Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
RISK VS REWARD: IS AI TAKING OVER?
Xavier Fernandes, Analytics Director at Metapraxis
A study by Oxford University academics into “The Future of Employment” in 2013 prompted apocalyptic headlines which stated that in the future 40% of jobs will be automated thanks to advancing technology.
The researchers subsequently claimed that the truth was in fact a little more prosaic; rather than facing complete automation, the research found that 40% of jobs faced some aspect of automation in their activity. So with new ‘AI processes a likely reality for almost half us, what does that mean for our current roles and should we be worried?
The fourth revolution?
The first industrial revolution saw machines replacing muscle, both human and animal. The second and third saw electrical power, mass production and computerisation revolutionise the job market. Now, with daily headlines of AI as an employment superpower, there is some concern that AI is bringing a fourth revolution, and with it, unknown circumstances.
This ‘fourth industrial revolution’ is defined by replacing brain power with machines. Our thinking capacity is what inherently sets us apart from other species, so it’s not surprising that any encroachment on it triggers some existential angst.
Evolve to reap the rewards
While many businesses still don’t fully understand the capabilities of AI, those who fear its development are, instead of embracing it, missing all the benefits that it can bring to the workplace. Businesses that utilise AI appropriately are seeing vast improvements across their entire value chain; better customer experience, reduced costs, and more insightful analysis to support management decisions.
AI is particularly useful for supporting tasks with repetitive activity, for example, performing financial checks and assessing large sets of data within financial services firms. AI performs particularly well within this context, spotting outliers before a human expert would notice them, allowing impending problems to be flagged and avoiding costly mistakes.
There is also an increasing focus on maximising customer lifetime value through the use of AI. Being able to predict existing customers’ needs as well as track trends in their financial circumstances is supercharging the old cross-selling approach with testable, predictable outcomes.
With potential benefits like these on offer, management teams of innovative financial services are increasingly relying on AI to help them with some of the heavy-lifting of analysis. Using advanced data capabilities and learned behaviours, AI analyses market trends to provide predictions of future performance. This insight is invaluable and allows management teams to change direction and correct any problems accordingly. This offers a huge advantage over those that have not adopted such tools.
Supporting the workplace
Algorithms and AI are typically ‘smart’ at doing one, tightly-constrained task, but they can be less helpful with many of the activities that humans find straightforward. In most white-collar jobs, automation tends to replace certain tasks in the job, rather than the role in its entirety, as the need for human intelligence is still highly necessary. In particular, we still need human input to first challenge, and then synthesise, this information before taking action. Employees should therefore work with the business to proactively identify what areas of their role could be automated, so that they can focus on the areas that add real value to the business’ commercial goals.
Challenging AI is certainly still important. We know that algorithms can be much better than humans on certain, bounded tasks. However, many algorithms rely on existing data sets to build their understanding. As a result, when a business unit has ‘symptoms’ that fall outside of that body of knowledge, the algorithm may suggest the wrong course of action with costly results.
Indeed, even with plenty of data, algorithms will reflect any biases the data set contains. We’re seeing this with some legal sentencing algorithms where there is evidence that they are treating disadvantaged people more harshly. Getting the answers to why and how far we should trust our algorithms should therefore become an everyday part of any job affected by AI.
Rather than depending entirely on AI for all decisions, workers should be taking all these new, AI-generated insights and using them to complement the human decision-making process. No manager of a complex business ever has enough time to sieve through all the analysis available, but with AI driven algorithms able to flag up any issues and indicate where action needs to be taken, we may find that we have some AI ’colleagues’ who will cover our backs and suggest innovative options. Yes, there will be times when the algorithms get it wrong, but as long as we’re watching out for those, the future is bright.
