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THE GREAT INNOVATION CHALLENGE: HOW FINANCIAL SERVICES IS EMBRACING CONTAINER TECHNOLOGY

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THE GREAT INNOVATION CHALLENGE: HOW FINANCIAL SERVICES IS EMBRACING CONTAINER TECHNOLOGY

Keith Lynch, Head of AppDev Platforms at Red Hat UK

The financial services industry has experienced significant change over the past two decades. Banks have moved to consolidate and restructure, while new digital challengers like Monzo have entered the industry and increasingly encroach on the traditional banks’ market share. Accustomed to getting services on demand, consumers want access to banking on the move, and to take advantage of the newest technologies and apps. As such, banks need to be able to quickly launch new services and applications, harness the potential of new technologies and become less reliant on proprietary infrastructure to provide better end user experiences. Implementing modern technologies will also help institutions respond to regulatory pressures such as the Revised Payment Service Directive (PSD2), which, when in effect, will allow third-parties to build financial services on top of banks’ data and infrastructure.

Whilst banks may not traditionally have been the fastest movers when it comes to embracing emerging technologies, we are now seeing best practice examples of modernisation coming from these stereotypically risk-averse institutions, which now want to enter a new phase of agility. Whereas previously organisations have tended to be tied to an 80/20 rule when it comes to digital transformation, spending 80 percent of their resource on existing apps and 20 percent on innovation, some financial services institutions are leading the charge in flipping these priorities around, or at least bridging the gap. Larger banks in particular, which have hundreds of thousands of workloads and servers, understand they have the most to gain most by standardising technologies, and as such are transforming the way they’re thinking about delivering and supporting infrastructure to bring value to the business and new services to end users. It is this understanding of how emerging technologies can drive business prosperity, as well as a genuine appetite for innovation, that will be the determining factor when it comes to which institutions prosper in the digital age.

To undertake this kind of cultural and technological change, attracting and retaining the right talent is critical. The reputation of traditional banks putting a metaphorical fence around how developers innovate does not help their cause; especially when competing with software engineering titans such as Google and Facebook and disruptive startups. Software engineers and developers want to work with new technologies, architectures and software development approaches such as containers, microservices and DevOps – whatever enables them to get the job done quickly and most efficiently, with a license to think outside the box. Now, we are seeing this become a reality, with traditional banks recognising the needs of engineering teams and giving their developers opportunities to play with new and exciting tools in an environment setup to enable them to innovate. 

The move towards containerisation

Containers are now being treated as a given. A study undertaken by 451 Research estimates containers will be a $2.7 billion market by 2020, playing a prominent role in cloud technologies going forward. They are already being used to help solve real business problems and drive business value in financial services. We see four main drivers for businesses deploying containers. To run apps better; to build apps better, particularly making use of microservices; to run infrastructure better and take advantage of hybrid cloud; and to enact large scale business transformation.

Global financial institution BBVA is using container technology to accelerate innovation, manage the growth of financial transactions on digital devices and deliver digital banking services to its global customers. Its new IaaS and PaaS-based platform enables its developers to focus on creating applications that can support the heavy demands of global digital bank services and provide customers with the service and information they want On-Demand.

We can also look at RBS, which used container technology and a mobile application platform to help its developer team deploy apps with the speed and consistency its new Open Experience centre required. Its  vision was for a technology solution centre capable of facilitating an innovative way of thinking and growing ideas from the contextualisation stage to customer pilots. A container approach helped it to be able to quickly develop, host and scale applications in the cloud. The renewed framework promotes closer, more collaborative work between colleagues, businesses and customers. Automation was highly important for RBS –  automating the provisioning, management and scaling of applications, so its developers can focus on writing the application code for their business, startup or next big idea. This also enables developers to start coding faster, using the languages and tools they are familiar with.

Barclays too is deploying container technology as part of its wider cloud strategy. Internally, the project transformed the way Barclays consumes middleware infrastructure, moving the company from offering technology to providing a service. As a result of the aPaaS and based on its internal testing, Barclays experienced a 70 percent reduction in time needed to release a new product and an 80 percent better utilisation of underlying infrastructure.

Naturally, container security is an essential consideration for enterprise adoption.  Software companies are now merging skills, technologies and expertise together with strategic partnerships to ensure secure and trusted models for containerised application delivery are in place so that financial institutions can focus their efforts on innovating quickly. Take Red Hat’s collaboration withBlack Duck for instance. Black Duck’s container scanning and open source security vulnerability-mapping software – Black Duck Hub – is now integrated with Red Hat OpenShiftPlatform to provide reports and data on potential vulnerabilities in container images, as well as dynamically monitor the inventory – providing live alerts on any weaknesses affecting the code.

