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3 Things Firms Must Do to Dominate Digital: State Street

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To be digital leaders, financial firms need to focus on integration, integrity and intelligence of their data, according to a new report from State Street. These qualities are the “foundation of the investment industry’s new relationship with technology.”

The report also identified five emerging technologies that both startups and established firms are using that support these values, and help firms understand their clients better and provide them more or better services: blockchain, predictive analytics, artificial intelligence, real-time tracking and biometric identification.

Digital leaders are farther along in adopting these values, the report found. Over half of digital leaders have an omnichannel approach to data integration and 63% have aligned their front and back offices, compared to less than a third of digital laggards. When asked if they’ve fully harnessed data in their decision making process, 63% of leaders said they were at an advanced stage of adoption, compared with 24% of laggards. And while nearly two-thirds of leaders have “robust” cybersecurity measures in place, less than a quarter of laggards can say the same.

Financial firms collect a vast amount of data from their clients and markets that needs to be standardized and analyzed, the report noted. In addition to structured data, firms are also analyzing unstructured data like emails, social media posts and audio or video files.

Advanced analytics tools supported by artificial intelligence can help turn the constant flow of data into insights, State Street noted. Adoption of real-time tracking to identify changes in the markets is expected to grow; 38% of firms that say they use it today, while 47% say they plan to adopt it in the next five years.

When advisors can integrate multiple data sources, they get a more complete picture of a client’s financial situation. State Street found 39% of investors expect their advisor to have sophisticated analytics tools.

Predictive analytics can help firms use this data to more effectively serve their clients by helping them understand how their clients behave. State Street believes there will be a shift from “wallet segmentation” to “behavioral segmentation,” where communications with clients are based on each client’s actions rather than his or her assets.

Finally, the integrity of this data is paramount, and firms must implement strong cybersecurity programs to protect it.

The report noted that when it comes to data integrity, established firms have an advantage over new fintech firms. State Street research shows 40% of investors are wary of using fintech firms because of higher perceived cybersecurity risks.

The report said biometrics like face and voice recognition or fingerprints will be critical to help prevent fraud, and 38% of firms surveyed by State Street said they will adopt this technology in the next five years.

Blockchain is more than just a way to keep track of bitcoin, the report noted. Distributed ledgers are “likely game-changing” for the financial services industry. They have applications in trade settlement as well as nonfinancial uses like identity management. State Street believes blockchain’s true potential “will be realized as the industry congregates around public applications of the technology, underpinned by official currencies.”

A Roubini ThoughtLab report sponsored by State Street found that 64% of financial firms expect to adopt blockchain in their investment management operations in the next five years.

Blockchain is particularly compelling in the short- to midterm, according to John Burnett, managing director of State Street’s Emerging Technologies Center, because it can “can create better alignment, better notification and synchronization across different parties, creating that ability for parties to reach consensus and see the same information.”

State Street created the Emerging Technologies Center in June 2015 to “look into those technologies that are farther out,” Burnett said.

A large part of the center’s focus is on blockchain, he said. It’s an area where “State Street could bring in this concept of a distributed ledger to better enable the sharing of information across different parties and systems that may not have necessarily designed to communicate that well.”

He recommended that financial firms thinking of adopting these emerging technologies start by identifying the right subject matter experts in their firms who can help develop processes, and vetting and proving use cases for each new technology.

Burnett said a lot has been done to improve speed and efficiency on the front end of advisors’ technology, and “now is the time when banks are looking very seriously at revolutionizing the back end.”

Blockchain, for example, is a “foundational technology upon which to build,” but clients may not even know the services they receive are supported by it.

“There are absolutely benefits we can provide and efficiencies we can gain that would be not entirely visible to the client, but is actually what we’re using to provide that better level of service.”

— Read 5 Predictions for Advisor Fintech in 2017 on ThinkAdvisor. 


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