TECH TUESDAY is a weekly content series covering all aspects of capital markets technology. TECH TUESDAY is produced in collaboration with Nasdaq.
As financial markets have grown more complex, market participants’ day-to-day business has become disproportionately more complicated – this presents industry-wide challenges but also opportunities for firms that address the issue with new operating models and cutting-edge technologies.
Data tells the story. While external complexity increased more than sixfold over the past half-century, organizational complicatedness – including the number of procedures, interfaces, coordination bodies, and decision approvals – has surged more than 35-fold in response. Additionally, in just the past decade, indicators of complexity for banks have increased by two to three times.
These sobering figures are according to a recent Nasdaq and Boston Consulting Group report titled The New Growth Imperative: Cutting Through Complexity in the Financial System.
The report examines an industry challenged by complexity, but emphasizes the opportunities, remedies and rewards for the firms who deploy newer technologies such as cloud, software as a service (SaaS), and artificial intelligence (AI) to solve for complexity.
The report outlined a ‘call to action’ for banks to leverage technology to shift from people-based work, to systems-based and people-led work. Under this framework, the systems-based components are enabled by infrastructure and data, and actioned with software and AI; the people-based component is directed by leadership, with staff focused on key decisions and innovation; and everything is process-supported and governed by guidelines.
Technological best practices banks can adopt to amplify the skill and leadership of their people include embracing modern digital infrastructure; deploying data collaboration models; building strategic partnerships; and accelerating with AI.
Bottom line, the banking industry can generate $25 billion to $50 billion in cost savings by shifting to systems-based, people-led work, or as much as 20% of its annual operating expenditures on risk and compliance.
The cost savings can boost organizational profitability, but there’s also a greater-good aspect in that the money can be redeployed to capital-constrained areas such as lending to further digitalization and energy transition goals. And, a 10% increase in lending to the private sector is linked to a 0.6-1.0% increase in real GDP, according to the Nasdaq-BCG report.
The report cited the feasibility of banks making the shift. “Given the capabilities available today, these foundational platforms and tools do not require large-scale, multi-year implementations. They can be adopted gradually, with initial savings and the impact generated used to fund subsequent steps, creating a self-reinforcing cycle of improvement and value delivery.”
Ultimately, the state of play for banks dealing with complexity can be a constructive one, despite the obstacles, because the technological capabilities are there, and market participants are increasingly willing to adopt the technologies.
“The complicatedness challenge can be addressed through embracing modern technology solutions combined with the adoption of modern operating models,” Nasdaq CEO Adena Friedman wrote in an intro to the complexity report. “Technologies like cloud infrastructure and the development of modern software platforms that leverage cloud foundations, provide unprecedented possibilities to meet the expectations that the external environment demands: innovation at speed, real-time with integrity, resilience and growth.”
Creating tomorrow’s markets today. Find out more about Nasdaq’s offerings to drive your business forward here.
