DIGITAL TRANSFORMATION OF THE BANKING INDUSTRY, Part 3

  (Source: East Japan Railway Company)

Leverage Digital Technology

In the banking sector, players should strive to become trailblazing purveyors of financial services that leverage digital technology.

There are areas in the banking services value chain where firms should work independently to generate unique, in-house, high-value-added services and products; there are also areas where banks stand to benefit by collaborating with other firms to drive down costs. Also, firms should consider collaborating with other firms to leverage economies of scale and economies of scope, parlaying cost centers into new profit centers, and securing a role in the industry infrastructure.

In actual operation, after deliberating and implementing such initiatives, big-data analytics and the automation of all processes will prove the most important. Here as well, a shift to a modular supply structure will be required, and a critical factor in determining the success of financial institution management will be alliances — namely, how adroitly firms partner with other entities.

In Conclusion

Celent offers the three points below as food for thought and policy prescriptions for modernization in the banking industry.

1. Technology as a driver of growth:

  • Look for ways to pioneer new segments through the use of technology without fixating on the segments that have been your bread and butter up to this point.
  • For example, robo-advisors can be used not only for mutual fund but also for insurance products sales to retail customers. Bancassurance and alternative distribution channels should also be driven by robo-advisors.

2. Vertical disintegration:

  • Prioritize finding the sweet spot for cost and risk and revisit and rethink your processes (such as vertical integration and/or internalization, and the use of horizontal division of labor and/or outsourcing) across the board.
  • For example, enhancing the agility of new payment product research and development might be achieved by vertical disintegration of banking business into payment services discovery, development, and marketing organizations.

3. Industry-wide priorities:

  • Place top priority on initiatives to raise financial and IT literacy among customers.
  • Actively seek to leverage monetary policy and system reform as business opportunities; avoid a passive approach to system reform.
  • Rebuild the industry value chain through methods of modularization, specialization, and integration.

Legacy modernization in the banking industry is much more than simply the application of novel technology. Rather, it portends nothing less than a structural overhaul of the banking industry, an opportunity to envisage anew and redefine the industry’s future. There can be no doubt that this transcends the mere establishment of a digital channel; rather it will certainly impact products, services, IT units, and sourcing models, and, in so doing, provide the banking service providers of the future a chance to seriously consider exactly what kind of companies they would like to be and the corporate cultures they would like to foster.

Celent perceives legacy modernization in the banking industry as instigating change at a fundamental level, in both business execution and organizational structure. Moreover, this transformation promises to have legs and vast implications that will play out over the long haul. Legacy modernization is much more than just new technology and it will have sweeping implications.

 

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Related releases:

Legacy Modernization in the Japanese Banking Industry, Part 1

Legacy Modernization in the Japanese Banking Industry, Part 2

 

DIGITAL TRANSFORMATION OF THE BANKING INDUSTRY, Part 2

  (Source: Charles Schwab)

The Banking Industry of the Future

The securities industry can be regarded as the first sector in the financial industry to have embarked down the path of modularization. Mutual funds was the first major area involved in this first step toward modularization. Mutual funds are now mainstream products of banking and wealth management. The banking industry should not overlook the following episodes.

The mutual fund business model can be broken down into two process areas: 1) selecting investments or investment destination (portfolio building), and 2) sales of the created mutual funds. In the former, the products (portfolio) are designed and created (produced), while the latter involves the sales of investment firm securities (mutual fund beneficiary certificates), with sellers undertaking the office processing such as customer transaction reports.

In the closed model era of brokers and mutual fund firms, the norm until the 1960s, mutual fund firms would outsource sales to securities companies (full service brokers). This resulted in mutually beneficial consignment-based relationships between the investment trust companies and securities firms that endured for a long time with a fixed fee structure (investment sales commissions paid from the customer to the securities company) and securities trading fees (paid by the mutual fund company to securities company). These sales formats have since diversified.

No-load funds entered the market starting in the 1970s, spurred on by the liberalization of commissions for the brokering of securities, sluggish demand in the stock market, and the emergence of discount brokers that did not offer investment advice. This era was characterized solely by diversification of sales methods, and was entirely absent changes to the closed model that covered planning, manufacturing, and sales.

However, change descended on the market in the form of the mutual fund supermarket revolution. With the launch of Mutual Fund OneSource in 1992, Charles Schwab offered multiple funds that customers could purchase without paying a commission, but for which Schwab’s mutual fund management arm collected an annual management fee based on asset balance. Metaphorically speaking, this approach was akin to companies putting mutual funds on the shelves of a supermarket and charging commissions only for the products sold. The interface between mutual fund companies and securities companies opened up, and the creation and sales components were decoupled and functionally modularized.

