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EY | WSJCC PodcastTech-Enabled Transformation Across Financial Services

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Yang Shim:

Brad Carr:

Mark Riley:

Customers want more than experience as they engage with

the financial institutions. It isn’t about the interaction, but how

do you ultimately connect interaction to the trust in that

process? When we think about the digital experience for the

customer from a financial institution perspective, we need to

think about the end-to-end orchestration from interactions to

the trust, and that orchestration with the right operating

model that drives the outcomes.

There is a great threat of being left behind. It is perhaps an

existentialist moment.

Speaking there with Yang Shim, EY’s global financial services

technology leader, and Brad Carr, managing director of the

Institute of International Finance, discussing the real and

urgent need for financial services to adopt digital

transformation. Welcome to the Connect, Transform podcast

series, a collaboration between the Wall Street Journal

custom content and EY. I’m your host, Mark Riley, general

manager of innovation and corporate ventures for Dow Jones.

In this episode, we ask Yang and Brad to discuss how financial

services can embark on technology-enabled transformation in

a post-pandemic world. Welcome, Brad.

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Brad Carr: Thanks Mark, delighted to join you.

Mark Riley:

Yang Shim:

Mark Riley:

Brad Carr:

Welcome, Yang.

Thank you, Mark, glad to be here.

So, we know that the financial services sector is facing

disruption from FinTech innovators at the same time that

COVID-19 is causing people, some of whom are new to the

internet entirely, to look for online alternatives to pretty much

every aspect of their lives. In a way, it’s a perfect moment for

financial institutions to harness the power of technology and

jump into digital transformation, because customers are

hungry for it, but can they move fast enough, and how can

financial institutions give customers what they want while also

benefiting from the upside of lowering costs and improving

efficiency? A long question, but Brad, I’d like to start with you.

Mark, I think there is an opportunity there, indeed, but I think

it’s more than that. I think it’s actually a necessity, and there is

a grave threat of being left behind, it is perhaps an

existentialist moment, because we do see that consumer

preferences, consumer behaviours, have shifted so

dramatically and so urgently this year. Really, the COVID

pandemic has seen an acceleration, and I think an

amplification, of a lot of the trends that were already

underway, but also there’s the notion of the internal barriers

to digital transformation.

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Mark Riley:

Yang Shim:

To some extent I think a number of those have dissipated this

year, because the urgency has just been so extreme that it has

perhaps helped to galvanise the institution, galvanise the

enterprise, and overcome some of the barriers that might

otherwise lurk for digital transformation.

So, Yang, you recently wrote on EY.com about how to

accelerate transformation in the post-pandemic world, would

you agree with Brad?

I concur with Brad in terms of a continuing journey on the

customer-centric model. So, customer preferences and

adoption rates have changed significantly coming out of the

COVID pandemic. We, recently, at EY, we have done an EY

COVID survey that was done in October 2020, and, you know,

several things came out from a consumer perspective, 68% of

the respondents focusing on their financial wellbeing, but

also, we expect 40% increase in banking, more in online, as a

result of the pandemic.

Right, and the consumers continue to push for the

relationships over the campaigns and thinking through from a

financial institution perspective the hyper-segmentations, and

personalisations, to capture those markets. The technology

from financial services today isn’t ready to catch up with the

pace of the consumer needs and adoption today, and I think

that’s something that we will continue to talk about from how

do we evolve the innovation and collaborations with the third

parties in the technology ecosystem to deliver faster.

The second item that we’re seeing is the industry

convergence and the competition that we talked about

earlier. The non-traditional and destructive competitors that

are coming into FS

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space, and the aggressive pace of adoption and expansion of

the electronic payments that continues to introduce big tech

firms to the financial services sector. So, what that leads to is a

fundamental operating model assumptions that have to

change with these rising competitive pressures, that the firms,

the banks and the insurance and then institutions, need to

think about what is the future-proof business strategy and

business model that needs to be there to survive?

A couple of years ago we embarked on our UI next wave

research around consumer and financial services, the key

takeaway for us was to, consumer financial model moving

towards the more subscription model, how do you provide

the right product at the right moment, hypothesis. So, I think

what they lead to, for us, going through COVID, is much more

of institutions looking at, as a services model, open banking,

as well as looking at a big tech, like an infrastructure, to

enhance their experience layer to support. So, those are some

of the trends that we see from the convergence.

The third point is the cost transformation, resiliency, and

efficiency. You know, what we see from our clients’

perspective, they’re doing pretty much three years’ worth of

digital transformation in the last three, four months,

particularly around their operations and resiliency, but mostly

around their employee experience, as well as the virtual

workforce, and they’ll bring everything together to operate

going forward from the new world that we live in. The cloud

adoption, the business cases for the legacy, modernisation is

increasing.

