on strategic enhancements like data analytics moving up the value chain on self-service,” says Citi’s Panjwani.
“We are seeing a 100% take up compared to two years ago when clients were asking us to provide them data to download. Clients are now accessing our system using STP protocol and other means to upload the data onto their platforms.”
Custodians will have to ensure that the fundamentals of asset safekeeping are still there, but it is on them to provide value where they can. That seems to be evident with self-servicing. However, like with any change, the biggest hurdle is client adoption, and whether they are willing to change. This could differ depending on client size, and clients will need to be encouraged to take on self-servicing elements.
The industry may not be ready for a full self-service model just yet, but the technology is there and as it matures in the industry, self-servicing securities services could become a very real feature, benefiting both client and provider.