Author: Ronak D

BigTechs in BFSI: The Pragmatics of Co-existence for Market Expansion | Blog

Google recently announced that it is teaming with eight US banks to offer checking accounts powered by its Google Pay product and built on top of the banks’ existing infrastructures. Google is not the only BigTech firm that is pushing its play in the Banking, Financial Services, and Insurance (BFSI) industry. Facebook recently launched a new unit called Facebook Financial that consolidates all its payment products under David Marcus, the former President of PayPal. In a call with investors in July 2020, Tesla announced that it is planning to launch a major insurance company.

Eyeing the prizes

The transformation of the BFSI industry is powered by the ability to create innovative products and experiences using digital capability platforms and data. The BigTech firms see this as a massive opportunity to use their digital platforms and data processing infrastructures to gain a significant share of this transformational opportunity in the BFSI industry.

Additionally, the emergence of a globally connected ecosystem and ambient technology have led end customers to demand seamless experiences to manage their lifestyles and finances. Realizing yet another opportunity, BigTechs such as Amazon, Ant Financial, Apple, Facebook, Google, and Microsoft entered the BFSI industry to offer complementary financial services to support the BFSI firms’ core businesses. They gradually started providing technical capabilities to enable BFSI firms to enhance their operations, products, and experiences, eventually offering competing products and services. In fact, today, BigTech firms are at the epicenter of accelerating a shift in both demand and supply ecosystems, blurring traditional industry boundaries.

In our recently released report, BigTechs in BFSI Industry: The Theory of Co-existence for Market Expansion, we analyzed BigTech firms’ investments in the BFSI industry to dissect their strategic bets and provide recommendations for BFSI firms.

Building technological capabilities to compete

Traditional BFSI players are understandably concerned about BigTechs’ increasing sphere of influence, but their complex relationship with BigTechs makes it difficult for them to devise a focused strategy – to compete or collaborate – with their new peers. While some BFSI firms are expecting regulatory scrutiny and industry watchdogs to keep BigTechs away from their turf, others are developing technologies in-house and in collaboration with enterprise technology firms such as SAP, Salesforce, and Oracle to shore up their capabilities. For example, the top five banks in the US recently increased their technology budgets by more than 10 percent, with a large proportion focused on building proprietary technologies and platforms, as well as R&D, to better compete with BigTechs and FinTechs. In 2019, Bank of America alone filed 418 technology patents.

Our viewpoint

We believe BFSI firms should find a fine balance of working with BigTechs as fellow ecosystem players to leverage synergies and create a win-win for all stakeholders.  Here’s why.

A look at BigTechs’ scale of technology investments and R&D reveals that they heavily outperform BFSI firms in their technology capabilities. In 2019, AWS obtained 2,400 US patents and IBM obtained 9,262. These numbers indicate that their technology and research prowess position them as strong allies of BFSI firms. BigTechs have further strengthened their foothold in the industry through open banking and asset and data monetization models. FinTechs are already disrupting BFSI incumbents, with BigTechs powering many of them with technology and funding.

Thus, partnerships with BigTechs and other players in the ecosystem can help BFSI firms strengthen their role as orchestrators of customer lifestyle experiences. Armed with large technology investments and R&D budgets and a wide range of technology and IT infrastructure offerings, BigTechs have a lot to offer to traditional players. Cloud computing services such as Amazon AWS, Google Cloud, and Microsoft Azure can help – and are helping – BFSI firms improve their operational efficiencies and reduce costs. For instance, financial institutions in China are leveraging Ant Financial’s ZOLOZ platform for biometric authentication of customers.

Add to this BigTechs’ data and analytics capabilities, and the value they bring to the table increases manifold. BigTechs are not only helping incumbents manage and analyze their own data, but also offering aggregated data from various sources to support BFSI firms and deliver value to their customers.

And that’s not all. BigTechs enjoy a loyal customer base, and BFSI firms can tap into this vast pool. In fact, customers want to see their favorite banks and BigTechs come together to make their lives easier –the launches of Apple Card and Amazon Visa Credit Card are testimony to this fact.

Partnerships can also help banks reach out to the underbanked and underinsured populations. A case in point is Goldman Sachs offering credit to Amazon sellers. Facebook, with its widespread reach, can also act as a liaison between customers in remote areas and financial institutions that do not have brick-and-mortar branches in such areas. Addressing the issue of financial inclusion will not only help BFSI firms and BigTechs increase their market size, but also benefit the lives of those who still do not have access to credit and insurance.

It’s actually an equal partnership

When striking a bargain with BigTechs, BFSI firms must remember that they are equally powerful in the partnership. Traditional BFSI firms command customers’ trust and are better equipped to manage risk and compliance requirements. In contrast, BigTechs are struggling to make a name for themselves in the financial space and are eager to partner with BFSI firms to leverage the trust they enjoy, their access to vast capital reserves, and to bypass some of the regulatory compliance issues.