More change is on the horizon. An era is coming in which the banking industry should orchestrate a shift to a structure that hinges on modular demand to respond to new needs fostered by digital technology and the new demand of the emerging digital generation.

Industry players should be ditching vertically integrated direct sales, or so-called keiretsu, which are tantamount to direct sales routes; instead, they should establish delivery models that are more dynamic and open. Omnichannel initiatives are not only opportunities for firms to launch or shut down these channels, but also to revisit and reconsider their optimal delivery model. Moreover, collaborating with non-financial sector players, including start-ups, opens the door to the possibility of accessing vast and new untapped market frontiers.

Robo-advisor initiatives can be expected to accelerate the speed of advances in modular demand structure. Presumably, coming delivery channels will seek to optimize information and investment expertise, driven by approaches that respond to the needs of investors by providing automated advice and harnessing bankers as human support mechanisms.

To be continued – Click here

 

Related releases:

Legacy Modernization in the Japanese Banking Industry, Part 1

Legacy Modernization in the Japanese Banking Industry, Part 2

 

DIGITAL TRANSFORMATION OF THE BANKING INDUSTRY

  (Source: Apple)

Modularization of Industry

Industries across the board are undergoing structural change. This change extends beyond individual firms and spills across industrial sectors. Some industries that have been exposed to the tide of technology-driven structural changes have harnessed technology to reinvent themselves as new industries befitting this evolution in industrial structure. The financial industry traditionally has been far from the vanguard of this change.

The proliferation of the Internet and digital technologies is only accelerating the evolutionary shift across all industries. This stands in stark contrast to the traditional non-modular, vertically integrated structure (where all the products and services are provided through and within one exclusive value chain) that the industry has historically embraced. However, disruptive new market players have visibly forced conservative, existing entities to begin to seek new approaches; at the same time, regulatory authorities have started to embark on establishing a new, more robust system for regulating the financial industry.

The hotel industry offers a prime example of modularization on the demand side. Today, hotels, as well as the entire travel industry, offer consumers the experience of comparison shopping across service, price, and quality. Celent refers to this phenomenon as modular demand.

Modularization on the supply side is perhaps best exemplified by the aviation industry. The aircraft industry intrinsically does not lend itself to being a self-contained business, relying on a variety of actors to make, operate, and commercialize aircraft. Technological innovation, deregulation, and cost pressures transformed the airline industry, spurring it to evolve into a quintessential modular structure on the supply side.

This modularization goes beyond the industry infrastructure that includes airports and ground facilities. All components of the value chain — from in-flight services such as meals and movies to ground services such as boarding and baggage handling, as well as aircraft maintenance, flight plans, management, pilots, and cabin attendants — are now all subject to external procurement. The airline business now hinges on corporate management’s adeptness at forging and managing alliances. At Celent, we refer to this phenomenon as modular supply.

Today’s music industry showcases some of the greatest modular advancements. On the demand side, the industry saw a shift in the listening experience, as consumers moved from CDs to online downloads and streaming. Dramatic technological advancements have enabled music distribution sites and social networking services to tailor recommendations to users, offering songs and videos to suit music preferences and enabling consumers to search for, purchase, and enjoy music in real time.

On the supply side, record labels and their vertically integrated model were initially largely blindsided by innovation because musicians no longer needed to rely exclusively on CD sales or being scouted, signed, recorded, and promoted by record companies. The ensuing change saw a shift to a new model where a diverse range of artists recorded themselves and harnessed social media and trendsetters to promote their colorful charm and generate fans. Both the supply and demand sides of the music industry value chain underwent a dramatic upheaval that shook the industry and spawned a more dynamic and open industry. This resulted in a new life for the music industry that relegated the CD and conventional business practices of music labels to history.

To be continued – Click here

 

Related releases:

Legacy Modernization in the Japanese Banking Industry, Part 1

Legacy Modernization in the Japanese Banking Industry, Part 2

 

New Hybrid Digital Bank, PurePoint™ Financial

This development marks a true milestone in terms of the global development of Japanese banks.

We have already seen Japanese insurers using M&As as they seek to internationalize their operations, including telematics-based auto insurance, as they enter the fray in cutting-edge financial services in mature markets.