Container technology can drive an effective DevOps strategy and culture of openness and innovation to help match the speed and consistency that business and customers demand. Financial institutions like, BBVA, RBS and Barclays are already reaping the rewards of containers, benefitting from simplified, automated infrastructure and cost savings, decreased risk, improved developer efficiency, and increased agility and time from idea to production. Now, with software providers also combining expertise to maximise container security, it’s great to see more banks lead the way in taking the leap to support their business transformation agendas and ensure their customers benefit from a better, quicker and more secure service.

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19 1

Organizations in the Middle East have had to take immediate actions in reaction to the COVID-19 pandemic, such as shifting to remote and virtual work, implementing new ways of working and redirecting the workforce on critical activities. According to Deloitte’s 10th annual 2020 Middle East Human Capital Trends report, “The social enterprise at work: Paradox as a path forward,” organizations now need to think about how to sustain these actions by embedding them into their organizational culture.

“COVID-19 has created a clarifying moment for work and the workforce. Organizations that expand their focus on worker well-being, from programs adjacent to work to designing well-being into the work itself, will help their workers not only feel their best but perform at their best. Doing so will strengthen the tie between well-being and organizational outcomes, drive meaningful work, and foster a greater sense of belonging overall,” said Ghassan Turqieh, Consulting Partner, Human Capital, Deloitte Middle East.

According to the Deloitte report, many organizations in the Middle East made quick arrangements to engage with employees in the wake of the pandemic through frequent communications, multiple webinars where senior leaders addressed employee concerns, virtual employee events, manager check-ins, periodic calls and other targeted interactions with the workforce.

The report also discussed how UAE and KSA governments have reexamined work policies and practices, amended regulations and introduced COVID-19 initiatives to support companies and the workforce in the public and private sectors. Flexible and remote working, team-building and engagement activities, well-ness programs, recognition awards and modern workspaces are among the many things that are now adding to the employee experience.

Key findings from the Deloitte global report include:

  • Only 17% of respondents are making significant investments in reskilling to support their AI strategy with only 12% using AI primarily to replace workers;
  • 27% of respondents have clear policies and practices to manage the ethical challenges resulting from the future of work despite 85% of respondents saying the future of work raises ethical challenges;
  • Three-quarters of leaders are expecting to source new skills and capabilities through reskilling, but only 45% are rewarding workers for the development of new skills; and
  • Only 45% of respondents are prepared or very prepared to take advantage of the alternative workforce to access key capabilities despite gig workers being likely to comprise 43% of the U.S. workforce this year according to the Bureau of Labor Statistics.

“Worker well-being is a top priority today, and similarly to the rest of the world, companies in the Middle East are focusing their efforts to redesign work around well-being by understanding workforce well-being needs,” said Rania Abu Shukur, Director, Human Capital, Consulting, Deloitte Middle East.

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One in five insurance customers saw an improvement in customer service over lockdown, research shows

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One in five insurance customers saw an improvement in customer service over lockdown, research shows 2

SAS research reveals that insurers improved their customer experience during lockdown

One in five insurance customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics. This far outweighed the 11% of customers who felt it had deteriorated over the same period.

This is positive news for insurers during such challenging times, with 59% of customers also saying that they would pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of insurance customers using a digital service or app has grown by 10%. Three-fifths (60%) of new users plan to continue using these digital services moving forward.

However, while the number of digital users grew over lockdown, half of the insurance customer base has not yet chosen to move to digital insurance apps or services.

Paul Ridge, Head of Insurance at SAS UK & Ireland, said:

“It’s impressive that there was a net improvement in customer experience during lockdown, despite the challenges the industry was facing with a transition to remote working and increased claims for things like cancelled holidays. While many were forced to wait on customer help lines for long periods, part of the improvement may be explained by even a small (10%) increase in the number of digital users.

“However, it’s clear that a huge number of customers are still yet to make the move online. It’s vital that insurers provide the most accurate, timely and relevant offerings to customers, and this is best achieved by having additional insight into online customer journeys so they can understand them better. Using analytics and AI, insurers can seize this opportunity to digitalise their customer experience and offer a more personalised approach.”

Meanwhile, for insurers that fail to offer a consistently satisfactory customer experience, the price could be severe. A third (33%) of customers claimed that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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The power of superstar firms amid the pandemic: should regulators intervene?

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The power of superstar firms amid the pandemic: should regulators intervene? 3

By Professor Anton Korinek, Darden School of Business and Research Associate at the Oxford Future of Humanity Institute. Gosia Glinska, associate director of research impact, Batten Institute for Entrepreneurship and Innovation, Darden School of Business

Recent news that Apple hit a market cap of USD2 trillion highlights an extraordinary success story: A once struggling computer-maker on the verge of bankruptcy innovates its way to becoming the most valuable publicly traded company in the United States.

