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NEGOTIATING DIGITAL TRANSFORMATION IN THE TRADING ENVIRONMENT

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Denis Waechter, Sales Manager, IPC

We are currently in the midst of the digital trading era. Software-as-a-Service (SaaS) and cloud technologies are revolutionising the trading landscape and enabling the development of advanced practices that are closer aligned with the objectives of traders and investors.

Increased transparency, greater efficiency, and faster transactions are just some of the benefits that market participants are seeing when embracing digital disruption. The shift to digital has the capacity to transform how trading services are delivered, thus changing the traditional trading model as we have known it. As a result, we are increasingly seeing banks, regulators, fintechs, SWIFT and various companies come together to discuss how to realise the potential that digital transformation offers.

Indeed, digitalisation brings opportunities, and it’s important to know how to seize these opportunities in a way that will benefit your business. All too often, people stick to what they know, but by doing this, miss out on significant prospects and potential deals.

As the trading environment continues to evolve, it’s useful to consider the following steps as a means to optimise the manner in which innovation projects are managed through the adoption of a more global approach:

  • Strategy – develop a common vision

    A project is a bit like going on a family holiday – to get everyone to agree, you have to, along with everyone involved, have a clear objective that is simple and easily understood by all. In trading firms, the ideal would be to “adhere” your vision to that of your company or department.
  • Advantages – what would you like to gain?

Your advantages may be many: financial, of course, but also functional, organisational, competitive and operational. It’s important that advantages are explained and understood in a manner that is clear and measurable. These advantages make up an important part of the “sales argument” and allow a validation of choices.

  • People – make your “clients” your main concern

Identify the various stakeholders from the very beginning of your project. They will be your most valuable allies over the different stages of your transformation. Using the holiday analogy once more, depending on whether you travel with your children, your friends or as a couple, your target audience will be different. Adopt a communication method that is adapted to each of the stakeholders; they will not all have the same expectations. Adjusting your approach and tools to ensure everyone is on the same page will significantly help keep the project on track.

  • Process – how can it be achieved?

Digital transformation projects bring a number of new opportunities and advancements, but it’s important to ask questions about how this process will happen. For example, how has trading evolved? What tasks can be optimised or even automated?

  • Applications – recognise which applications will be affected

While new digital tools can enrich the trader’s working environment, it’s important to know the functionalities required to obtain objectives. The ability to understand the applications that will be needed and how they differ from the current solution is crucial.

  • Infrastructures – what skills are needed to manage the new infrastructure?

Between virtualisation, dedicated servers and cloud hosting, there are an array of choices when it comes to infrastructures and sales models. In an industry that’s as specific as trading, it’s important to ascertain the lifecycle of the solution and the skills required to run the infrastructure and software.

  • Networks – understand how the network will be impacted           

Networks are, unsurprisingly, key components of trading, since they support each step of the lifecycle of a transaction. They are literally the backbone of the information system. Understanding which networks will be relied on, what their specific features are, and the best ‘mode of transport’ across the network is key.

  • Services – clearly explain what users will obtain

Explaining a digital transformation project in the form of a service will be particularly useful, especially if the Information Technology Infrastructure Library (ITIL) approach has been adopted in a bid to integrate it into a catalogue consistent with the rest of the company.

Ultimately, in an environment as dynamic as that of trading where, paradoxically, the requirements for flexibility, innovation, and speed have to coexist with the need to respond to evolving and increasing restrictive regulatory requirements, it is imperative that users are involved in the digitalisation process. Companies that do this from the offset will have a much higher success rate of being at the forefront of their industry than those that don’t. Without doubt, technology remains in the service of humanity, not the other way around.

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HERE’S HOW INSURANCE IS SET TO CHANGE

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By Adam Goldsmith, Insurance Specialist, SAS UK & Ireland

 

Making predictions about the state of any industry in the coming year is a nigh-on impossible task. But looking to the longer-term, the patterns we’re seeing in insurance firms, which have been inspired by the pandemic, have revealed in no uncertain terms that the industry is in flux. Change is here, and its impact will be felt for many years to come.