Until now, overseas expansion in Japan’s banking sector has typically started with transaction banking and hinged on wholesale operations (trade finance, foreign exchange, and investment banking services to support the overseas development activities of Japanese companies).

This initiative signifies an expansion into retail operations of locally incorporated subsidiaries in North America with which the bank has a long history and abundant goodwill. This initiative will also provide valuable feedback that can be applied to the Japanese market. To succeed in this market will require meeting the needs of the millennial generation with state-of-the-art technologies such as IoT and AI and conducting operations in a way to develop next-generation digital financial services.

 

S&P Global Market Intelligence:  Mitsubishi UFJ Financial seeks stable dollar funding with new US online biz

NIKKEI: Mitsubishi UFJ expands in US with online banking

 

Celent Report Recommendation: Defining a Digital Financial Institution: What “Digital” Means in Banking

 

ハイブリッドデジタル銀行:ピュアポイント

またひとつ、本邦金融機関によるグローバル展開のマイルストンが刻まれた

既に保険セクターではM&Aによるグローバル事業展開が進んでおり、テレマティクス自動車保険をはじめ、成熟市場における最先端の金融サービスへの参入が始まっている。

これまで銀行セクターの海外展開は、トランザクションバンキングを筆頭に、ホールセール業務(なかでも、日系企業の海外展開を支援する貿易金融や外国為替、投資銀行業務)が中心であった。

本取り組みは、長い歴史と強い暖簾を持つ北米現地法人における個人向けリテール業務の展開であり、その挑戦と成果は、日本市場へこれまでにないフィードバックをもたらすであろう。

ミレニアム世代のニーズにマッチしたIoTAIなど最先端のテクノロジー活用と、相応しい事業体の運営による次世代デジタル金融サービスの展開が大いに期待される。

 

関連したセレントレポートの推奨:

バンキングにおける「デジタル」とは何か

日本の銀行業界におけるレガシー・モダナイゼーション パート2:銀行業界への提言

 

– Click to read more

 

 

 

JAPAN’S REGIONAL BANK CONSOLIDATION

This is just the beginning of a battle for survival in the red ocean.

The intense competition is not the result of financial authorities' encouragement but rather grows out of the zero interest policy and resultant alteration in the operating environment.

Japan's banks have already been striving to raise efficiency by consolidating their core systems.

Now what they need to focus on is leading the digital initiative, which can be adaptable to diversifying needs, rather than focusing exclusively on gaining broader market to increase ROE.

New markets and customers should be calling for innovative financial services.

Setting and implementing a new strategic framework that has not existed up until now is key to success in this era.

 

S&P Global Market Intelligence: Japan's regional banks under pressure to seek scale for survival

Nikkei: Japan's regional bank consolidation gains momentum

 

Related releases:

(JP) Legacy Modernization in the Japanese Banking Industry Part 2

(JP) Legacy Modernization in the Japanese Banking Industry Part 1

English version will be forthcoming shortly!

 

MoneyGram Agrees to Merge with Ant Financial

Through this $880 million deal, Ant will connect MoneyGram’s network of 2.4 billion bank and mobile accounts with Ant’s customers.
Ant, which is working closely with Alibaba, is seeking to expand its global presence amid increasing competition with the Tencent group at home.

Last year, Rakuten, Japan’s top e-commerce firm, downsized its international presence once again, closing its marketplaces in the UK, Spain and Austria, following a streamlining strategy to pull out from Southeast Asia and Brazil last year.
As the Rakuten case shows, the global expansion of e-commerce is more difficult than that of financial services.

The "last-mile" logistics problem still exists in e-commerce, requiring huge assets in local distribution centers.
Meanwhile, in modern financial services, technologies for mobility and security are the key.
In this sense, this M&A deal can be seen as an effective investment. Similar trends will likely accelerate in Asia as well.

2016年後半のカンファレンスを振り返る

カンファレンスは、いつも刺激に溢れています。2016年もアジアの各地で、パネルディスカッションやプレゼンテーションの機会に恵まれました。自らのプレゼンテーションを通じて、過去のリサーチ成果を発信するだけでなく、カンファレンス・チェアやパネル・モデレータの役割は、業界ソートリーダーとのインプロビゼーションであり、将来のリサーチトピックスやインサイトテーマを仕込む、貴重な瞬間です。人が出会い、意見を交換し、議論を深める。そのための準備と当日の緊張感は、アナリストの責務であり、醍醐味でもあります。 本稿では、2016年後半の5つのカンファレンスを振り返ります。銀行、保険、証券、ウェルスマネージメントの各業界の議論に共通したキーワードは、引き続き、フィンテック、デジタル、そしてモダナイゼーションでした。
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Insurance, Digitization and Bubbles(7月1日:東京)

