Digital transformation in capital markets: The future of capital markets

Financial Futures Podcast: Season 6 Episode 1

I’m excited to kick off our new season of Financial Futures, in which we explore the challenges and opportunities facing the future capital markets. In the first episode, I talk to Rupesh Khendry, Microsoft's Global Financial Services Strategy and Solutions Leader, about how firms can unlock the power of their data, and why digital transformation in capital markets is the key to retaining clients and attracting the next generation workforce.

Listen to it today to think about:

• The impact of social media on the sell side
• Why the buy side is playing one of Janet Jackson’s earliest hits
• Why improving your operational experience will end up improving your customer experience
• And what the world will look like in five years’ time
• Capital market technology trends

Just click the link below to get started.

Miss the last episode? Check out The Future of Financial Wellness
Be sure to listen to the next episode: ESG: Making Business Better

EDITOR’S NOTE: This article was originally published in October 2021. It has been updated for accuracy and comprehensiveness.

EPISODE TRANSCRIPT:

ERIN DANGLER: if there's one thing that 2020 taught us it's that adaptation is the key to survival, but while many thought measures like remote working and video conferencing were just a means to pull financial institutions through a global pandemic. It now looks like these habits and processes could be sticking around permanently.

RUPESH KHENDRY: Hybrid is really here to stay. It's not a stop gap. It's not about trying to offer a certain capability for a few months and put it back in house. firms are realizing that they need to invest remotely, want to attract the best talent so that you're not bound by geographical bounds. But then also to be able to have the power of technology to make that experience function seamlessly in a remote manner that enable collaboration and provide that infinite scale

ERIN DANGLER: because frictionless digital experiences, aren't only what the customers of today want. They're what the capital market workforce of tomorrow will demand.

JOHN AVERY: I think what's important to highlight here is that there's a whole new generation of workforce, I'll call it tomorrow's talent. and tomorrow's clients these are generations, Z zoomers right.

ERIN DANGLER: The digital natives.

JOHN AVERY: Digital natives. They expect this information 24 7 these are groups that's really, turning into investors video is very much native to them. And I think we're going to see a convergence of the digital user experience and video.

ERIN DANGLER: this is financial futures, the podcast that charts, the frontiers of FinTech innovation. In this series, we'll be exploring the opportunities and challenges facing the capital markets and diving into the trends that are reshaping the way institutions operate in this rapidly evolving industry. I'm your host, Erin Dangler, and today, we’re talking about customer experience, digitization and data with global financial services, strategy and solutions leader at Microsoft Rupesh Khendry and senior director of sell side strategy at FIS John Avery we'll discuss the traditional data ecosystem and the cost of silo data infrastructures within the capital markets. The lessons learned from the pandemic and the new expectations clients have when it comes to digital experience and we'll ask how institutions should be utilizing data to position themselves for growth. But before we dive into that, let's get up to speed with client expectations and the current trends surrounding experience in the capital markets with a little help from Rupesh.

So, can you just set the scene for us right now? What's the current client experience of institutions within the capital markets?

RUPESH KHENDRY: as you think about the client experience, we need to unpack this in terms of, how you think about the value chains across the business. Certainly, the sell side and buy side have different perspectives in terms of what is the true client experience they want to evolve to. And we're seeing that play out for some years where clients have been trying to pull together a modern perspective in terms of how they offer a unique. Proposition to their clients. we're seeing few trends play out from a brokerage and trading standpoint, it has been to replicate the social media experience that consumers have become used to working with Facebook and their own social media channels. On the institutional side, it is really about, what have you done for me lately? So it is about trying to offer newer analytics capabilities advanced insights that can help the investment decisioning process. some institutions have taken a more strategic approach in terms of re-imagining the client experience while others have been focused on keeping the lights on and there. They're doing this in a crawl walk, run manner. Uh, there is that need to provide a seamless view so that clients can achieve more stickiness on your platform. Certainly, what's happened in the last 12 to 18 months. Has. Put a lot more focus and emphasis on how institutions can create a much more modern experience.

