The impact of digital on banks is huge, says Standard Bank's James Nicolson
Digital technology is having a huge impact on banks, says James Nicolson, chief architect for Corporate and Investment Banking: digitisation and blockchain, at Standard Bank. “Like many industries, it started out at the consumer end of banking, and now we are seeing a strong drive at a CIB level towards a much richer digital experience.”
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What trends are you seeing in your area of expertise that finance leaders should be aware of?
"Investment banking is still a fundamentally human activity. We are looking at what tools we can provide to our staff and clients to enrich this human engagement. A lot of this has to do with data - how do we arm people with rich and sophisticated analytics that help them to make decisions in a better way?"
"One overarching trend is a move away from a product-centric banking relationship. It's important that we still have product sophistication but what we need to do is change the mindset of the organisation to consider the journey that our clients are on and better understand their needs, as well as how we can better package our products to suit these clients' journeys. This could cover activities like trade finance, working capital management, managing financial risk, access to capital for large infrastructure investments, business acquisitions, and so on."
"All of this requires cultural change within the organisation. Digitisation is often seen as a technology concern, but we recognise that the biggest focus needs to be on the culture inside the bank: how we design services for our clients and radically transform our internal processes to deliver compelling client experiences. It also demands a different set of skills from our staff to be able to achieve that."
"Blockchain, as a technology, has exploded. It's relatively early days but the impact we see it having is huge. Blockchain is all about networks. It isn't a tool we can use inside the bank; it's a tool we can use to create networks. We are exploring how to create networks that are valuable to our clients."
"Blockchain presents opportunities for banks to cooperate for the benefit of our clients. For example, in South Africa, we have the South Africa Financial Blockchain Consortium (SAFBC). All the major banks are members, plus some other industry and regulatory bodies. It's a vigorous, active collaboration across the industry to explore the use of blockchain. Hopefully we will see new networks emerging to improve the financial services industry."
"We are also seeing a lot of other organisations and tech startups trying to create similar networks outside of the traditional financial system. The most well-known of these is Bitcoin, which is used to make payments without the involvement of banks or regulators. We've also seen some FinTech companies building alternative types of networks around blockchain, that focus on more than just payments. For example, there are solutions that facilitate the sharing of personal information in a more secure way, or registering assets such as land, stocks, bonds or even artworks. A strong driver is to provide more privacy and to move control away from central institutions to individuals. This presents a great deal of positive social potential. Blockchain has the potential to give people much more control over their data and the way they share and interact with each other on a peer-to-peer level, rather than having to rely on big organisations, like Facebook, to intermediate that. We actively pursue partnerships with FinTechs."
"Opportunities we are exploring at Standard Bank around blockchain include trade finance (import and export type activities), managing customer identity information and some experiments around improved payment processes."
"Another important emerging trend from a blockchain perspective is what has become known as crypto economics. The internet has allowed us to create valuable networks that connect people socially and economically. The problem is that the economic value of these networks often accrues to large tech companies, rather than to the participants in the community. Crypto economics use blockchain technology and digital currencies to create a more equitable way to share the benefits of participating in social networks. People who are interested in this can look at examples like Gnosis, which incentivise people to participate in 'crowd-sourced wisdom', or FileCoin, which provides shared storage. Specialised currencies are used to distribute the benefits of participating. We are sure to see more effective social networks emerging, which are likely to disrupt many existing ways people share and interact."
"From a banking perspective, an interesting dynamic is that these enterprises don't need to go through traditional forms of funding to build networks. Through a crowd-funding initiative (known as ICO) participants can start a network and benefit economically from the growth of that network. This year, more than 2 billion dollars has already been raised by startups on this crowdfunding-style model. It is unlikely that they could have raised the same capital as quickly in the venture capital market."
How are you helping your clients with these challenges?
"With digitisation, it's about how we change the client's experience around the journeys that they are on. For example, we are doing work around improving the experience of granting clients access to capital, while providing clients with greater insights into their business and potential opportunities. We are using digital technology to make that work. At the same time, these tools also empower our staff to deliver a more compelling client service."
"This extends all the way through the bank. We are using robotics to automate back-end processes, with an eye on exploiting artificial intelligence. The goal here is for the client experience to dramatically increase, with a higher quality of processes and a reduced turnaround time. That's tough because, in an investment bank, processes are complex and often bespoke to each client. So, we need to think innovatively about how to automate these."
"On a blockchain level, we haven't launched anything yet to clients but we have some interesting prototypes in trade finance and identity information management."
What should CFOs expect over the next 12 to 18 months?
"CFOs are an important stakeholder in our client base. What we hope to provide them in the next 12 to 18 months is much richer access to data and information. Our goal is to give our clients deeper insights into what is happening in markets and what we see happening in our interactions with them as a bank, as well as using data analytics to improve our mutual decision-making processes. We are also working hard to remove operational friction points for our clients."
"In terms of blockchain, we all need to keep an eye on this rapidly exploding technology. Cryptocurrencies are becoming more mainstream. A few months ago, Japan officially recognised Bitcoin as a legal method of tender. The South African Reserve Bank has expressed interest in a digital currency in South Africa."
"We see many clients wanting to work with us on how digital technologies could impact each of us across our different industry segments, and we welcome this deepening partnership with clients."