Amazon could not be the world’s biggest retail platform, if the world’s biggest stores had been convinced consumers would move to online platforms. Apple’s place in the mobile phone market could not have been carved out if handset manufacturers had recognised how ubiquitous touchscreens would become.
But those industries’ biggest names did not use their advantages of scale and brand to cement themselves as the go-to providers of new services and products that people wanted.
This reticence is understandable. Not all new technology turns out to be as successful as the Internet or the touchscreen, as anyone with a long-unused collection of mini discs will know.
Financial services firms have been exploring various “emerging technologies” for years now, but have not yet taken significant steps towards embedding these technologies into their business. For example, we have yet to see much use of distributed ledger technology to make secure data simultaneously available to multiple accessors, in combinations or formats relevant to them. The same can be said for applications of artificial.
A strategic but costful help
State Street’s new research among asset managers and asset owners, “New Routes to Growth”, gives an interesting insight into what conclusions have been drawn so far. Between 2017 and 2018, the proportion of executives surveyed who consider emerging technology (cloud computing, distributed ledger, artificial intelligence and robotic process automation) to be a significant factor in helping their organisations achieve their strategic goals rose from 18% to 48% (from the least significant factor to the most).
This 167% increase suggests respondents’ exploration of the importance of emerging technologies has begun to bear fruit, justifying investment into them as a driver for growth.
When asked where they saw applications for these technologies, the responses covered a wide range of functions: investment strategy; distribution; and internal operations.
However, the difficulty and cost of marrying new tech to legacy systems was often an impediment to this approach, creating reluctance among senior management to make the necessary commitments.
Working with fintechs
Another interesting theme that emerged from the research was the types of organisations respondents had entered into partnerships with in order to explore these new technologies. Established technology providers were common, as were FinTech startups and other research focused organisations.
For instance, State Street in Luxembourg is one of the founding members of the Luxembourg House of Financial Technology (LHoFT) which was established in 2017. This partnership is an extension of in-house research capabilities that help State Street bring together FinTech startups with its in-house industry knowledge.
The goal of the collaboration is the proactive development of services and to respond to increasingly complex and personalised business demands in the industry. State Street works closely with FinTechs to understand how these technologies can be applied within financial services.
The market for these emerging technologies is still nascent and, as such, it is still difficult to predict how the landscape for the provision of services associated with them will develop.
Core financial services firms, such as banks and investment organisations, were also popular choices for partnerships.
This could divide the industry into companies that provide technology services, along with their traditional business lines, and peers who focus on their core investment business.
There is precedent for this type of split in fund distribution. Some asset managers have platforms that host third-party funds alongside their own, offering administration services through “wrappers” like pensions or ISAs.
The market for these emerging technologies is still nascent and, as such, it is still difficult to predict how the landscape for the provision of services associated with them will develop. However, the growth of investment in them as solutions means that these developments are likely to be significant.
More news on the fund industry in Paperjam’s Alfi supplement.