保険業界は変革を迫られています。超低金利、新規事業参入者の増加、激化する価格競争、顧客との関り方の急激な変化が、保険会社の商品/ビジネスモデルを揺さぶっています。モノのインターネットやスマートロボットだけではなく、いまやブロックチェーンも保険業界に大きく影響しつつあります。 こうした新しいテクノロジーは、本当に業界を根底から変えてしまうのでしょうか? 仮に変化があるとするならば、いつ、どんな出来事が、どのような順序で起こるのでしょうか? セレント主催の本イベントでは、世界の保険業界におけるデジタル改革の最新トレンドを紹介し、お招きした日本の保険業界を代表するソートリーダーの皆様と、中長期的な視点での将来像を模索しました。
  • 世界の保険業界におけるデジタルトランスフォーメーションの最新トレンド
  • InsurTechが保険業界の未来、ビジネスモデル、事業運営に与える影響
  • 短期、中長期的な視点での展望、業界の未来図
  • 日本におけるInsurTechの現状と展望
Insurance, Digitization and Bubbles
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Asia Anti-Money Laundering Summit713-14日:シンガポール)

アジアにおいても欧米同様に、規制の継続的な改正、最大手の金融機関における規制違反事例など、AMLの運営管理全般を改善する必要性が高まっています。電子取引の爆発的な普及は新たな課題をもたらしており、金融機関が様々な事象をチェックする際に、もはや規制当局や政府公認のブラックリストだけでは不十分な状況にあります。 AMLはまた、海外業務を展開する大手銀行だけのテーマではなく、全金融機関において同様な備えとその効率化が問われる時代となっています。本イベントは、アジアの保険業界を中心としたコミュニティにおいて、AMLとKYCを真正面から討議する場となりました。 セレントからは当日、以下の既刊レポートを中心に、「ユーティリティモデルの隆盛とAI適用」に関する報告を行いました。 Asia Anti-Money Laundering Summit
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Asia Insurance Technology Awards95-6日:シンガポール)

2016年も引き続き、セレントは、AIR の主催する Asia Insurance Technology Awards (AITAs) の審査員を務めました。アジア各地の保険業界における、イノベーションと現代化に関する先進的な取り組みを表彰するこのイベントは、セレントの主催するアワード:セレントモデルインシュアラー と併せ、当社アジア保険部門の2大イベントとなります。 新たなテクノロジー、ビジネスモデルそして業界構造や組織変革への取り組みが、6つアワードカテゴリーにおいて表彰されました。中でも、Best Newcomerに輝いた Everledger(英国)、Digital Transformationを獲得した PetSure(オーストラリア)の両社は、InsureTech時代を象徴する取り組みと賞賛されました。
  • IT Leadership: Liberty Videocon General Insurance
  • Best Insurer, Technology: New China Life Insurance, Max Life Insurance
  • Digital Transformation: AXA Asia, PetSure (Australia)
  • Big Data and Analytics: AXA Hong Kong
  • Best Newcomer: Everledger
  • Innovation: IDBI Federal Life Insurance, Ping An Property & Casualty Insurance Company of China
Asia Insurance Technology Awards
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5th Asia Insurance CIO Technology Summit95-6日:シンガポール)

AITAと同時開催のアジア保険CIOサミットにおいて、キーノートスピーチ「InsurTech & Digital: A Global Round-Up 」を提供しました。 さて、保険会社の存在価値とは何でしょうか?
  • 安心、安全、健康な人生を支援する
  • 企業活動の全てのリスクを担保する
  • 人生の、企業活動の不安とリスクを軽減する仕組みの提供
様々な表現で語られますが、全てに共通することは、「顧客中心」主義。一方で、これまでの金融機関におけるテクノロジー活用の中心命題が、長らく
  • システム化による、人手から機械への代替による合理化、コスト削減 であったことは事実です。
しかし、テクノロジーの進化とその爆発的な普及は、こうして古典的な命題を激変させました。本キーノートでは、情報とテクノロジーを手にしたデジタルな顧客に対峙する現代の金融機関は、
  • 「デジタルな顧客中心」主義であるべき と提唱しました。
また、デジタル世紀の金融機関が遭遇している、急激な業界構造の変化に対して、
  • 「戦略自由度の担保」とそれを実現する「アーキテクチャ」 も提案しました。
5th Asia Insurance CIO Technology Summit
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TradeTech Asia 20161019-20日:シンガポール)