This situation makes the alliance between BFSI firms and BigTechs an accord between equals, a relationship that is mutually beneficial and sustainable. BFSI firms should confidently partner, co-innovate, and co-exist with BigTechs not only to carve a bigger share for themselves but also to share the benefits with their customers.

If you’d like to learn more about the role of BigTechs in the BFSI industry, please read our recently released report BigTechs in BFSI or reach out to me directly at [email protected].

From Compliance to Competitive Differentiation: The Open Banking Journey | Blog

A sustained low-interest rate environment is compelling banks to diversify their revenue mix and reduce their dependency on interest-based products. In this scenario, banks’ scaled adoption of open banking – or offering data and services to third parties and customers via Application Programming Interfaces (APIs) – provides them with a unique opportunity to expedite the development of innovative products and services in collaboration with other financial institutions.

The open banking concept emerged in 2015 through a regulatory push for consumer autonomy and transparency, with banks in the UK and other European countries mandated to comply with the standards set by the Competition & Markets Authority (CMA) and the European Commission, respectively. However, as our second Open Banking PEAK Matrix® Assessment 2020 (which analyzed 110+ production-grade open banking use cases) reveals, open banking has fast evolved from a compliance-mandated initiative to a growth strategy focused on experience and product differentiation.

In our first open banking assessment carried out in 2018, we found that more than 40% of banks viewed open banking largely as a compliance mandate. In 2019, however, their priorities seemed to have shifted, with more than 35% of banks focused on driving business value and growing revenues from their open banking initiatives. The use cases have also evolved in line with this shift – from payment processing to complex processes such as cash management, financial wellness, credit scoring, and insurance.

The exhibit below highlights the key differences between a compliance-led open banking initiative and one driven by competitive differentiation.

The next step in the open banking journey – moving from compliance to competitive differentiation

Annotation 2020 07 02 154320

Currently, several leading banks are creating differentiated experiences using open banking to build the next-generation banking model. For instance, Bank of America is building a financial services-compliant cloud that will allow the bank and its partners to host all their services and data on the cloud platform, which will enable Bank of America’s customers and third parties to build applications that leverage these services and data to create differentiated experiences and manage end-to-end business operations. Another notable example is DBS, which has established travel, car, and property marketplaces by building robust ecosystems in collaboration with external partners. For example, the company’s payments-enabled travel marketplace brings flight booking, accommodation, and travel insurance partners onto the same platform, ensuring minimal customer churn from its banking platform. As the marketplace offers new customers as well as a payment processing functionality to its partners, DBS can earn commission revenue from these partners.

As banks move to a business value-driven approach to open banking, they need to identify the avenues to monetize their open banking investments and unlock a new model to create and deliver differentiated experiences to their customers.  A cloud-enabled platform can greatly assist in this regard, as it provides seamless access to banking APIs and services from a broad range of partners to build and deploy new products in a marketplace model.

Open banking IT service providers can help banks build the capabilities they desire. To do so, they are investing in business advisory assets to help financial services firms plug the gaps in their business change management initiatives. They are also investing in FinTech partnerships, talent and solutions across the API management life cycle, data and analytics, use case libraries, and virtual sandboxes to maximize the value from open banking.

Leading IT service providers, such as Accenture, HCL Technologies, NTT Data, TCS, and Wipro, have created open banking Centers of Excellence (CoEs) to drive a coordinated effort to help BFS firms eliminate any gaps in communication and realize the objectives of product development and open banking technology. They are also investing in cloud offerings to facilitate their BFS clients’ cloud transformation journeys.

If you’d like to more about open banking and its evolution, please read our recently published report Open Banking IT Services PEAK Matrix® Assessment 2020: Moving Beyond Compliance to a Platform-based Operating Model of Ecosystem Orchestration and Value Creation – Services. We’d also love to hear about how you are advancing on your open banking journey. Do share your views with us at [email protected] and [email protected].

Network Resource Planners (NRPs) and the Transformation of the Enterprise Resource Planning (ERP) Landscape | Blog

Nearly five decades after the release of the first version of SAP’s enterprise application, SAP R1, the Enterprise Resource Planning (ERP) landscape is nearing an inflection point. Over these 50 years, traditional industry boundaries have blurred, and competitors have started working together. Soon, enterprise applications too will transcend functional, organizational, and industry boundaries to support truly connected ecosystems. In the long term, enterprise resource planners will have to develop capabilities to manage decentralized identities, trust, and transaction processing to serve enterprises effectively.

Blockchain, which has been gaining traction steadily over the years, could be the next big thing in the ERP landscape. As enterprises limber up for cooperative ecosystems, participation is rising in inter-industry blockchain networks. These managed business networks, including We Trade, Marco Polo, and TradeLens, are proving to be viable alternatives to certain ERP functionalities. Enterprise application heavyweights such as Oracle and SAP have also begun to push new managed blockchain platforms and are actively assisting enterprises in setting up blockchain networks. We consider such blockchain-based Network Resource Planners (NRPs) – which are comprehensive inter-industry networks catering to a wide range of use cases – to be the natural progression of ERP solutions.