With that, the trust agenda is very important still for our clients

and the banking perspective. With the new marketplaces and

connected economy, much more connected to the emotional

trust connection to the consumers as well as building a new

functional capability to gain trust like the digital identity, and

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Brad Carr:

then continue to focus on the privacy protection, and lastly I

think the M&A aspect of a trend is continually happening, as

many of you have heard from Morgan Stanley, e-trade, Eaton

Vance merger, P&C and BBVA announcement, so, how do we

effectively go through the mergers and acquisition and then

be able to continue to support customers and go through the

digital transformation will be a key topic.

I think when we sum all this up, what we are seeing from the

technology perspective is much more platform-based

approach to accelerate that digital transformation. Looking at

modular, micro-services enabled composable multi-talent

utility-based platform and architecture that is underpinned by

cloud technology, AI, and then so forth, I believe the

perspective around the platform we will see more of what

we’ll call a collaborative model with the FinTech and new

tech, versus the disruptive model that we have seen for

continued innovation in the marketplace.

I probably would have said, pre-COVID, that we were five

years away from having a situation where all consumer finance

was really done on digital platforms. Maybe that’s now

something like two years, and I think the question that a lot of

financial institutions need to face is whose platform, or do you

want to be the platform, because you’re going to have

platforms that are provided by some of the big tech firms, the

likes of the social media companies, ecommerce providers

and the like, and they’re going to offer the opportunity for

banks or insurers to be able to provide products onto those

platforms, effectively re-bundled with services that they

provide across other walks of life.

Or you see some firms looking to be the platform. A number

of the major European forward-looking firms have sought to

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Mark Riley:

develop their own platforms. Itaú Bank, in Brazil, is one that’s

quite aggressively pursued this, and their CEO, Candido

Bracher, spoke with the CI of digital interchange in

September, and he talked about this dilemma of product or

distribution. That you either take a backseat and provide

product that’s going to go on somebody else’s platform,

acknowledging that firstly there’d be some margin pressure,

but secondly I’d probably add, the moment you lose the

customer login, you lose the customer, and that rather, you

know, Candido has seen for his firm that they want to be the

platform.

They accept that that means that they’re going to have to let

others, other banks, other insurers, FinTechs, sell product on

the Itaú platform to Itaú customers. Really, that’s the

customer-centric choice in this dilemma as a means of

ensuring that you’re staying front and centre with your

customer, that you are ahead of the game, and I think that’s a

great reflection, really, or a great summation of the strategic

dilemma that firms are facing.

Some will find their own niche as a product provider, some

will have greater aspirations of wanting to stay customer-

centric, and in wanting to keep the login you’re also going to

need to be able to do digital identity, which I think is one of

the really foundational technologies, alongside cloud that

Yang spoke about, it’s really going to be central for the

industry going forward.

Let’s stay with the customer experience, Yang, how can

financial institutions improve the digital experience for

customers? What do today’s customers actually want?

Yang Shim:

Brad Carr:

Yes, the customers want more than experience as they

engage with the financial institutions, and what I mean by that

is it isn’t about the interaction, but how do you ultimately

connect interaction to the trust in that process? So, I think

when we think about the digital experience for the customer

from a financial institution perspective, we need to think about

the end-to-end orchestration, from interactions to the trust,

and that orchestration with the right operating model that

drives the outcomes.

So, if you decouple some of those layers, you know, you were

to move from the experience layer to, ultimately, the decision

layer to provide the right products at the right moment

concept, and really bringing the solutions and the products

that’s underpinning what the process and data that’s

complied with the regulatory compliance, and all that

underpinning with the common platform and modulated

platform, they can accelerate the speed of a delivery to the

customer.

So, I think some of the key things that we see from

accelerated platform perspective is much more thinking about

the platform, not necessarily just the products, but also to

Brad’s point, how do you ultimately rent the IP in this

ecosystem with third party? Then when we do that, and then

when you innovate in that ecosystem, how do you ultimately

create that trust agenda to make sure that the consumers are

trusting the institutions, and I think with that is ultimately

driving the value from the data that you have gathered from

that connected economy as well as the connected ecosystem

to see what value you can create to the customer.

I want to add to a couple of the points that Yang made there

that I think are really crucial, and firstly if we can talk about the

focus on data and the criticality of data in the digital economy,

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and some of the sensitivities about data and who you trust,

and there were a couple of really striking points that came out

in the Bank of England’s Future of Finance report a year ago.