JOHN AVERY: Indeed, Rupesh when I think about this question, it’s really important here to level set on is, really the current state of data and capital markets has some significant challenges just because of history. Historically, data has been very siloed. It's been stored in different systems and data has not been connected that the transmission of data between systems is typically done on an end of day basis or an end of reporting period basis. transferred as files. not very much not on a real-time basis that you need for a very, 24 by seven integrated digital customer experience. Right? In some cases, it's taken months or years to connect data between different platforms and, the customer base that I'm very familiar with our institutional clients on the buy side. And then on the sell side and what's. dramatic about the current state is that there's probably 25 to 30 years of data debt. And that data debt is in some cases is. Very much stored in separate systems. It's not easily accessible. and data really is the foundation of the future of the customer experience, as well as the future of the operational experience in capital markets. And, if you can improve your operational experience that ultimately ends up improving customer experience data is also. The foundation for any more advanced analytics, like machine learning and artificial intelligence, you need to have an expose the data in those systems. And like I said, historically getting data out of systems is, has taken months or years. And, it's only within the past few years that we've really seen an accelerator. journey to getting data out of systems and making it more accessible to enable a more improved or improved customer experience, as well as an improved set of data analytics and other, a more advanced technology approaches to data like machines.

ERIN DANGLER: So, how does the data experience differ between different types of clients in capital markets you had mentioned buy versus sell. What about banks versus brokers? Or is there a difference?

RUPESH KHENDRY: I think, in terms of the value chain across the business the end perspective really is to be able to provide a seamless. View of the client's own business to help clients, trade in a more efficient manner to be able to generate better insights. there are nuances within it. if you think about the trading or the sell side of the business, there's a lot more focus around latency, for instance, how can you enable faster? Time to trade. And that's where it's about making sure that you have the most seamless systems that can enable clients to take advantage of market movements. and it's about latency. It's about volume. It's about velocity. As you think about the buy side and the asset management business that's about a lot more quantity of deals. And it isn't just about figuring out your market data or structured information. There's a huge amount of unstructured data. and alternative data that comes into play because firms are dealing with a myriad of data sets that can help them glean insights. So the devil's in the details really, but as John also alluded to, the client experience is really incomplete. if you aren't able to get the backup. more seamless in terms of the ability to source all types of data, to be able to centralize the data so that there is a, proverbial, single view off the business so that yeah, at debt can then help empower clients in their journey to service their own clients, to be able to manage risk, to be able to trade more efficiently. and that is the part that needs most. Because like some of my clients told me for every dollar of data that they source, it's about $7 that they need to invest in terms of the extraction transformation and load process. therefore firms need to look at it more strategically it is about re-imagining the entire data experience to start with the more concrete blueprint which defines the data from ingestion to sourcing, to compute, to analytics, visualization, and ultimately client collaborate.

ERIN DANGLER: Interesting. So the data is both for the client and the firm. It's kind of like getting that information in real time.

RUPESH KHENDRY: Yeah, absolutely. You think about the client experience? we like to think about the client, not just as external clients, which obviously are super, super cool. Whereas it's also about the internal employee experience and how do teams collaborate so that there's an ability to get in front of risks that need to re remediate and the ability to offer insights to clients. And that collaboration has its foundations in, in, in data platforms that can provide that experience.

ERIN DANGLER: So how can these departments. Collaborate, you've talked about the data debt of working in siloed systems. I mean, can you put a monetary number on that? Like how much business has been lost with that kind of infrastructure?

JOHN AVERY: I think the industry as a whole's struggles, probably to attempt to quantify the opportunity, cost of data, really being ultimately tied up in systems and separated by silos and other, other historical. Data debt. But, you know, I think for example, one of FIS’ clients, for every customer experience that our clients want to enable for their end investor there, there might be 10 or 20 or 50 or a hundred operational staff actually works to produce the result for that end customer. So I think It's really important when we think about customer experience and unlocking the value of data to enable that customer experience, it is very important to really think about how to innovate. Those operational staff with all of the data they need across systems. then it actually frees them up to focus on delivering results to clients, addressing queries from clients and I think Aaron, to answer your original question, is there a difference between the different types of clients in the capital markets industry in terms of their demand for data and for a client experiences? And I think what is important to highlight here is there are significant similarities between all the different client types in capital markets. They want access to data. in real time. That data to be accurate as well with limited or no reconciliation required. So accessibility we think is solved through things like API APIs and user interfaces to data. Accuracy requires significant data quality programs. And then real-time access, well, that requires a ultimately a change in processing, change in the processes that support that data, and all of this is ultimately enabled by different technologies that support a more efficient processing and consumption of data. And I think, it's hard to really put a price tag on, the limitations that we've seen in the past. But what we do know I think most importantly, is that coming out of the pandemic, there is significant demand for digitization of existing processes, digitization of new processes new products and services. and what that highlights is, data comes first. And I think that will continue to be a theme going for.