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Understanding NRPs

An NRP is a blockchain-based software system that helps manage data and processes across multiple stakeholders in a business network. In an NRP, the blockchain is the foundational infrastructure, and it acts as a platform for enterprises to deliver a more cohesive experience to customers. Present-day NRPs can perform certain narrow ERP functions, such as inventory tracking, financial settlements, and reconciliations. In these use-cases, NRPs can simplify and accelerate such functions by leveraging blockchain’s technological advantages and the ecosystem’s strengths.

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Let’s take a look at the benefits of an NRP in detail.

An NRP helps stakeholders by:

  1. Building a foundation of trust: The underlying blockchain network creates a single source of truth for all network participants and avoids the need for data duplication across the transacting stakeholders. Blockchain also helps optimize and automate processes that would otherwise be bogged down by the limitations of ERP. With all stakeholders being on a single network, the need for specialized interfaces among the stakeholders’ enterprise applications is eliminated
  2. Acting as the backbone of the ecosystem-thinking movement: The presence of multiple competing stakeholders often undermines the creation of a cooperative ecosystem. An NRP mitigates this challenge by leveraging blockchain to distribute trust among stakeholders. Governance structures can be codified into the technology, putting to ease many enterprise business concerns. This could make NRPs the backbone of the impending ecosystem-thinking movement, assisted by the ongoing convergence of Internet of Things (IoT), blockchain, and Artificial Intelligence (AI)
  3. Unifying stakeholder experiences: Traditional enterprise applications create bottlenecks and eventually impact stakeholder experience. A cooperative network helps standardize processes that establish a baseline experience that is consistent across the network

Business challenges and how to navigate them

Although NRPs are fast gaining traction and offer multiple benefits, an ecosystem model still poses several challenges, such as:

  • Establishing cohesion among competitors in a collaborative environment to ensure consensus and fairness
  • Ensuring appropriate governance, monetization, and optimization of Return on Investment (RoI)
  • Addressing any network lock-in risk, which may deter participants from fully committing to the network; managing this concern through standardization rules will be key to creating viable networks
  • Managing the change ushered in by blockchain adoption, which may be incompatible with existing processes and limited understanding of technology

To successfully address these challenges and leverage NRP, enterprises should undertake a structured adoption journey, comprising four phases:

  1. Selecting the foundational approach and identifying key stakeholders: A network can be built through either a technology- or business-first mindset. The right approach depends on the primary contributing industry, proposed network use case, and prevalent market conditions. In either case, it is also important to simultaneously identify the target stakeholders for the network
  2. Building the minimum viable ecosystem: The next phase involves demonstrating the viability of such a network through a pilot. The pilot also helps identify possible problems early on and creates the foundational data to build a business case for a full-fledged network
  3. Defining the governance structure and incentive model: Defining and codifying the intended governance structure and incentive model help lend credibility to the network. Establishing such rules helps build trust among potential participants and attract new ones
  4. Activating the network effect: Encouraging stakeholders from other industries will help build an ecosystem of primary, secondary, and value-add participants that further enhances the network effect

In conclusion, NRPs seem well-positioned to replace certain ERP functions, and such blockchain-based networks, alongside IoT and AI, can become the foundation of future innovations.

If you wish to learn more about the blockchain landscape, network resource planners, and how enterprises can adopt them, read our recently released report. We’d also love to hear your views on blockchain and NRPs. Please share your perspectives and any questions with us at [email protected] and [email protected].

Is COVID-19 Accelerating Responsible Investing in the Financial Services Sector? | Blog

Climate risk discussions and regulations had been gaining great momentum in the past six months as there had been increasing pushes from regulatory bodies and central banks to start stress testing climate risk scenarios. While the discussions have been somewhat back-burnered due to the pandemic, they will begin again in earnest during the post COVID-19 recovery period. And they will jump to the top of financial institutions’ (FIs) risk management agendas, instead of continuing to be considered a CSR activity.

Why COVID-19 will accelerate ESG reporting

Given the erosion in investment value across asset classes over the last couple of months, investors are looking to get better returns, and Environmental, Social, and Governance (ESG) funds have performed better. Indeed, a Morningstar analysis of 206 responsible investing funds found that 70% of these equity funds outperformed their peers in Q1 2020.  As the social component of ESG brings to focus companies’ relationships with their employees and customers, the governance aspect will also gain attention. Dedicated risk committees and boards of directors will set the tone for firms’ communication and branding strategies.

Another driving force will be the rising influence of millennial investors. As they move toward more socially responsible investing, firms that achieve high ESG scores will be the preferred choice for these investors. FIs won’t want to miss out on this growing segment and will look to align their portfolios accordingly to be an attractive investment opportunity. This change will spur the ESG reporting initiatives at these institutions and lead to evolution of the industry ecosystem as well.