There are two of my favourite charts in it that I often cite, and

one calls out the, I guess, if you like, the propensity of data

within particular industrial sectors to be vulnerable or under

threat from new competitors, and in that it identifies financial

services as probably the most sector where data is rich and

valuable, and also where it’s under threat that a new entrant is

able to get in and replicate and accumulate data.

It also showed that banks were the most trusted party with

consumer data. There was a survey there where people had

been asked, “Who do you most trust with your personal

data,” and 86% had said their bank, whereas the other 14%

were a mix of tech companies, social media firms, energy

retailers, and the like. So, there is, on one hand, a threat to

the level of the data superiority, if you like, or data richness

that the banks have, but they do have a great opportunity to

leverage the very high level of consumer trust that they hold,

and what does trust look like in a digital environment?

We used to be able to identify people in person, you’ve got a

lot of small businesses that are suddenly having to reinvent

themselves into the digital economy and how they identify

their customers online. I think there is an opportunity, and we

see it at the IF and together with the Open ID foundation, and

what we’ve called the open digital trust initiative, as a means

to be able to, essentially, leverage that capability in

protecting data as a trusted verifier of customers, and to bring

that into the ecommerce environment.

I think that’s going to be a really crucial part going forward,

but I think it is an area of opportunity for banks to leverage

that existing capability as a means to ensure that they are

relevant

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Mark Riley:

Yang Shim:

not only for their consumer customers but also for their small

business merchant customers.

Let’s get down to brass tacks, once an organisation decides to

embark on a transformation journey, where should they start?

Yes, that’s a great question, Mark. So, I think we go back to

some of the things that both Brad and I mentioned with the

key fundamentals around how do you ultimately set the

strategy and operating model? We do this exercise with our

clients quite a bit around future back approach and clearly set

outcomes around what we’re trying to drive and continue to

keep focus on a customer-centric model, but overlay with

sound, trust, resilient and efficiency operating model that can

address the transformation.

So, when that strategist said, “There are several things that

have to come from both cultural perspective and change

management perspective to be successful with that operating

model.” One is to mobilise the right talent, and then give the

right platform and experience for that future workforce to

accomplish that strategy and operating model. I think we’re

seeing a lot more integration with business and technology all

together. This isn’t just about technology enabled, but

bringing that business together and creating the agile

environment that you can scale to drive that outcome.

We talked about the technology and platform strategy that

will continue to evolve, but evolution with many of the

financial institutions thinking about going to public, hybrid

cloud, and all the things that they are architecting is cloud by

design that think through not only a customer experience but

also the regulatory compliance issues, and I think a couple of

things

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Mark Riley:

Brad Carr:

that we already spoke of, but one thing that we do see, a big

change management from operating models in the

institutions are that to improve the speed of delivery the

whole third party open ecosystem we discussed, how do we

ultimately make sure that we are very connected but also

creating an environment that all parties are driving for that

outcome based model?

I think those things are very important as we go through the

transformation journey and where they can start.

Brad, what’s your advice?

You need to have a technology perform in place, and if you

don’t already have that then you need to put those

fundamentals, those foundations, in place, but you need to

couple that with the leadership and the internal culture

transformation as well, and in that it needs to come from the

top but it also needs to not rely on one person. It can’t be a

case of, “We’ve put in place a chief digital officer, or a chief

innovation officer, and now everything’s done.”

There was a great piece highlighted by a Georgetown

professor, Chris Brummer, during the year, about this

fundamental challenge of how does an organisation both

achieve economies of scale in its operations and with data,

and at the same time achieve personalisation with customers?

I think cloud as an enabler for sophisticated analytics is

absolutely crucial for that, and it’s why I probably put that

alongside digital identity as, you know, those two real

foundational keys, but you need to have the organisational

culture.

Mark Riley:

Yang Shim:

You need to have a board that is innovation-savvy as a key

organisational enabler for the strategy to really take hold.

So, it all comes down to ROI?

Yes, so, before I get into an ROI I think it’s quite important to

refer back to what Brad mentioned around the executive

sponsorship, but more importantly it’s not a single executive

accountability to go drive that ROI, and understanding the

agenda and what’s really driving a particular executive

through everything that we talked about to say what’s

important for them, and how we drive that outcome-based

model. So, I think the good example is we talk quite a bit

about the trust agenda, and when you decouple that trust

agenda, we can at minimum look at three different executives

that are involved to go drive that agenda in the context of the

platform economy that we have discussed.