キャピタルマーケットとウェルスマネージメント業界の祭典 TradeTech Asiaは、今年もシンガポールで開催されました。セレントは長年、このイベントのカンファレンス・チェアやモデレータを務めてきました。ウェルスマネージメントにおけるロボアドバイザーの台頭、トレーディングデスクにおけるAlgoからAIへのシフトが鮮明だった2016年は、アジアの機関投資家の方々と、以下のパネルに参加しました。
All Star Panel: How can you use machine learning and artificial intelligence for predictive analysis and accurate analytics?
当日は、セレントのAIフレームワーク:人口知能モデルを披露し、資本市場、資産運用ビジネスにおける、AI活用の現状と展望に関して、以下の事柄に言及しました。
  • トレーディングライフサイクルの最適化におけるAIの役割
  • 投資分析の予測能力や正確性を向上させるAIの適用方法
  • リサーチ:投資分析やポートフォリオ分析におけるAI活用
  • AIとコンプライアンス:不正取引の監視におけるAIの活用
  • 購入か利用か、構築か?:AIにおけるフィンテック企業の可能性
TradeTech Asia 2016  

Pioneering Unexplored Areas

Japan has been at the forefront of innovation in the asset management—and the broader financial services—industry in Asia, with a number of new and incumbent players rolling out robo-advisory services. Robo-advisors are online platforms that offer investment advice based on sophisticated algorithms mapping portfolios that can look at investment performance across asset classes in real time.

While there is vast potential in this area in Japan, the gains made by the robo-advisory industry may be limited if it does not strive to improve investment literacy and enhance accuracy and transparency of information.

Current robo-advisor initiatives in Japan are largely tailored to support the sales of mutual funds. As easy-to-use, non-face-to-face services, they are garnering interest from investors comfortable with information technology and a degree of financial literacy.

Moving forward, further advancements that draw on both asset management options and technology are expected in the following areas:

  • Diversity of products. Expanding the range of products offered from general, publicly offered mutual funds to a variety of asset classes.
  • Diversity of services. Online onboarding, portfolio management, reports and alerts. Operation support that is a hybrid approach, harnessing both existing contact centers and face-to-face services.
  • Automation. Automated reinvestment and rebalancing. Supporting small-value and high-frequency trading.
  • Accommodating business-to-business (B2B). Pro-level sales support tools developed to offer the advanced features professionals want. Vendor-supplied cloud services and financial institution-supplied white-label service offerings for other financial institutions.

 

Click to read more…

Robo-Advisory in Japan: A Need to Push the Envelope

Robo-Advisory in Japan: A Need to Push the Envelope

Robo-advisors: Booming in Japan
http://asianbankingandfinance.net/financial-technology/commentary/robo-advisors-booming-in-japan

Fintech and Robo Advisors: Booming in Japan
http://celent.com/reports/fintech-and-robo-advisors-booming-japan

資金決済革命

決済を取り巻く環境は劇的に変化しつつあります。消費者がキャッシュに代わるより便利なものを求めていることは明らかですが、金融機関はこうしたニーズにあまり積極的に答えようとしてこなかったように思われます。一方、この分野は、金融サービスプロバイダにとっては、ブルーオーシャンのようにチャンスが広がっているといえるでしょう。先駆者として新たな決済プロジェクトを投入できる新市場の成長が期待できるからです。
 
既存の決済サービス市場は競争が激化しており、多くの決済オプションが溢れかえったレッドオーシャンです。市場参入を目指すプレーヤーが既存の市場で成功を収めようとするなら、既存の決済手段に取って代われる価値提案を創出する必要があります。 企業活動や消費者の生活により密着する方法を開発しなければなりません。そうなると、金融サービスをめぐる競争のカギは金融業界の外にあるのかもしれません。YouTubeやリッツ・カールトンのような顧客認知、Google やAmazonのような顧客行動予知などがその例です。
 
未来の個人向けの決済サービスは、デジタルネイティブ世代の日常生活における新たな情報と価値移動の基盤として、既存の電子マネーを凌駕する破壊力を持つでしょう。未来の 法人向けの決済サービスは、決済指図と契約を電子化、自動化することで、企業活動の情報と価値移動の源泉を握り、既存のサプライチェーンを革新することが期待されます。

セレントはここに、破壊的なイノベーションと「資金決済革命」の可能性を見出します。