Evolution of the industry ecosystem

FIs have ramped up hiring as they build their sustainability teams and task forces. Credit rating agencies and data firms like Moody’s and S&P have started to acquire climate risk analytics firms to enhance their coverage of ESG data reporting. Stock exchanges around the world are launching multiple ESG indices to measure listed companies’ commitment to ESG. Asset management firms are gradually incorporating ESG factors into their investment strategies while announcing divestment from industries that are considered problematic from an ESG reporting perspective. We are also seeing an uptick in the demand for sustainability consultants at financial services firms, with more than 15% year-on-year growth as demonstrated by job postings for sustainability roles in the financial services industry.

Current challenges for financial institutions

No clear framework has yet been institutionalized for FIs to start reporting their climate disclosures. Only broad frameworks exist that can serve as a baseline for them to start initiating stress tests and checking their exposures. Further, they face two major problems with consolidating and analyzing the right data sets. One is identifying the right data sources and the kind of data needed for analysis. The other is defining the methodology they should use to analyze these data sets. FIs’ existing analysis models and scenarios have been built with a timeline of five to 10 years. But incorporating climate risk into them requires scenario planning that looks 15 to 25 years into the future and into past data records as well.

So, what are the implications for FIs as climate talks and green investing discussions gain momentum?

  • Uptick in demand for data science teams and AI/machine learning themes FIs will need to set up extensive data warehouses and data lakes to analyze large and complex data sets to make efficient decisions. AI and machine learning themes will help in identifying correlations and anomalies in the comprehensive company data. There will be a rise in demand for AI programs and NLP algorithms that can help in assessing these data points.
  • Talent conundrum for executing sustainability initiatives In addition to the technology talent needed to tap into the data sets, there will be demand for sustainability consultants, ESG portfolio managers, and analysts who can act on the data insights. FIs will need to tap young talent from premier institutions and grow in-house talent to scale the talent landscape for sustainability initiatives.
  • Incorporate ESG data from partners into risk management FIs will have to embed ESG analysis into various facets of risk management like credit risk calculations and use it to identify and quantify the impact of emerging risks. The need for comprehensive climate risk data is fueling the emergence of ESG ratings data by start-ups and credit ratings firms like S&P. Partnering with one of these vendors will provide access to these scores that FIs can incorporate in the broader analysis.
  • Investments in communication and branding initiatives Given the rise of millennial investors who prefer to align their investments with their values, FIs will need to substantially invest in building a socially responsible brand to bring forth the right narrative. Thus, FIs will need to review their portfolios to align with ESG values and bring in the right industry leaders to drive the sustainability agenda.
  • Increased interest in service providers’ carbon footprints Increasing pressure on FIs for responsible and green investing will soon start to impact their sourcing decisions. Outsourcing and vendor management teams should start to assess their vendor portfolios on sustainability considerations like green procurement policy, waste management, carbon management, etc.

Everest Group’s take

Purpose-built platforms that are digital and cloud-ready for FIs to cost effectively scale their ESG strategies are currently in their nascent stages. There’s an urgent need to fill this gap.

There’s no single source of truth for the ESG data and the methodology to analyze it. FIs are unsure which data scores to utilize in their analysis and are increasingly setting up in-house ESG platforms to analyze ESG data and manage the end-to-end product value chain. This is a greenfield opportunity for vendors to gain first-mover advantage in this dynamic scenario and onboard FIs onto their platforms.

The current health crisis has only reinforced the need for sustainable investing, and governments have mobilized efforts to stress test their financial services sectors. As supply chains across the world are disrupted, investors are looking for safe havens in the form of companies that can weather such crises. FIs need to act fast to capture market share from the new generation of investors and tap into returns from ESG funds or risk being disintermediated in the long run.

What’s your take? What technology and data analytics challenges have you faced in your ESG journey? Please write to us at [email protected] or [email protected] to share your experiences, questions, and comments.

How COVID-19 Will Impact IT Services in the Banking and Financial Services (BFS) Industry | Blog

The BFS industry started 2020 in a cautiously optimistic mood, hoping for a rebound in global economic growth. But then the COVID-19 outbreak swept the world into a state of emergency. The current challenge is far greater for BFS firms than was the Great Recession, as they need to crack the code of how to deal swiftly with both demand- and supply-side shocks. In this scenario, banks face a dual mandate of:

  1. Playing a central role in stabilizing the economy
  2. Ensuring business continuity to maintain normal operations

Breaking down the impact of COVID-19 on the BFS IT services market

To illustrate the variation in pandemic impact across different BFS lines of business (LoBs), we analyzed the severity of impact and speed of recovery for each line. Our assessment of severity of impact involved modeling factors such as the COVID-19 revenue and profitability impact from both a near-term (3-6 months) and a medium-term (6-12 months) perspective. We gave more weight to the medium-term impact as the near-term uncertainty makes the modeling of impact very difficult.