ERIN DANGLER: The opportunities facing buy and sell site institutions by freeing their data from cumbersome siloed systems through technology such as APIS. APIs are huge. By embracing this data first mindset and digitizing products and services institutions will be able to take advantage of sophisticated technologies to handle this time-consuming task of extracting insights. Not only will this allow them to deliver information to clients with increased speed and accuracy, but it will also allow their workforce to focus on that all important client experience. So with data poised to play an increasingly important role, moving forward, how can buy and sell side firms get ready and position themselves to truly become data-first institutions?

I think I read some statistic that we're going to generate more data in the next three years than ever before. So, firms need to be prepared for this. How would you advise them to get ready?

RUPESH KHENDRY: it's really a digital transformation journey, so to speak at the highest level we've seen the power of the cloud and newer technologies can help enable and transform the business in many ways. So, it's not that firms haven't been working on it. They've obviously been fairly sophisticated efforts by multiple firms in terms of solving for this for the longer term. I think it's starts with creating a blueprint of what that future of the firm looks like. And certainly, data is at the core of it. But not just data for data's sake because the intent is to create insights from that data. And some of those challenges we've talked about create significant data gaps that illude sort of the seamless view of the single source of the truth. And I think this has to be sort of broken down and unpacked in terms of the challenges that one needs to solve as data gets increasingly complex and you have multiple sources of data, not just external data, but now with now client's interests are in geospatial information. IOT or internet of things in terms of satellite imagery as well and not just graphic data, but alternative data sets that will lead to insight on the business. And that's sort of the foundation in terms of creating that version of data, which can lead to compute and analytics from a single source of the truth. But, on top of that is really where the magic happens in terms of being able to offer lines of business, does unique insights, why advanced analytics, machine learning, and ultimately offering new monetization opportunities, not just for the firm, but for their end clients. So I think it's a journey and I think the technologies that are in market today can certainly help empower firms to drive towards a more strategic perspective. And as firms think about creating new offerings and solutions to market, we are seeing, various new asset classes come into play. So it's now it's a 24/7/365 market as you think about digital finance and FT or newer asset classes that come into play and it isn't about, shutting down or the weekend, creating new applications and creating sort of, batches that will be put into production. And you have the tools today in terms of cloud, and that can be offered in a secure compliant manner to drive towards a newer approach in terms of the data value chain.

JOHN AVERY: I'd like to add a few points here and also, reinforce some of the points that Rupesh had made. I think the cloud is key, right? Because the cloud really eliminates the friction of data access, By making data more accessible in a centralized location, but doing that in a way that scales almost infinitely and historically, one of the reason why data silos exist is because the technology wasn't able to support sort of endless volumes of data in inefficient storage models. Now what the cloud does is actually creates capacity for data to be duplicated, data to be stored, and data models that might not necessarily be the most efficient from a storage perspective, but they're data models that make it very easy to access and consume that data by a variety of applications and consumers. I think, clearly the ability to piece together and build applications through APIs I think is sort of an important foundational set of technology as well. And you know, there, there are firms that, even FIS when we think about opportunities in the market, we, many times think, can we offer an API first to expose that data for clients to be able to access and incorporate that data into their applications and processes? If we look back 10 years, 20 years, 30 years the business process was designed first and then the technology was designed second. And therefore that created a lot of problems because the data to describe the operational process, the output of that operational process for whatever asset class we're talking about here, many of the systems and technology—they weren't designed data first. They were designed process first. And, I think today what's happening is data is really being considered as a, I'll call it a first class citizen, and exposing that data to downstream applications, to value added services, like machine learning and AI, that's a conscious decision that's being made upfront in the architecture and design phase.

ERIN DANGLER: So this we're talking about this transformation to digitalization, where it really is. A paradigm shift where we're going digital first, and this transformation was already happening prior to the pandemic, but it feels like maybe the pandemic kind of threw gas on the fire that was already started. So what were some lessons that were learned during the pandemic that have added to this digital first transformation?

