The Need to TransNovate Investment Banking
Gordon Moore conjectured that the number of transistors per inch would double every year. Consistently, the semi-conductor industry witnessed this change and this progress cascaded into several other forms of changes. The financial industry has witnessed internet, e-commerce, digitisation and fintech evolution. Every traditional bastion of business is threatened in the wake of these evolutions that disrupt the very pillars of business models. Question now is will Investment Banking survive in its current form? Ever since the financial meltdown, economies have contracted, risk appetite is kept on check, regulations are harsh, and technological and business models are disrupting the fundamentals of banking establishments,giving limited motivation to drive the top line growth.
Traditional investment banking is cantered on the products that are designed to bring profitability and motivate clients to invest or raise the funds. Does the client perception still hold true?
Bank as a Technology Company
The rate at which technology is changing is shaping the art of doing business. Technology landscape is shifting towards BigData, Artificial Intelligence, Blockchain, Mobility, Digital and so on. The new age companies are technology-driven upstarts adopting business models with rich features and attracting markets.
Banks must “TransNovate” (i.e. transform and innovate) and adapt to fintech revolutions, giving way to simplification, transformation and evolving business models. TransNovation is a journey where the bank breaks off the mould of its existing paradigms and re imagines as a start-up financial technology firm towards re-architecting the design of the bank. Doing so, would enable banks to simplify and become competitive with the eventual disruptors.
There is a fundamental shift from the current state to TransNovation state where data is at the core layer. Data at the core enables technology adoption fluid,irrespective of the business models. This Data at the Core is referred to as “Jules” (~named after Jules Verne, who wrote ‘Journey to the Centre of the Earth’).
Bank as a Data Company
Banks are global organisations with interconnected data. Never before have the organisations become so event oriented that a small ripple in an emerging market can cause a flutter in the most developed markets. To predict or assess the movement, data is the key.
Banks have been creating silo data stores within various functional units. There have been several initiatives to create a federated data store, but they lacked clarity and clear technical/ business direction. It has been quite unimaginable for anyone in the bank with humungous data to either co-locate or interrelate the databases in a single and a uniform view. Now that scalable BigData technology architectures are enabling co-location and processing a variety of data easily and quickly, organisations are bound to rethink their evolutionary strategy.
Jules – The Data-Centric Design
Data is, at the core, irrespective of the applications and business models. Applications form the mantle around the core data, exhuming and interring the data into the core. Business functions and models coagulate with data and applications to serve a business purpose.
The model illustrated in Figure 2 indicates The data-centric organisation is designed to govern, manage, control, and steward the data centrally. Semantics, lineage and ontology are mapped and represented vis-à-vis business functions.
Data is data, be it structured, semi-structured or unstructured (incl. audio/video/image/text). Every dataset remains at the core. Banks sync reference, market, transactional, sales and alternate data from internal and external sources in any format in to the core. Data at the centre of the organisation ideally follows the below principles:
- Data is sourced and synced into the “Jules”
- Data is not distributed, rather applications draw data from Jules and supply the processed data back to “Jules”
- Data is transformed from one form to the other based on application needs
- There is only one source of “Truth” that exists, and only True data is exposed
- Data is driven by the rules governing transformation and enrichment
- Application Output Data is written back to the “Jules”
- Chronological sequence of data is maintained (~ historisation)
- Data is at constant and any change is at constant and is bi-temporal
- Jurisdictional and regulated data is maintained and entitled accordingly
- Business models and applications adopt data-centric design
- Data is anonymised, encrypted and persisted accordingly
- Metadata model, lineage, ontologies, semantics are defined
- Data controls, governance, stewarded centrally
- Data as a platform
Not to mention the fact that every transaction and historical change in the data is persisted enabling traceability, reproducibility and conformity to the audit and regulations.
The need for Jules adaptation
Blockchain is evolving and investment banks are experimenting and adopting this nascent technology more quickly. With Jules, banks will have more flexibility in choosing what data goes onto the blockchain and what not. Porting functional datasets onto blockchain becomes a flexible replication.
Banks have been debating and quizzing on the security and credibility of migrating data and applications onto the Cloud infrastructure. Various use cases indicate that there is a remarkable decline in the cost when a function is migrated on to the Cloud.
Banking functions and data become easily portable when data is structured as an independent functional dataset under various dimensions. Data can thus be anonymised and obfuscated by a data value or an entire row or an entire column or an entire table or schema. Applications can thus be configured to work with anonymised or obfuscated data in the most adaptable manner using Cloud infrastructure.
Through-out the banking history, banks have spent significantly on reconciliations. Reconciliations are a factor of applications and the data flows. Transactions hop between multiple systems and the data is localised (owing to its own sources of reference, pricing and transactional data). Reconciliations are setup between the participant systems n-way upon the same or enriched data, adding to overheads and delays. This can be changed with “Jules”.