Woken up by the sharp jolt of the pandemic, insurance will experience dramatic change by 2025. But not all firms will adapt fast enough to the new insurance landscape or new expectations from customers. Those that pay attention to long-term predictions like the following could reap the rewards post-pandemic.

 

1. Knowing customers inside-out through their data will be non-negotiable

A typical Insurer today is set up in very traditional manner. There remains distinct, separate departments for the key functions: including assessing risk, acquisition, customer engagement, claims handling, customer protection and renewal.

Yet very few insurers have a truly joined-up view of a customer’s full journey with their organisation, let alone what can be done to optimise each interaction. What’s needed is the ability to understand each customer touchpoint as they traverse through their journey, as well as the ability to make decisions as to how best to engage them.

Insurers often cite legacy policy admin and claims systems as the biggest barrier standing in the way of this approach being adopted. By 2025, however, the most successful insurers will have broken those barriers down, gaining an unprecedented understanding of their customers’ needs and preferences, and the ability to offer pricing plans that are both fair and competitive.

 

2. Automation and algorithms will become the bedrock of all insurers

We’ve long heard of ‘digital transformation’ being a key objective for insurance executives. However, by 2025 it’s expected that successful insurers will have completed this transformation. Digitalisation will no longer be the differentiator, it will be the default. As a result, a new way to drive business advantage will have to emerge – and it will be centred on the use of algorithms to drive business decisions.

This is not a new concept. Gartner describes ‘algorithmic business’ as the ‘industrialised use of complex mathematical algorithms pivotal to driving improved business decisions or process automation for competitive differentiation’.

We’ve already seen some insurers start this journey in their claims function. Companies, including Aviva, have long automated decisions concerning whether a vehicle is deemed a total loss or not. However, the trend will become much more prevalent, with Gartner research predicting that, by 2023, over 33% of large organisations will have analysts practicing decision intelligence, such as decision modelling.

 

3. The customer will see positive change as they interact with their insurer

It’s clear by now that COVID-19 will fundamentally change how insurance is done – both in terms of how customers want to interact with insurers, and also how insurers need to adapt. While we hope this pandemic won’t be with us forever, it has opened the eyes of many executives to what is possible within the customer-facing parts of their organisation.

From my discussions with insurers, many have commented on how well employees and customers have adapted to the new normal. While there were initial logistical hurdles in virtualising contact centres, they’ve been impressed at how well staff have adapted under pressure to deliver what customers and shareholders expect. Many are likely to follow the approach of Lloyds in allowing staff to work remotely for the foreseeable future.

 

4. Prevention will be prioritised over payouts

Insurance has long been society’s safety-net, protecting us when something goes wrong in our lives. Yet, it would be to everyone’s benefit if risk could be avoided altogether. The use of telematics to assess the risk of younger drivers was the first big industry push here, but by 2025 we will see this becoming ubiquitous across many other products and customer demographics.

The recent example of Munich Re’s acquisition of IoT service provider Relayr will benefit manufacturers with a ‘pay as you use’ model. This will enable them to be more flexible and react faster to market changes. The IoT Observatory is also exploring new ways that data extracted from connected sensors and devices can help to transform risk assessment and empower insurers with data.

This is no small step for any traditional insurer. But it is one that puts a truly customer-centric lens on the service that insurers deliver. Data-driven risk prevention allows for significant product differentiation, taking insurers out of their comfort zone and enabling them to explore whole new opportunities.

 

5. Fraud prevention must shape up for a post-pandemic world

Come 2025, we will be living in a very different world with new risks that require novel insurance solutions to resolve.

One of the largest looming threats is insurance fraud. Analysis from the Insurance Fraud Bureau shows that fraudulent claims rose by 5% in 2019, and there are concerns the current economic climate could see this rise even further. In the aftermath of the 2008 Financial Crisis insurance fraud rose by 17%, and there’s no guarantee this won’t happen again on the back of growing practices like crash for cash fraud and ghost broking.

Putting in place an effective defence mechanism to intelligently detect, prevent and investigate potentially fraudulent claims will be an essential requirement by 2025. A soft defence is a liability while those that take fraud detection seriously will drive a more profitable outcome. This is especially true when it was announced recently that close to 20% of each policy premium is goes to cover the cost of fraud.