DIFFERENTIATION BEYOND DIGITAL
Simon Healy, Industry Director Financial Services EMEA, Unisys
Few financial organisations have the strength of community focus as building societies. Not only do they represent a form of grassroots empowerment that can be thin on the ground in the sector, they’re genuinely connected to their customers in a positive and personal way – after all, they’ve spent years helping them to buy homes or make the most of hard-earned savings. As a result, building societies live or die on reputation. And their challenge today is keeping that intact as the world they operate in changes, and the digital expectations of a new generation of customers continue to grow.
Combined with a general reliance on manual processes, building societies have been a little slow to transform, and are certainly far less agile than digital-first competitors. This is an issue all building societies need to address: as Unisys’ recent research shows, online account opening and management capabilities are desirable for many customers, and this is only set to increase as younger customers require banking services.
Most building societies are already well aware of this, and are making moves to invest in new digital processes, whether that’s internally or customer facing. And they know that digital is no longer a nice-to-have: it’s a must. Yet in the era of app-only challenger banks, this isn’t a way to get ahead of the competition. Instead, it’s the bare minimum that’s needed to keep up. To thrive, building societies need to aim beyond simply digitalising their operations.
Product diversification is likely to be the key here, helping building societies to delight existing customers, attract new ones, and extend their consumer base. But they should also be striving to maintain their community focus – which is a delicate balancing act. So how can they differentiate beyond digital, without losing the heart that defines them?
Building a new generation of savers
It makes sense that digital native customers might be more inclined to bank with app-based challengers, so building societies need to get in early if they’re going to secure a new generation of loyal fans. An obvious answer is to build new products that specifically target younger customers – or better still, products that appeal to parents planning to open an account on their child’s behalf. Especially since customers are nearly seven times more likely to open a digital current account with a building society, than a digital bank.
Traditionally the realm of the passbook and first savings account, a lot of building societies offer fairly simply savings accounts for children. But there’s a very real opportunity to do something that is richer in terms of its functionality and the way customers access it. These new accounts can become a much more engaging and interactive tool than has been the case in the past. App functionality could include a pocket money savings features and can be set up to grow up with the child – moving from child’s account to student saver and, in time, even a mortgage deposit. In short: a lifelong relationship.
A current approach
Of course, savings accounts shouldn’t be the only area of innovation. Ultimately, customers have a huge amount of trust in building societies – and these institutions should be capitalising on this to capture more primary banking relationships. For example, 86% of customers under 35 would be interested in a simple, intuitive digital current account offered by a building society – making this an ideal diversification route to target.
Best of all, there’s never been a better time to try. While current accounts have traditionally been difficult to offer, the cost of entry has significantly reduced, and the technology is much more accessible. There is customer appeal in a simple offer – many customers are comfortable without an overdraft facility anymore and this can help to simplify the regulatory considerations and to minimise both risk and complexity which allows financial institutions to get to market fast. Building societies can offer digital current accounts and a number of organisations are already awakening to the opportunity. And with the right technology and partners, they can continue to develop opportunities for more innovative services.
The business of change
Beyond this, building societies need to reach out to new markets and find their future, expanded customer base. And given their trustworthy grassroots reputation, there is another strong avenue to go prospecting in the communities they serve.
Long considered the backbone of British economy, SMEs and sole traders are in sore need of more accessible financial tools. The self-employed make up the vast majority of SMEs, but this group have been badly under-served by the traditional banking establishment, and often find it difficult to access mortgages because they don’t fit the standard assessment models of mainstream providers.
Since 55% of consumers think building societies should extend their product range to support local small businesses, there’s a real opportunity here to build new relationships and drive incremental lending opportunities. Best of all, this can be achieved while retaining the community focus building societies are so well known for, combining a new revenue stream with traditional values.
Future thinking, traditional feeling
The UK financial sector is in a state of constant flux, which can make responding to customers’ desires a tricky game. But given the goodwill people hold towards building societies, their future is bright – providing they’re able to grow and adapt in the right ways.
Ultimately, the key will be to move incrementally, respond to what people are looking for, ensure digital capabilities are up to scratch, and always retain the community values that define them. With the right strategy, it’s possible to be both innovative and traditional, building strong relationships with customers for decades to come.
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