Banks are under the throes of AI revolution and data holds the key to the AI revolution. Congregated and curated datasets allow the AI themes to gather insights into the data. Data at core enables business to derive more predictable insights in search for Alpha and Beta. Varied applications of Artificial Intelligence and Machine learning is made easy with “Jules” as quantitative data store.
Jules will drive TransNovation and enable banks to:
Become Digital:Becoming Digital is a bi-directional journey involving movement towards automating manual processes and transforming disparate information into meaningful data tomes. Banks have been on the transformation journey to enable low or no-touch processing.The approach is not holistic yet, with the information undigitized and siloed.
Several digital transformational use cases have come up in the areas of pre and post trade services, executions (a variety of exchanges sprung up to address the orderly exchange needs for a variety of products), workflows, reconciliations and adjustments.
Change is a multi-year journey in the specific area or direction unless the whole conceptualisation is perceived through the lens of the data prism. When the information is transformed into usable data tomes, work themes become more agile and efficient, driving continuous automation. Journey thus becomes bi-directional with the use cases that transform organisations with the latest utilities and co-location of all the data in Jules.
Exhilarate Client Experience: Client experience is not just reporting. It is an insightful, predictive and prescriptive experience that provides accurate reports, integrates client portfolios and provides an intuitive experience over multiple channels anywhere in the world. Delivering this experience at that scale of change is not possible unless banks adopt thedata centric design with all the data at the core with self-serving applications.
Upkeep Security as Primordial Tenet: Banks have been continuously beefing up their security systems and adopting to the changing customer expectations and regulatory demands. Regulations such as MIFID II, GDPR, TIBER-EU are overwhelming banks to comply and improve the resilience of bank’s information resources.
When the data and its design is centralised and held under centralised security controls,the overall security effort is reduced. Data then is not persisted anywhere into the folds of applications. Security around the data, servers, and applications becomes less intricate to manage and to validate for any vulnerabilities. “Jules” design thus helps in stepping up to adopt any regulations and “trust” expectations from clients.
Keepup with Fintech: Fintech establishments around the world have become the bellwether of rapid introduction of technological changes and reorientation of business models. Although fintech disruptions make great strides in penetrating into the market, realising the dream to displace established banking institutions is still a far cry. As of now, most of these fintech platforms are yet to be regulated and when regulations sweep-in, these firms may take a different shape and are likely to tread the same path as the established financial institutions.
Fundamental forte of the banks is data and clients, who trust the banks with its services. Aligning and adopting changes driven by fintech, market and customer expectations become easier only when the fintech innovations are weaved around the data as a fundamental pillar, in other words “Jules” as a data centric design.
Comply with Regulations:A spate of regulations such as Volcker Rule, MIFID II, GDPR, etc.hogged the financial institutions to bring forth orderliness, fairness and risk management. Regulations mandate financial institutions to provide reports, analytics and to evidence the facts stated as true. Financial institutions have scurried to build systems, sourced and siloed data with a tactical vision to address the immediate needs of the regulators.
Regulations are increasingly dependent on the datasets and reporting tools. Considering “Jules” model would provide the best-fit to the industry to stay flexible and volatile with the mandated changes.
Cost, Efficiency and Innovation: Banks are under pressure to rationalise their costs to derive beneficial savings. Often agility, efficiency and cost have become the factors to improve the bank’s profitability thus focusing on the bottom line. These factors weigh in on the FTE savings, application rationalisation, and IT simplification, drawing tactical implementation strategies inching towards year-on-year marginal savings. In the rush to reduce the cost and showcase efficiencies, some of the initiatives that require strategic approach and perspective end up becoming degenerative tactical
solutions.A top down holistic organisational approach to the “Jules” data-centric design and adopting innovation would enable business models and client experience to become agile (See Figure 3).Imagine a work item to source an additional transaction attribute and delivers to the consuming application becomes self-driven with AI and that is when innovation brings efficiency.Investment banking is no longer a monopoly. The doors have been opened to many players and disruption can arise from anyone. The traditional bastions of the financial firms are transmuting towards innovation and advancement of technology and business models. Firms have been building data factories and convergence of these factories would become the game changer of the capital markets.
Banking world is becoming so interconnected with ECNs, MTFs, payment platforms, and BlockChain-centric designs that walls and fences are no longer a physical existence, but their very existence is on the cyberspace. Banking infrastructure may radically shift to proprietary Platform as a Service or an Open Platform API with the AI stack that virtually runs the banking operations. It becomes imperative for banks to reimagine and drive to the centre of their very existence and that is data.
Giridhar Vugrala, Managing Consultant – Capital Markets, Wipro
Giridhar’s area of expertise spans business architecture and development of solutions in areas of data management, exchanges, front office, product control and compliance. Giridhar has been involved in executing strategic programs across North America, Europe, Middle East and Asia Pacific. He can be reached at [email protected]
This paper presents a perspective on the Future State of Banking. The information produced is not intended to address any specific problem, situation or entity. Although views presented is from various discussions and detailing internally, there can be no claims on accuracy thereof.