RUPESH KHENDRY: Yeah, it's a, it's a good question. Uh, the lessons from the last 18 months have certainly accelerated the efforts because firms, quickly realized that they needed to get every part of the business process operating in a seamless manner in an airport remote. And therefore, I think there's some lessons learned that are becoming founding principles going forward. I think one of it is really hybrid is really here to stay. It's not a stop gap. It's not about trying to offer a certain capability for a few months and put it back in house. firms are realizing that they need to invest remotely, want to attract the best talent so that you're not bound by geographical boundaries. But then also to be able to have the power of technology as John alluded to, to make that experience function seamlessly in a remote manner that enable collaboration and provide that infinite scale as if you are operating in a trading room or at the desk in the institution. However, there is still that need for the human connection. And therefore, I think what we're seeing is how can remote now power hybrid experiences, but still continue with that remote connection of, trades that you do for instance, on a trading floor environment that some exchanges still operate under. how do you create that walled garden where secure PII client data can be shared confidentially between teams as they strategize on new deals or pitch for a new client engagements. And how do you then provide those tools in terms of collaboration capabilities and a modern data architecture to enable that functioning. And we're seeing some great client work happened as Microsoft works with our clients to provide that experience. I think there are certainly ability to provide that we do to provide that video engagement where video now powers the next generation collaboration capabilities. it is about then manifesting that into a whole seamless value chain where you're able to collaborate internally, but then use the same foundation to provide access to clients in a secure manner.

ERIN DANGLER: I want to go back to something you said maybe John can chime in on this when you were talking about the video tools that Had to become more accessible during the pandemic. And now, as you said, there, the hybrid model is here to stay. So how can they be more integrated into the digital customer experience? And does it help the operational workflow? Is this beneficial to both sides of the operation?

JOHN AVERY: We move, not sure what the statistics are, but let's say, 5 to 10% of calls being video conference based prior to the pandemic within one to two months, literally all of our calls were video calls, right. That wasn't a three month journey or a six month journey or a 12 month journey, or even a 24 month journey that transformation globally literally took about one to two months. So what that highlights is, and where we are today, is it video is first right? You have a video call first, that's the first option, whether you're fully remote, whether you're a combination of, folks in an office and folks remotely. In a hybrid working environment, which is very much here to stay. And I think, the reason why video first is significant is echoing back to what you had mentioned before Erin, that you called out digital first, right? I think, you know, digital really represents resilience. It represents scale. It represents the digital enablement tools. That enable that customer experience that that clients want, really highlights not only resilience, but that ability to be ready in very short periods of time, clients don't want do not want to wait three, three months or six months or 12 months for, for getting access to data or getting access to reports or getting onboarded. They want that right now. and I think what's what is interesting. I think what's important to highlight here is that there's a whole new generation of workforce, tomorrow I'll call it tomorrow's talent. and tomorrow's clients these are generations, Z zoomers right.

ERIN DANGLER: The digital natives.

JOHN AVERY: Digital natives. They expect this information 24/ 7 these are groups that's really, turning into investors and video is very much native to them. And I think where this is going to converge it's a combination of video it's combination of digital tools and it's a combination of audio conferencing. I think we're going to see a convergence of the digital user experience and video, because very much, you can imagine many of the challenges that we still see in capital markets today are because it requires 10 or 15 or 20 emails to process a transaction. But you could imagine a future world where transactions and the breaks in the transactions or exceptions that needs to be processed. They include some aspect of video, audio, they include some chat, and they include some sort of digital operational tools. All of that is enabled by the cloud and the scale because you're talking about, you know, very significant bandwidth, you're talking about a very rich immersive experience. So instead of solving a capital market success, by using five different tools and a number of different media, you have it all integrated in one experience. And this new workforce and this new generation of clients out there in capital markets. We should expect that's what they will expect of us natively too.

ERIN DANGLER: Institutions have had to adapt at a blistering pace in order to meet the needs of a 24 /7 market and to satisfy the needs of a remote workforce And not only has adopting technology such as video conferencing and digital tools, increased firms resilience against disruptions like global lockdowns, but they have also prepared firms to meet the needs of the digitally savvy clients and staff of the future. But aside from pandemics and an increasing need to go digital, what are the other trends that could be influencing financial institutions in the years to come? And what could the future of client experience within the capital markets look like?

So, Rupesh what are some other themes that are emerging out of the pandemic? What other trends are we seeing? with financial institutions trying to improve their customer experience or collaborating with their customers?