And we mapped impact severity against the speed of recovery by gauging the time it will take for these LoBs to bounce back to the pre-crisis state; this is a function of the health of these business segments before the crisis, as well as expected changes in customer sentiment and buying behavior once the crisis is over.

Our analysis found that BFS LoBs cluster in four zones, each of which exhibits unique characteristics and will face a distinct set of technology and IT services implications. Taking it counterclockwise from the bottom right quadrant:

  1. Aggressive cost take out – Lying on the bottom right, the LoBs in this zone will face the highest degree of impact; we also expect their pace of recovery to be painfully slow. To aid in their recovery, these LoBs should rethink their operating models and get back to basic principles: focus on the core business of provisioning financial services, think of delivering more value to customers, and move away from non-core elements like engineering or IT services innovation.We expect to see heightened asset-heavy deal activity in this segment, as these LoBs will need cash to invest and rejuvenate growth in select focus segments. And they’ll be looking for financial engineering support through activities such as takeover of legacy assets, shared services carve-outs, and even signing of long-term integrated technology plus operations support engagements that are centered around specific business outcomes.
  2. Modernization –This zone at the top right comprises LoBs that we expect to rebound faster to pre-crisis growth levels. From an IT services standpoint, we expect these LoBs to focus on cost savings in the near-term by seeking price cuts on rate cards and pausing some change initiatives. However, soon enough, these segments will get back to modernization initiatives. Hybrid cloud will play a critical role, as these LoBs will place significant emphasis on digital enablement to fuel their long-term growth.
  3. Growth – Odd as this may sound, we expect these business segments to benefit from the crisis in the near term. For example, as governments across multiple geographies have announced relief packages for small businesses that are facing unprecedented economic disruption, banks are needed to facilitate these SBA loans. Financial services firms that have proactively invested in creating a scalable infrastructure and stronger business continuity plans are better positioned to take advantage of this opportunity by generating significant fee income. Enterprises with large LoBs in this zone will also be on the lookout for inorganic expansion and take advantage of the reduced evaluations. Enhancing customer experience, driving product innovation, and improving agility to quickly respond to market demands will be the key investment themes.
  4. Transformation – This zone comprises LoBs that will recover most slowly from this crisis. Hence, these business segments need to rethink their business models and diversify their revenue mix to sustain themselves in the long term. For instance, retail/consumer transaction banking will face profitability challenges due to reliance on interest-based income, and some of the fee-based commoditized businesses, like retail wealth management, have been under stress due to downward fee pressures. As a result, enterprises with large LoBs in this zone will look to transform themselves and invest from a long-term growth perspective.

 

COVID 19 impact vs. response matrix across BFS lines of businesses

Implications for BFS enterprises

At an industry level, we expect BFS firms to completely focus on running the business initiatives in the near term. Our research suggests that banks have put nearly 60 percent of change projects on hold. Most of these suspensions are temporary and will restart once the crisis abates; however, we believe that the prioritization and nature of these change projects will mutate due to a shift in business priorities and budgets.

As an immediate response to the current situation, designing and executing customer assistance programs should be the top priority for BFS firms. In the medium term, the firms’ focus should gradually shift to modernization of legacy systems that slowed down banks’ agility and ability to respond to this crisis. Post COVID-19, BFS firms will need to reimagine their products, pricing, and channel strategies to fulfill evolved customers’ expectations.

Our recommendation for BFS enterprises is to cautiously evaluate their exposure across each of their LoBs and carve out a holistic IT strategy that takes into account not only the near-term implications, but also their long-term business philosophy.

Please share your views on the impact of COVID-19 on the BFS industry segments with us at [email protected] and [email protected].

Will COVID-19 Ease the Relentless War for Talent? | Blog

While some people in the global services industry think that large scale unemployment and the slowdown in growth due to the COVID-19 pandemic may reduce the talent demand-supply gap, we wholeheartedly disagree. Indeed, we believe that strategic workforce planning has become even more critical for the global services industry.

Here are four reasons why organizations need to accelerate their workforce initiatives right now.

Talent shortages will become acute

A survey we conducted in early 2020 found that, even before the COVID-19 crisis, 86 percent of enterprises considered the talent shortage a key barrier to achieving business outcomes. This situation will further exacerbate. It’s true that the impending economic downturn could lead to even more unemployment and oversupply in the talent market. However, the available skills profiles may not necessarily match organizations’ current and future requirements, especially because highly skilled talent is expected to be retained even during downsizing. Increasing focus on automation and digital transformation will further widen the demand-supply gap for skills, making it difficult for organizations to source suitable skills internally or in the open market. The prevailing circumstances (e.g., the lockdown, financial distress, and health issues) may impact overall talent employability in the open market, further compounding the talent availability issue.