Apple’s 13-figure valuation is indicative of a larger trend that is not entirely benign — the rise of a handful of superstar firms that dominate the economy. Over the past three decades, advances in information technology, mainly the Internet, have supercharged the superstar phenomenon, allowing a small number of entrepreneurs and firms to serve a large market and reap outsize rewards. And COVID-19 has greatly accelerated the phenomenon by pushing us all into a more virtual world.

Apple — along with Amazon, Facebook, Google, Microsoft and Netflix — is a case in point. The combined market value of those six companies exceeds USD7 trillion, which accounts for more than a quarter of the entire S&P 500 index. Even amid the pandemic’s economic wreckage, these megacompanies continue to prosper. The combined share price for Apple and its five peers was up more than 43 percent this year, while the rest of the companies in the S&P 500 collectively lost about 4 percent.[1]

Superstar firms can be found in almost every sector of the economy, including tech, management, finance, sports and the music industry. They command increasing market power, which has consequences for technological, social and economic progress. It is, therefore, critical to understand how their advantages arose in the first place.

THE FORCES BEHIND THE SUPERSTAR PHENOMENON

The “economics of superstars” was first studied by the late University of Chicago economist Sherwin Rosen. Forty years ago, Rosen argued that certain new technologies would significantly enhance the productivity of talented workers, enabling superstars in any industry to greatly expand the scope of their market, while reducing market opportunities for everyone else.[2] Digital innovations, including advances in the collection, processing and transmission of information, is what Rosen envisioned would lead to the superstar phenomenon.

Digital technologies are information goods, which are different from the traditional, physical goods in the economy. What it means is that fundamentally different economic considerations apply. Unlike physical goods — a loaf of bread or a car — information goods have two key properties: They are non-rival and excludable. Non-rival means that something can be used without being used up. Excludability means that an owner of digital innovation can prevent others from using it, by protecting it with patents, for example. These two fundamental properties of information goods are what give rise to the superstar phenomenon.

In a working paper I co-authored with Professor Ding Xuan Ng at Johns Hopkins University[3], we described superstars as arising from digital innovations that require upfront fixed costs that allow firms to reduce the marginal costs of serving additional customers.[4] For example, once an online travel agency has programmed its website at a fixed cost, it can easily displace thousands of traditional travel agents without much additional effort, scaling at near-zero cost.

Because a firm can exclude others from using its digital innovation, it automatically gains market power. The innovator then uses that power to charge a mark-up and earn a monopoly rent — basically, a price superstars charge in excess of what it costs them to provide the good — which we call the ‘superstar profit share’.

THE POLICYMAKER’S DILEMMA

In a vibrant free market economy, businesses compete for customers by innovating and improving their offerings while keeping prices low; otherwise, they are displaced by more innovative rivals entering the market. Unfortunately, the increasing monopolization of the economy by technology superstars is weakening the competitive environment around the world.

Monopoly power is the main inefficiency from the emergence of superstar firms, because superstars can exclude others from using the innovation that they have developed.

So, what policy measures can be employed to mitigate the inefficiencies arising from the superstar phenomenon?

We do have antitrust policies designed to promote competition and hence economic efficiency. Authorities could take a drastic measure and break up monopolies. Or they could tax all those excess profits megacompanies make.

Another policy to consider involves giving consumers control rights over their data. Right now, only companies have that data, and they are selling it. If you free it up and don’t allow them to sell it anymore, it reduces their monopoly profits. And if you give consumers more freedom over their data, they could, for example, share it with the latest start-up and create a more competitive landscape.

However, such policy remedies can be a double-edged sword. On the one hand, they reduce monopoly rents. On the other hand, they can also reduce innovation.

Innovation requires investments in R&D, which represent a significant sunk cost that only large firms can afford. Government regulations can easily backfire, discouraging large firms from making long-term R&D investments.

What, then, is the best policy intervention? Professor Ding Xuan Ng and I believe that basic research should be public. Digital innovations should be financed by public investments and should be provided as free public goods to all. This would make the superstar phenomenon disappear, and the effects of digital innovation would simply show up as productivity increases.[5]

We live in a brave new world that is increasingly based on information. Because the information economy is different from the traditional economy, antitrust policy should be revamped to reflect that. Instead of worrying about the economy being eaten up by these gigantic monopolies, policymakers need to focus on the question ‘What specific actions can we pursue to make the economy more competitive and efficient?’

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