We are living in times of volatile change. New technologies and new players are disrupting the financial market. Andy Kollegger, Head Corporate & Institutional Clients International and Member of the Executive Committee, UBS Switzerland, talks about changes, risks and opportunities for financial institutions in this rapidly changing environment.
Mr. Kollegger, 2018 was an eventful year in the banking industry not least thanks to technical innovation. Looking back, what are the developments that you are most excited about?
AK: One of the most fascinating developments last year was the increase in collaborative efforts in the marketplace. A concrete example of this is SWIFT global payments innovation (gpi), which for the first time actually allows you to track the status of a payment from when it is released to when the money arrives at its destination. The benefit to the end client is clear, but gpi also offers improved efficiency, transparency, and operational benefits. It sounds like a small piece of innovation, but it was a pretty big step for the industry.
Another example saw a couple of banks collaborate for the first concrete applications of the blockchain technology. Together we looked into bringing the advantages of distributed ledger technology to trade & export finance, a business which traditionally has been very paper based. The project merged into the consortium we.trade and will mean that trade & export finance products will be available even for smaller transactions.
So, banks have made collaborative efforts, but we have also seen new players pushing into the market. How would you describe the new banking landscape?
AK: It has become quite a populated space. There’s been a lot of talk about FinTechs, obviously, and I think they are here to stay. Also about crypto currency, particularly here in Switzerland, which is still in its early days. There have been the RegTechs, and the large IT providers, who are looking at banking – not in its entirety, but at specific parts of the value chain that might be commercially interesting.
We’ve also seen a regulatory onslaught. The result is a more transparent, more robustly regulated industry, which benefits clients. But it came with a massive increase in complexity and in cost.
But cost pressure comes from a combination of these factors, and also, of course, our clients have become more cost sensitive. As a consequence, banks have had to review their shelf very carefully. Now we will have to ask ourselves, what we are really, really good at – and discontinue some of the areas where we cannot compete.
That sounds like a turning point in the way financial institutions operate. Are the established players under threat?
AK: No, not at all. But it does require us to be more agile: to adapt our processes, our structure, and our thinking. Traditionally, banks have been very complex organizations. We like to have our steering committees and operative committees and what not… However, in this day and age, with shorter development cycles, this is no longer viable. As recently as five years ago, you would have big rollouts of, for example, substantial code releases, whereas today we are aiming for so-called minimum viable product (MVP) releases, which are much smaller and much faster-paced.
Agility also entails the whole concept of co-location. So you will now have IT developers sitting together with process specialists, lawyers, compliance and client-facing specialists in the same room. Rather than having to wait for the next monthly operating committee to discuss something, co-location creates an ongoing, beneficial dialogue.
So what we’ve definitely learned in the last years is: You have to have the competence on the technology side as well. I don’t think all banks are particularly good at writing code, so the name of the game is to co-locate and partner with the people who do it best. And it’s important to note that it’s not just about buying a system from a systems provider. Agile, collaborative approaches achieve better results faster.
So, banks need to adapt and become more agile. But how should they respond to new technologies such as artificial intelligence, data analytics or blockchain?
AK: The whole dimension of what AI and data analytics can bring to client relations is exciting. We’re sitting on a huge amount of data, also behavioral data, and if we can deploy that in a smart way to the benefit of the clients, then I think this is an area where banks are ideally positioned to innovate.
Blockchain is more disruptive, in a way. If banks are just going to look at it as a means to bring efficiency to their existing processes, I think we’re missing the point. There are many applications throughout banking that could actually benefit – as long as we as an industry are open enough to consider method changes.
To me, that is the key question: Are people just going to look at new technology through the lens of how it can help them do what they're used to doing, only in a more efficient way? Or, do we have the courage to take a step back? Sometimes you need to disrupt yourselves in order to create something new.
You’re talking about a fundamental rethink here. What do financial institutions need to be doing to really benefit from disruptive innovation?
AK: The area of AI, how we think about it and what kind of client benefit it can generate, will be pushing many of us to take new perspectives. I think you really need to start looking at this from the client’s perspective. In the old days, banks – as so many others – would look to identify a need in the market, then create a product, put that on the shelf and clients would be buying it.
Whereas new technology would make a much more tailored and client-specific offering possible. So, rather than having three different bundles – let’s say, silver, gold, and platinum – that clients have to choose from, clients might actually go from gold in the first trimester to platinum, and then back again, based on their evolving set of needs. But the thing is, they don’t want to have to be doing this. They will be looking to get a solution that evolves around their specific needs. So, unless we have something that can also evolve at our end, we’ll be missing out.
You say clients’ requirements are constantly evolving, but are you noticing any clear trends in terms of their needs?
AK: Well, safety of data has become a huge focus of clients. And this is interesting for us because, traditionally, banks were seen as a safe place to keep money or assets – so why shouldn’t banks position themselves as a safe place to keep data? Additionally, the regulatory development in this respect helps: With the EU’s General Data Protection Regulation (GDPR), personal data security has become much more of a sensitive topic, and that opens a lot of opportunities for banks to engage.
In other words, banks enjoy a high level of public trust. Do they actually have an edge over other financial institutions in this respect?
AK: Yes, indeed, I think that trust is one of the biggest advantages that we have. Since the financial crisis, we have rebuilt, or re-earned, a lot of trust. It was tough but it forced us, and many of the other banks, to very carefully ask ourselves who we are and who we want to be, to invest in culture.
Banking is not just about balance sheets and lending, and if you look at banking in a digital age, it’s much more integrated with the clients. That requires a much deeper understanding, on both sides. So from that perspective, the regulatory development that increased stability and transparency in the system has also laid a solid foundation in order to leverage the opportunities of digitalization.
Apparently, banks are ready to embrace digitalization – but do you also see challenges for banking going forward?
AK: One of the apps I use most often is the public transit app. So when the trains run late I get prompted, or when I have a meeting in a different city, I check on how to get from A to B. The whole concept is about seamless integration, and that is a good example of how things will hopefully evolve in banking, as well.
As a client I have no tolerance for people making me go through overly complex, multistep processes, if there is an easier way. And that’s the big challenge for banks. Because the way we’re set up, we’re quite complex organizations and we have the tendency to design complex processes. And we really need to be offering an easy, straightforward way of getting the client from where they are to where they want to be.