Rapid digital transformation is inevitable, and it will intensify the demand-supply gap

COVID-19 has accelerated digital transformation across organizations. It has not only reinforced the utility of tech-enabled platforms and advanced automation for seamless service delivery during mandatory Work-From-Home (WFH) protocols, but also enabled organizations to react to the evolving business environment and customer needs faster. The impending budget cliff and business model changes will further push organizations to prioritize digital transformation, which will have implications on the talent needed both to drive this change and to deliver services after transformation. Demand for emerging skills will spike even faster, again creating the need for reskilling, alternative talent models, and productivity enhancement. We are already seeing a spike in hiring by companies like Amazon and Google. Some firms are seeing this as an opportune time to acqui-hire – or acquire startups primarily for their talent. Leading global banks, healthcare firms, and manufacturing firms are rethinking their talent strategies.

Supposedly foolproof location and BCP strategies did not work in the face of this pandemic

COVID-19 has exposed key issues with enterprises’ and service providers’ existing locations strategy and Business Continuity Planning (BCP) approaches. Nearly three-quarters of enterprises that have offshore/nearshore GBS centers operate in only one location. Even enterprises with multiple GBS centers have a high concentration of talent in their largest center. Others have developed centers of excellence with large portions of their workforce for a specific function consolidated in a few locations. Less than 10 percent of GBS centers were truly prepared for a seamless WFH model. Companies will need to re-evaluate their redundancy matrices and location/portfolio mixes to achieve a more robust BCP. Some seemingly obvious responses to locations portfolio questions may not apply anymore.

WFH is here-to-stay

A 2017-18 survey by the Bureau of Labor Statistics revealed that nearly 30 percent of the American workforce could work remotely. The extended lockdown in the near term and a high utilization, once the COVID-19 crisis has abated, will likely make WFH an integral component of the overall service delivery model. This change will have significant talent implications – motivation, employee engagement, performance metrics, reporting metrics, communication protocols, and collaboration – which organizations will need to proactively address to optimize productivity and enhance output.

COVID-19 has precipitated a fundamental shift in the way we work. There are underlying opportunities for enterprises and service providers that proactively adapt to the new normal. We believe there are four immediate steps that enterprises must take:

  • Review your enterprise global workforce strategy
  • Develop a roadmap for skills development initiatives
  • Review your locations portfolios and BCP strategy
  • Build a playbook for integrating WFH and crowdsourcing into your services delivery models

We’d love to hear your thoughts on how the COVID-19 pandemic is impacting talent strategies. Please share with us at: [email protected], [email protected], or [email protected].

Banks Increasingly Tapping the Extended Ecosystem to Reverse Their Fortune | Blog

To reverse their precipitous loss of competitive advantage and market share, traditional banks are increasingly transforming themselves from financial products/services providers into customer lifestyle experience orchestrators. One of the key levers they’re pushing to bring about this innovation turnaround is expansion of their ecosystem to include academics, regulators, FinTechs, telecom firms, and technology vendors.

Everest Group’s recently-released report, Guide to Building and Managing the Banking Innovation Ecosystem – Case Study and Examples from 40 Global Banks, revealed four distinct ways in which banks are working with the ecosystem to drive their innovation strategy.

FinTechs

This is all about exploiting the symbiotic relationship between banks and FinTechs. Serving as “enablers,” FinTechs are helping banks provide more choices to customers and expand the set of services and features in their current offering. For example, Royal Bank of Canada (RBC) collaborated with WaveApps to integrate invoicing, accounting and business financial insights into its online business banking platform. This enables RBC’s small business clients to seamlessly manage their full business financial services’ needs — from banking and bookkeeping to invoicing — in a single place with a single sign-on.

Taking on the “enabler” role, banks allow FinTechs to gain access to their customers, data, capital, experience, and platform. This collaboration helps FinTechs avoid the challenges they face in scaling their services independently.

Banks and FinTechs are also combining their unique strengths to solve specific business/customer issues in co-branded partnerships. As the banking industry moves towards lifestyle orchestration services, banks need to launch products that cut across industries such as travel & hospitality, manufacturing, and retail & CPG. This can be achieved by meaningful cross-industry collaborations like the one between Citi and Lazada Group, an e-Commerce site in Southeast Asia. The partnership allows Citi card holders to enjoy a discount of up to 15 percent on selected days when shopping on Lazada, while shoppers who sign up for a new Citi credit card receive additional discounts on Lazada. The move drives growth in Citi’s cards business via increased customer loyalty.

Internal innovation

To build their internal innovation ecosystem, banks are conducting hackathons and establishing digital R&D hubs that help them retain talent and bridge the digital skills gap. For instance, Bank of America launched its Global Technology and Operations Development Program – which is called GT&O University – to train workers for new and evolving roles related to artificial intelligence (AI) and machine learning. This has helped the bank not only upskill its workforce but also enhance its retention-oriented employee value proposition. And banks, including ING, are tapping open banking by providing external developers, industry innovators, and clients with access to their APIs. This helps them expand their offerings, provide new channels to serve customers, build new experiences for clients, and enable open collaboration.