Insurers must be holding a finger to the wind during this unusual time, as many of the themes and patterns emerging now will shape the industry going forward. Insurers must figure out how to adapt their decision-making processes now, to take on an unpredictable and exciting future in insurance.

 

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VOLATILITY IS CRYPTO’S BEST FRIEND

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Stephen Ehrlich, Co-Founder and CEO at Voyager Digital.

 

Volatility is good for crypto. It serves multiple purposes as the whole crypto ecosystem matures, which we have to remember is an industry and technology that is still only just over a decade old. New and emerging industries are by their nature volatile as they move towards mainstream adoption. But the volatility attracts people, investors and technologists, who drive the pace of adoption forward and as it grows, volatility naturally decreases. In the case of Bitcoin, its volatility has steadily been decreasing over time and even the recent sharp moves have not seen such a big rise in volatility compared to historically (see chart below).

Chart showing Bitcoin Price and Volatility

Source: https://www.buybitcoinworldwide.com/volatility-index/

Volatility continues to attract participants as it is unquestionably in our human nature to be drawn to assets that are subject to rapid price appreciation. Throughout history there have been numerous asset bubbles that have burst, with Dutch tulips of the 1600s being the one that most referenced in relation to crypto-assets. But do tulips really provide any utility apart from looking and smelling good? Many crypto-assets actually provide a purpose, a utility, and serve as the backbone to new technology protocols upon which useful apps are being built. This is why we are seeing greater adoption and as the whole market continues to grow, we are now seeing institutions embrace Bitcoin by diversifying into it as an alternative store of value. This is why volatility is good for crypto. But another harsh reality is that it allows people to learn about the risks, as well as the rewards, of getting involved. Hopefully this is done with the assistance of their chosen broker or through educational webinars, video, and other collateral.

Yes, there will be many that will get their fingers burnt, especially if they employ leverage into their trading without a disciplined approach to managing risk. The same can be said of the internet boom and bust in the late 1990s and early 2000s that saw many a “dotcom” go bust. Leverage was around in those days too, so unfortunately many people learnt the hard way, but it is a necessary evil for the industry to become even more established. For Bitcoin, we have seen multiple bubbles burst, with 2017/18 being the last cycle and soon after the sceptics were suggesting the end for crypto-assets was nigh. But those who see the technology’s potential were keeping their heads down and building amazing platforms and applications. If we take a look at Bitcoin today, it’s clear that the end is nowhere near.

Volatility also attracts the attention of regulatory authorities, another natural evolution of nascent industries. On occasions though, there can be overregulation. Whilst the sentiment behind the UK’s FCA ban on retail investors being able to trade crypto derivatives is right, in respect to trying to provide greater investor protection, it can limit choice and ultimately drive investors to offshore brokers that may afford much less regulatory protections. If an investor really wants to employ leverage in their trading then they’ll find a way to do it, so perhaps rather than an outright ban, perhaps limit the amount of leverage they can use instead.

Bans certainly don’t help liquidity and are actually counterproductive. We’ve seen multiple decisions to “ban” crypto reversed as authorities realise that people simply circumvented it by using a VPN or other means to buy Bitcoin. India is now set to vote on a crypto ban, but at the same time they are due to introduce their own Central Bank Digital Currency, which in itself sends out mixed messages. As governments become more knowledgeable on crypto-assets and understand how they are totally borderless, bans are likely to become less and liquidity will continue to improve further.

Coinbase’s prospectus filing and the fact that the SEC is allowing this anticipated $100b direct listing to come public, with significant consumer involvement, is further acceptance of digital assets by the authorities. The continued evolution of the industry going mainstream and public companies vetted and allowed to move forward by the SEC, foreshadows the long-term outlook by the SEC that this industry is here to stay and regulation and acceptance of digital assets as an asset class is forthcoming. Regulation adds legitimacy to the industry and will attract a broader audience of investors and participants, as oversight gives comfort to a larger group of investors.

Regulation is very important, but it needs to find the balance that protects consumers, yet also fosters adoption of what is a truly ground-breaking technology and asset class. So, for those people that complain about crypto markets being too volatile, we NEED volatility in order for the whole ecosystem to thrive.

 

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