RUPESH KHENDRY: It's really squarely based on the end client challenges that firms are trying to solve for. But I think in the, from a baseline standpoint the need to improve collaboration with data is a theme we hear a lot of from our clients. And while the baseline is yes, providing that hybrid capabilities for teams across front, middle and back office to service and drive new client revenue is important-- it's really about the next gen experience from a client experience standpoint. And, we're seeing many avatars play out. I mean, you think about virtual reality and how, virtual reality can help enable a more human experience in collaboration, not just between teams, but how they can bring in more visual representations—be it sites you want to survey, supply chains that are providing real time insights in terms of how commodities or manufacturing capabilities are moving across geographic and physical boundaries. Delays or any such impediments that may occur can help drive insight that can lead to trading opportunities. And we had experience recently with the Swiss canal and how that could lock out distribution and supply chains. Now that kind of insight can be, considered a trading opportunity. How do you bring in such kind of data that isn't today the platform of choice. And how could you then leverage all these alternative datasets to provide that client collaboration experience?

ERIN DANGLER: So I think we've already answered this question, but I would just love your final input on this from both of you moving forward, can financial. Of Ford to carry on as they are and not make steps toward digitalization.

JOHN AVERY: I think it's imperative that all firms, consider digital transformation, digitization, digitalization, whatever you might call. the industry has already moved and mass to exposing data in siloed platforms in really bringing that data into the cloud and then exposing that data to more advanced analytics, like machine learning and artificial intelligence. And I think, it's not really a question of whether or not they're doing it. It's really are they doing enough to really be ready to offer tomorrow's products and services that the market it will demand and the market will need. And how do you continue to be competitive and lead the market or lead the way and drive growth. It's going to be really, trying to build the future of tomorrow one step at a time, but those steps are increasingly happening in a lot more accelerated fashion than they have in the past. So I think it's imperative that firms continue to invest and also continue to question why things, if they're not digital first, why they're not and making those, the exception and not the rule. Digital has to be first. And it has to be first going forward in order to be competitive in the, in, in thein the field.

ERIN DANGLER: So, Rupesh, has, what advice would you give to institutions to be future ready and put themselves in a position for growth?

RUPESH KHENDRY: I think in some ways it's really about re-imagining the future state and it's not to be said that firms aren't down their journey. We've seen, many waves of that play out in the last, I would say 24 to 36 months, some of the initial focus was on cost takeout, which was about driving a more modern infrastructure experience and bring together a more consolidated view of their platforms and applications. And then we saw the emergence of the focus around modernizing the client experience. And I think we're certainly seeing many investments play out in certain segments, but I think the more strategic firms are beginning to prioritize an end-to-end experience with a new blueprint around it. And, if you think about it from an end to end view of the business, firms have to now begin to focus around that seamless experience. And I think that has to be sort of looked at very strategically in terms of the priorities and business focuses that you want to go at. And these answers may differ depending on Europe bulge bracket, investment bank, or a large, tier one asset management firm, but ultimately firms are looking to create new solutions. And I think the emphasis of that will be how technology can power those experiences.

So, we're seeing different perspectives of display out, someone looking at it from a strategic, all up top-down standpoint in terms of the board defining their strategic business and therefore technology enables it. While some others are seeing this as a bottom up approach in terms of trying to solve it for a line of business to create a new vehicle or a new business, and then build scale on top of it.

ERIN DANGLER: So John, I'll let you take the last word here. What, if you could look into a crystal ball, what do you see five years from now in terms of digitalization and these firms and how clients.

JOHN AVERY: So, when I look five years ahead, I see a world that is much more real time. Data is very accessible. In fact, data projects are really a thing of the past data is simply accessible in systems. You no longer need projects and, and project plans and teams of people working on data projects because all data is exposed. It's available in the cloud. It's available in one place and that the ability to consume that data, whether it's through APIs or user interfaces is very much frictionless. And the ability for machine learning to really transform and expand on the value and increase the value of that. AI and machine learning are embedded at the core into that data fabric. And that's, going to be really important, because we live in a very manual world that requires lots of human intervention. Now imagine if the machines can make it easy to predict what you're going to complain about or what you're having an issue with, and then being able to give you all the data and context you need when you need it. If not before to help you solve that problem.

So my view for the next five years, Is that we can spend more time analyzing the implications of what the data says than an actually producing and sharing.

ERIN DANGLER: Rupesh Khendry is global financial services, strategy and solutions leader at Microsoft and John Avery is senior director for sell side strategy at FIS.

That's it for today's show. Thanks for joining us for the season six premiere of financial futures, a production of lower street media in collaboration with FIS.

And we'll see you next time when we'll be taking a deep dive into ESG and trends in sustainable investment demand.