Investments

Banks are closely tracking the innovation ecosystem through multiple programs such as investments, incubation support, and partnerships to avoid threats of disruption and competitive disadvantage. This includes investments across academic institutions, startups, and service providers. Interestingly, our research suggests that banks are likely to continue investing in startups via acquisitions or venture capital financing to accelerate their transformation efforts. This is evident from TD Bank’s recent acquisition of Layer 6, a Canada-based AI startup, which adds new capabilities to TD’s growing base of innovation talent and know-how.

Co-innovation

Through co-innovation partnerships with startups, consortiums, academic institutions, and technology giants, banks are jointly developing innovative solutions and technology. Leading banks are forming consortiums with other banks, technology firms, and other participants across industries to solve industry-wide issues such as cybersecurity, API security, and regulatory technology, building platforms and standards for the industry. For instance, TD Bank joined the Canadian Institute for Cybersecurity to co-develop new cyber risk management technologies. And HSBC is working with IBM to jointly establish a cognitive intelligence solution combining optical character recognition with robotics to make global trade safer and more efficient.

To learn more about banks’ leverage of the extended ecosystem to drive competitive advantage, and details on the “why’s” and “where’s” banks are focusing their innovation efforts, please see our report titled “Guide to Building and Managing the Banking Innovation Ecosystem – Case Study and Examples from 40 Global Banks.

Blockchain Adoption Journey and Impact on Financial Services Industry | In the News

Blockchain is increasingly viewed as a ground-breaking technology with potential to disrupt industries by enabling process efficiencies, cost optimization, and building new operating and revenue models. Everest Group research suggests that almost 60% of all blockchain use cases are focused on the financial services industry since the genesis of this technology from the cryptocurrency bitcoin. Some of the use cases of blockchain in financial services are FX settlement, real-time payments, OTC derivatives clearing, P2P lending, cross-border lending, compliance reporting/audit, securities Issuance, P2P insurance, trade finance, KYC as a shared service, event-driven insurance, and core banking.

Read the rest of the article by Ronak in Infosys Insights

Insurers and AI InsurTech Partnerships | Sherpas in Blue Shirts

Insurers are increasingly investing in AI to enhance the customer experience with automated personalized services, faster claims handling, and individual risk-based underwriting processes by empowering agents, brokers, and employees. Our recently released Insurance IT Services Annual Report 2018 found that more than half of insurers are opting to build in-house AI capabilities through hiring, internal training, hackathons, acquisitions, and partnerships with InsurTech companies, while the rest are turning to IT service providers.

Increased InsurTech Investments

The appetite for change within the insurance industry is certainly there. To make that change happen quickly, insurers have been investing in InsurTechs, firms offering technology innovations designed to squeeze out savings and efficiency from the current insurance industry model, to align data and integrate backend systems. Total InsurTech funding reached US$2.3 billion in 2017, a 36 percent increase from the US$1.7 billion recorded in 2016. In 2016, AI and IoT accounted for almost half of the total investment in InsurTech startups globally.

AI InsurTech investment has increased multi-fold since 2016. Seeking access to talent pools, innovative ideas, high speed, and lower cost of innovation, leading insurers have invested in startups including Betterview, Captricity, CognitiveScale, Lemonade, Mnubo, and Uniphore.

And 2018 appears to be spurring even more investments. Indeed, some of the top insurers have created dedicated venture capital arms – e.g., Allianz Corporate Ventures, MetLife Digital Venture, and XL Innovate – to invest in technologies such as voice biometrics, cognitive virtual assistants, speech analytics, telematics, drone imagery, and machine learning.

Strategic Decisions

Research we conducted on 24 leading insurance firms’ investment model suggested that more than 70 percent of their investments in AI InsurTechs are not just from a funding perspective. Rather, they are entering into partnerships with the InsurTechs as a more strategic decision to fulfill their long-term vision of digitalization.

Insurers and AI InsurTech Partnerships blog - Overview

Significant Impact across Insurers’ Value Chain

  • Process optimization: The majority of the AI InsurTech investments are for automating underwriting policy administration and policy administration, resulting in increased process efficiency. For instance, AXA partnered with TensorFlow to use machine learning to optimize pricing
  • Product innovation: In addition to fixing processes, insurance companies are partnering with InsurTechs to develop new customized policies and pricing, per user demand through usage-based information. For example, in 2018, Munich Re’s HSB Ventures led a US$16.5 million venture financing for Mnubo, an IoT, data analytics, and AI startup, to build tailored financial solutions to improve the company’s business and facilitate new business models
  • Customer experience: AI is making traditional claims processing a thing of the past. Companies are pioneering new cognitive solutions that are making the claims process faster, smarter, and more efficient. For instance, in 2018, GENERALI implemented Expert System’s Cogito® technology to focus on registration and claims processing, and to automate the customer email classification, resulting in a swift and smooth claims process and better customer service.

