The financial services industry had several challenges this year, however, IHS Markit's Michael McPolin says the pa… https://t.co/Fkt34An61L
Reasons for optimism: is this the start of a new technology revolution?
Well, what a year 2020 has been so far! Britain left the European Union at the beginning of what already seems like a long year and then the global pandemic took hold, impacting pretty much everyone on the planet and changing what we consider to be normal. As a result, we have seen economies shut down overnight, affecting every business from high street retailers and taxi drivers through to large corporations. This in turn has impacted the financial services industry to an extent not seen since the financial crisis. It has happened at a time when firms are preparing for the changes being introduced as part of IBOR reform. In short, an annus horribilis. But could 2020 also signal the start of a technology revolution? Being an eternal optimist, I like to think so. Here are some of the reasons why.
Let's start with the global pandemic, a truly awful event including loss and suffering on an enormous scale; a scenario in which our normal routines - work, school, shopping, dining out etc. - ground to a halt overnight. Humans by nature are creatures of habit, whose brains rely on routine, so the pandemic has disrupted us significantly on every level. But we did not lie down and passively accept the situation; instead we did what humans are remarkably good at doing: we adapted, we changed (too early to call it an evolution). So why haven't we seen this level of adaptation and change before?
If we look at the pandemic from a technology perspective, outside of the financial sector, you can see why some commentators view this as one of the most significant periods of accelerated adoption in history. Governments have had to rely on data to keep citizens informed with facts about the virus, and track-and-trace technology has been created and adopted globally. Schools have switched from classroom education to delivering lessons via video conferencing applications. Restaurants that had never offered take-aways have embraced delivery technology in order to survive, and shops have followed suit.
Let's now focus on the financial services industry again. Overnight offices were shut and people were asked to work from home. Some who had been opposed to hot desking in the office were asked to work from a laptop on their dining room table. Firms that had previously frowned upon working from home had to embrace it. In-person meetings were replaced by virtual meetings using video conferencing software, and even trade shows and events went virtual.
As office work became remote, it also became necessary to file and store remotely. Cloud storage during the pandemic has increased significantly. The ability to access, store and share files remotely has become essential for firms as their workforces have shifted to remote environments.
In the loans space, teams can no longer access the trusted fax machine that has served them so well over the past 30 years, so they have moved to electronic mailboxes and platforms that support notice consolidation and workflow. We have even seen an increase in firms adopting FpML and automating their notices into downstream systems of record in order to remove the risks associated with dual keying/manual input. It is therefore no coincidence that our notice platform, Notice Manager, is on course for a record year for volumes as parties look for a centralized network that allows agents and lenders to communicate in a secure manner.
Firms have found signing documents a challenge: printing, signing, scanning and emailing are no longer easy tasks when working from home. They have therefore looked at ways to overcome some of the challenges they have faced by embracing electronic signing and workflow platforms such as our own ClearPar. During the past 6 months we have seen a significant increase in new institutions being onboarded onto our network. We have also even seen new personas, such as borrowers, incorporate ClearPar into their workflows as they adapt to no longer being able to access their offices where they can print and sign. It is worth noting that most onboarded borrowers have chosen to execute documents in ClearPar via the mobile device version, so they can execute documents on the move.
The inevitable, upcoming cycle change will also drive further change and technological adoption. Firms will look for more scrutiny of credit and counterparty risk as the landscape becomes unsettled. Likewise an increase/peak in distressed volume will see firms look to technology in order to perform simple or repetitive tasks that will give their distressed experts much needed capacity and allow them to focus on areas of the distressed settlement cycle that require their level of expertise, instead of managing exceptions. As assets become distressed, agent banks will look to segregate themselves from any lender/borrower conflicts. As a result, outsourcing of agent functions is likely to increase significantly.
So where has all the tech come from to make this possible? Was there a massive push overnight by technology elves to build all of these tools and have them ready for lockdown in the morning? Obviously not. This tech has - in the main - been around for years and it is just that it is now being more broadly adopted. So what has changed? The answer is people.
Remember my opening statement about people being creatures of habit? As a general rule, we are comfortable with our routines and ways of working. Many of us live by the mantra "If it isn't broken, why fix it?". It therefore sometimes takes a seismic event, such as the pandemic, for people to challenge what is perceived to be the norm. Maybe it is too early to call it a technology revolution, but we can say with some certainty that the firms that are embracing this shift to technology will be better positioned for not only future growth but also future change.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
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