Even before the Covid-19 crisis, financial institutions were at a critical juncture to stay relevant to the changing digital expectations of investors and their asset managers.
It’s well known that on the retail side, new fintech technologies have integrated into front-end IT development to improve the customer experience and better tailor to an increasingly tech-savvy, digitised consumer base. Now the securities services industry is taking note.
As artificial intelligence (AI), big data, Blockchain and machine learning become commonplace in online banking experiences, the rapid pace digitalisation of the investment marketplace is creating new opportunities and new business models for the most innovative institutions.
Of course, some banks are already leading the charge.
Powerhouse and pioneer
Northern Trust, the 131-year-old global financial services institution with headquarters in Chicago and offices in 23 countries, has emerged as a pioneer in the digitization of institutional and wealth management banking.
The bank forged an ambitious digitalisation effort through various digital and technology transformation programs. Since 2011 Northern Trust has grown a dedicated research team to help drive the business through greater digitalisation and to suggest new ways of delivering products and services to clients.
Zabrina Smith is a strategic innovation specialist within the Market Advocacy and Innovation Research team. Based in London, she is part of a global team with colleagues in Chicago, Australia and Singapore who engage with the FinTech community to understand emerging technologies and the opportunities they pose for Northern Trust and its clients. She presents the latest FinTech industry findings, market developments and regulatory developments to support Northern Trust’s executive leadership’s strategic business planning.
“I've always been passionate about how new technologies are developed and how they help clients,” says Smith. “Technology evolves quickly and one of the challenges is staying up to speed on fast-moving market developments. We take a proactive approach to meeting clients, technology firms and participating in industry forums. There are many ways technology can be used but not all will be viable from a business standpoint.”
Across the business, Northern Trust is serious about using digital investments to achieve efficiencies and bring value to their clients in the form of improved digital experiences, better data, and streamlined transactions. The company has invested approximately USD 2.5 billion in technology over a rolling three-year period. The bank invests not only as a consumer of technology products but it has also been investing in tech start-ups through its asset management subsidiary, 50 South Capital.
Notably, Northern Trust has built internal platforms and worked with third-party tech providers to automate aspects of the banks’ front-, middle- and back-office operations. “We're looking at both how we can create a more automated experience for our clients and, internally, how we can operate most efficiently,” Smith says.
There are four key emerging technology areas that Smith and her team are researching: blockchain and the development of digital markets, artificial intelligence (AI), natural language processing and big data analytics.
Blockchain and Distributed Ledger Technologies
Northern Trust is a strong advocate for the potential of blockchain and distributed ledger technologies. The bank launched the first commercial deployment of blockchain technology for the private equity market in 2017, working in collaboration with IBM.
In 2019 they pioneered the capability to deploy legal clauses as smart contracts directly from a digital legal agreement onto its private equity blockchain. The industry-first technology application on a blockchain can be deployed to other platforms, with potential for broad use in generating digital documents and applying conditions beyond legal agreements.
The same year, the bank entered a partnership with BondEvalue to deliver integrated asset servicing for fractional ownership of fixed-income bonds, managed over a distributed ledger framework. BondEvalue’s regulated platform facilitates the trading of fractionalised investable assets based on wholesale bonds, while Northern Trust remains its exclusive asset servicing provider.
AI and machine learning
In 2020, Smith says the Market Advocacy and Innovation Research Team has identified approximately150 opportunities for AI across the business.
Already in operation is a pricing engine the bank developed for the securities lending market. By utilising machine learning and advanced statistical techniques, Northern Trusts’ global securities lending traders can more effectively forecast the rate to loan securities and help clients improve revenue across portfolios.
Smith also takes inspiration from beyond the FinTech industry. Seeing how Spotify and Netflix use machine learning and predictive analytics to showcase movies or music, she is investigating how similar technologies could potentially be used to predict and generate the most relevant reports for clients when using Northern Trust’s online system, Passport, which clients use to access relevant data and reporting. Similarly, Smith is exploring how the firm could use AI and natural language processing technologies to read, interpret and act on written business documentation — a task that is usually processed manually, thus freeing up staff to do more complex tasks.
Of course, driving each innovation program are creative and diverse people. In 2019 Northern Trust was recognized on the 2019 Bloomberg Gender-Equality Index (GEI), which distinguishes companies committed to transparency in gender reporting and advancing women’s equality.
Globally, the bank shares a diversity, equality and inclusion dashboard and a quarterly report of data on hiring, retention and promotions to hold senior managers accountable. In EMEA, the Northern Trust Diverse Leaders Programme runs twice annually for females and ethnic minorities to support diverse talent development at all levels.
The bank also signed the Women in Finance Charter in the UK, a commitment by HM Treasury and signatory firms to work together to build a more balanced and fair financial services industry. Northern Trust committed publicly to achieve the target of 35 percent of females in senior roles by December 2020 but achieved it a year earlier, in 2019.
“Through helping our diverse talent we hope to develop an authentic leadership style and build the necessary skills and confidence to help navigate the organisation,” says Smith. “There are many ways employees can invest in their personal development and gain exposure to different areas and lines of business. It's a very supportive company to work for and global mobility is important.”
Smith says that being creative and entrepreneurial is her favourite aspect of her role. With more employees fostering such attributes, the traditional banking industry remains the one to watch for digital innovation.