We believe these partnerships create a win-win situation. They give insurers access to the necessary talent pool, latest technology, innovation, and speed they need to thrive, not just survive. And they provide vital to insurers’ ability to compete, and provide InsurTechs with the guidance, infrastructure, funding, and customer base they need to grow.

If you’d like insights on leading InsurTechs and how they’re changing the insurance industry, please feel free to reach out to [email protected] and [email protected].

How Insurers Can Close Their Digital Skills Gap | Sherpas in Blue Shirts

Earlier this year, we conducted a research study on how insurance companies are faring in their digital transformation journey. Using our Digital Pinnacle ModelTM analysis framework – which assesses digital maturity – we evaluated 23 insurers that operate globally across 18 dimensions including strategy, innovation, process transformation, organization and talent, and technology adoption.

Our key findings included that:

  • approximately 70 percent of those we evaluated will increase their investments in digital technologies by more than 6 percent in 2018
  • although the digital budget is managed by the CIO and CTO organization, 45 percent of it is primarily influenced and led by the CMO, CDO, and business unit leaders
  • there will likely be a significant increase in demand for some the next-generation technology themes, including artificial intelligence (AI), cloud-based IT infrastructure, Internet of Things (IoT), big data analytics, and robotic process automation (RPA), across the insurance value chain.

While these findings all point to positives in the move to digital, insurers, just like companies in all other industries, are facing significant challenges in finding the right talent and skills to accelerate their pace of digital adoption.

In fact, more than 60 percent of the insurers we studied are facing this major roadblock. We mapped their digital adoption investments against the skills gaps and discovered that they’re in the red zone in cognitive and AI, IoT, RPA, and cybersecurity technology skills.

Now, consider the impact of these skills deficiencies. Cognitive and AI are the future of data and analytics, they will enhance the way insurers operate as well as reach out to consumers. RPA is creating impact by reducing the overall cost of operations, it will help drive significant bottom-line results for insurers. Lack of skills in these areas shall hinder the digital transformation journey for insurers since they are intertwined with each other. For instance, automation is expected to the bedrock for the increased adoption of cognitive technologies in insurance. The lack of cybersecurity skills will hamper insurers’ digital adoption efforts, as security is one of the key demand themes that will provide increased robustness and resilience to their technology architecture.

Insurance Firms' Digital Skill Gap

We recommend a four-fold approach for insurers to succeed in bridging these significant skills gaps.

Adapt

Insurers must adapt to the digital-first talent mandate by prioritizing digital literacy through investments in training, re-skilling, and up-skilling efforts. Insurers must harness the power of technology to bring about change in their business processes. Also, as the playing field in the insurance industry is rapidly evolving, business responsiveness and agility has become a focus area for insurers. Digital Pinnacle Enterprises™ in insurance have prioritized digital learning, and infused areas like intelligence, data, design, and agile with highly skilled resources. They are in a far better position to leverage the investments and manage the trade-offs required in the digital age.

Invest

Insurers must invest in building a talent pool ecosystem through acquisitions or partnerships with niche technology firms (InsurTechs), set up innovation labs, and solve problems using the wisdom of crowd through hackathons and crowdsourcing platforms. One good example of open innovation for lacking digital skills is Allianz offering parts of its Allianz Business System (ABS) through APIs to other insurance companies. Another is Lemonade’s launch of its public API, which allows seamless sales of insurance products on digital media. Still another is AXAs’ use of KASKO’s platform (KASKO is an InsurTech offering digital middleware services) for its travel insurance products, all of which have been branded under the AXA Travel umbrella.

Partner

Insurers need to partner with IT and consulting services providers, and staffing firms, to gain access to a pool of specific next-generation technology talent that will accelerate their time-to-market and time-to-digital-success. Many providers are investing in building solutions/accelerators and assembling digital adoption best practices to partner with insurers on their digital transformation journey. Because of their domain knowledge, the providers can also deliver significant support in identifying redundant processes that could help optimize insurers’ overall IT portfolio.

Cultivate

As talent with digital skills is in competitively short supply, tapping new university and college graduates with digital training is an important way for insurers to fill in gaps. In fact, insurers can partner with universities to drive research and innovation. For example, in 2017, Allstate Insurance Company partnered with the Intelligent Systems Laboratory at Stanford University to better understand the implications of connected cars and autonomous vehicles. Collaborations like these can help foster talent at a very early stage and deliver benefits later.

Digital talent is one of the critical prongs of a viable, sustainable, competitive digital strategy. It will drive the difference between the leaders and laggards, and the survivors and non-survivors, in the rapidly transforming insurance industry.

If you’d like insights on how mature your firm is on its digital journey, please feel free to reach out to [email protected] and [email protected].

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