One will be very much so around the consumer-centric, the

emotional intelligence that has to be driven by a trust agenda.

Typically, digital officer, marketing officer and innovation

officer who’s driving that agenda for the revenue perspective

and the growth mindset with driving that from the trust, but

also when you get into the technology and product

development and product management, the functionality of

the trust that they were going to deliver to our customer,

that’s quite important for them, and then the last part is the

ethical portion of our data privacy and risk officers that

continue to look at the cyber security, privacy, and other

agenda.

So, when you combine all those things, how do you ultimately

go through the transformation, and you can drive the

outcome not only for the consumers but also internally to

measure that

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Mark Riley:

Brad Carr:

everyone’s marching towards the same success? So, I think

that’s quite important from a journey perspective. I think the

biggest thing I see from the ROI is really having the right

cloud business case. We talked quite about that today, and

it’s not about the cloud migration, it’s about how do you

verticalize the cloud by your proposition and linking that into

the creation of the revenue.

Also, many of the business cases related to the Greenfield

area, traditionally when we’ve gone through the cloud

discussions with our clients, but it’s more around having the

right business case for the legacy modernisation and tying

that into that outcome and then continuing to see the capital

agility of your efficiency and savings, but also have the right

strategy to say, “We’re going to put that capital back into the

investment and then continue to focus on the growth.”

I think the last part is, from an ROI perspective, I think the

talent aspect of a return is very important, so it may not be

associated with, directly on the balance sheet, but given what

we talked about, the platform economy, it isn’t about all

technology. It is about having the right human capital that’s

surrounding that technology platform. So, can we have that

talent agenda and upgrade in the right place and right

operating model to drive that ROI, I think that’s another thing

that’s important for us to think about.

So, Brad, from the perspective of the Institute of International

Finance, is this the right advice?

I think I would probably emphasise in terms of cloud that we

need to be thinking of this in terms of the opportunities that

this is the key, underpinning enabler for. We’ve done a lot of

work

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Mark Riley:

Yang Shim:

looking at the adoption of machine learning and artificial

intelligence technology, and there are a lot of fantastic

opportunities in getting better at credit risk, credit monitoring,

better at fraud detection, better at combating financial crime

and money laundering, where I think we need to be honest,

the industry spends a lot of money in combating money

laundering, but our interdiction rate is not great.

We need to get better and smarter, and fundamentally we

need cloud as an underlying basis to be able to bring

together all of the different data sources that in some cases

are splintered within an organisation, or siloed within an

organisation, in some cases are splintered across borders, but

you really need cloud as an enabler to be able to bring

together the depth and richness of a dataset, at which point

those algorithms can give you a much better detection

interdiction rate, a much better enabler for enhanced risk

management. So, I absolutely agree with Yang’s points.

So, Yang, just to conclude, can you just summarise EY’s

perspective on risk and technology?

Sure. First of all, thank you, Mark, and then Brad, and from an

EY perspective around transformation, I think everything that

we talked about we can summarise into maybe three

categories that we focus on, and how we interact with our

clients, how do you ultimately get return and realise the

transformation? So, number one, human at the centre, and

this is very critical for our clients, to have their purpose and

strategy and their operations in mindset with the human

experience.

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Mark Riley:

Yang Shim:

Brad Carr:

Mark Riley:

The second will be to innovate at scale, and this is a

continued dialogue that we had around the ecosystem

partnership, connected economy. How do we bring this

disruptive technology to be a more collaborative way of

bringing the value proposition together to our consumers?

So, that’s an important factor, and then the last part is

deploying technology at speed, and this is all about the pace

and adoption that we’re seeing in the market, and financial

institutions coming out of the old way of operating and really

opening up their culture and working with their partners to

provide that speed to the customer, because, to Brad’s point,

they are the institutions who have the most trust from the

consumers.

That is a quite important factor for them to be very successful

with these three things in transformation.

So, thank you, Brad, thank you Yang, for your time.

Thank you Mark and Brad and thank you for the discussion

today.

Thanks Mark, thanks Yang, great to speak with you both.

Thank you Brad, great to see a consensus from both our

guests, and as ever COVID is accelerating many trends. The

key messages are to remain customer-centric, show

leadership, and the time, if ever, is now. Thank you for joining

us on this episode of Connect, Transform, a collaboration

between the Wall Street Journal custom content and EY. I’ve

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Voiceover:

been your host, Mark Riley, general manager of innovation at

Dow Jones.

Wall Street Journal custom content is a division of the Wall

Street Journal advertising department. The Wall Street

Journal newsroom was not involved in the creation of this

content.

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