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The Asset Servicing market's resilience is one of its main strengths. The industry has had to adapt to a variety of stimuli, including intense capital market activity, private equity player acquisitions, as well as the digitalization of IT and operating models to improve data collection, meet investor and client demand, and comply continuously and quickly with regulatory changes and other reporting requirements.
For an industry in which scaling up is constantly required, a solid level of digitalization is becoming crucial to keep pace. A recent survey has been conducted by EY Luxembourg, with the purpose of gauging the digital maturity of asset servicers in Luxembourg and identifying areas that need improvement. Pierre-Marie Boul, Partner, Asset Servicing Leader, and Ajay Bali, Partner in Consulting, share the key takeaways.
In the early stages of grasping the full power of digital technology
Asset servicers experience the full impact of their position at the tail end of the financial services sector. They frequently face margin compression as a result of the pressure to reduce fees, lower expenses and add value for their end clients. Additionally, when asset managers provide clients with more options, asset servicers must also modify their offerings, such as increasing the quantity and diversity of funds served.
EY Luxembourg's study on digitalization in asset servicing was launched in this context. Completed by C-suite level respondents from 17 asset servicing industry players in Luxembourg, mostly servicing funds in private equity, real estate, private debt, infrastructure and UCITs, the study revealed that there is a common assumption that technology, data, and value-added services will be the future of asset servicing. It is expected to play an important role for the industry to become even more resilient and adaptable.
On their path to achieving this goal, most industry participants are however still in the early stages.
One of the survey’s goals was to assess the digital maturity of asset servicers across three key pillars: strategy and organization, customer centricity and operations, and technology and innovation. The results highlighted that, on average, asset servicers show a maturity level of 1.6 out of 5. This indicates that there's still a lot of room for improvement.
Industry leader’s perceptions
Over 42% of respondents believe that digital tools are either one of the many tools used or that they only play a supporting role in their organizational strategy. For these companies, this points to the possibility that technology has not been considered as an integral part of organizational transformation and that a digital roadmap may not yet have been devised.
The fragmented adoption of modern technology is also a reality, evidenced by the fact that different industry participants use a variety of tools to meet their needs. Due to the growth of these so-called "digital frictions", many firms find the transformation process to be both operationally and financially taxing.
Last but not least, some organizations have an error-driven approach to digitization , with a focus on solving immediate problems rather than taking into account ways to improve the overall value chain.
Those companies which have not yet produced a digital roadmap and still rely heavily on their workforce for day-to-day operations may find themselves limited in their ability to save time, costs and risks of human error. This limitation can impede growth and as such act as a setback in competing with other industry players who are taking steps to revolutionize their use of technology.
However, it is positive to see that 53% cite their company as having dedicatedly embedded digitalization into their transformation strategy.
Development priorities
The top three reasons for embarking on a digitalization journey, as indicated by respondents, are: a) reducing costs (59%), followed by b) pressure to provide digital services that are more scalable (53%) and c) pressure to unlock synergies from existing resources (53%). Digitalization acts not only as a solution to these considerations, by offering up smart technologies to connect and automate previously manual, complex, or burdensome tasks, but also supports asset servicers in assessing their current business models. To start implementing and accelerating digitalization in a company, key considerations nevertheless need to be taken in account, based on the three business pillars (strategy and organization, customer centricity and operations, and technology and innovation).
Regarding the strategic and organizational aspects of digital transformation, it is important that the objectives should not be limited to improving services and adopting new technology, but also about using those tools to create new sources of value.
Digitalization should not be limited to service delivery, but should also support innovation of new business models, product development, and value creation. For example, the SaaS or even XaaS (“Anything as a Service”) models can be embedded with managed services to better react to disruptive outcomes. FinTechs should be viewed as partners to collaborate with, develop and unlock products and services with, and integrate existing offerings. Legacy debt and business cases should be tracked and executed through a digital-first mindset.
On an operational level, organizations should enable a 360-degree view of clients and customers through customer life cycle management to strengthen client-centricity. This will provide an integrated client experience spanning the product lifecycle and set a starting point to the creation of new self-service channels, allowing the actioning of simple tasks and providing higher transparency for customers. In order to reduce manual workload, automation solutions should be implemented. Finally, workflow automation should be kept at the core of service delivery processes, with a goal of optimizing above 50% across the value chain.
To become a data-driven enterprise, it is essential to measure and analyze Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) across business processes, service delivery, the client at risk, net promoter scores, capacity planning, SLA breaches, and other business levers. This will help to unlock value, reduce risks, and improve performance.
Finally, and in order to be more technology and innovation focused, IT needs to shift its focus from “firefighting mode” to a long-term vision of the IT landscape. Additionally, various tools offered across asset classes should be unified into a single platform. To further encourage technology adoption across the organization, change management processes should be implemented, in order to upskill the workforce on the use of new technologies and cloud implementation.
In view to gauge the maturity of organizations and the industry, a digital maturity scale has been created by EY for companies to classify themselves as either “Basic”, “Advanced” or “Disruptive” digital organizations in respect of each of the above-mentioned priorities.
Disruptors today, leaders tomorrow
While still “young” in its maturity, a transformation over the next two to five years is not implausible or far-off. Structural shifts and industry trends give asset servicers little option but to adopt a digital perspective to stay ahead of the curve.
Taking steps now towards digital transformation will help ensure success in the future and it seems safe to say that the disruptors of today will have a clear advantage in tomorrow’s industry.
Summary
The Asset Servicing market's resilience is one of its main strengths. The industry has had to adapt to a variety of stimuli, including intense capital market activity, private equity player acquisitions, as well as the digitalization of IT and operating models to improve data collection, meet investor and client demand, and comply continuously and quickly with regulatory changes and other reporting requirements.