the 2019 readiness report - fis

The 2019 Readiness Report Contents

1

Contents

2 Introduction: The Gap Narrows, but Leaders Still Outpace the Pack

5 The Lowdown: Where Do You Focus for Growth?

13 The Scores: The Readiness Index 2019

14 The Scoop: How the Readiness Leaders Are Maintaining Their Edge

20 The Way Forward: Get Set for Growth

22 About the Research

The 2019 Readiness Report Introduction

Introduction: The Gap Narrows, but Leaders Still Outpace the Pack The industry has turned a corner. Nearly three years ago, when FIS first launched the FIS Readiness Index, financial services institutions were facing some very difficult choices, grappling with regulation, margin pressure and the need to differentiate their offerings to compete in a more digital world.

Our latest research, which surveys more than 2,000 financial services executives around the world, shows the industry is more confident about its underlying technology.

2

26% 49%

My technology can support my growth ambitions

2017 2019

This is allowing firms to pivot their innovation strategies away from operating efficiencies and toward developing new products and services to build their customer bases.


And the performance gap between the Readiness Leaders* and the rest of the industry is closing. The growing uptake of cloud is playing a part, helping to make traditionally expensive systems more accessible to other institutions.

Yet the Readiness Leaders continue to outpace the rest of the industry in their approach to emerging technology and risk management. More importantly, they continue to grow twice as fast.

3

Average revenue growth over the past 12 months

Readiness

Leaders3.3%

1.5%Rest of the

industry

* The Readiness Leaders are the top quintile of performers in the FIS Readiness Index, with the highest aggregate score across six operational pillars: automation, data management, emerging technology, digital innovation strategy, client value and risk management.


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How are the Leaders maintaining their edge?

1 They have made more progress in addressing operational inefficiencies, allowing them to start focusing on adding customer value while their peers continue to concentrate on process improvements.

2 They are taking a different approach to applying new technologies, sourcing and managing talent, and aligning organizational culture with their strategic vision.

3 They are rethinking how they work with third parties to support their growth.

Emerging technology definitions

For the purposes of this study, we have used the following definitions:

Artificial intelligence (AI) – A broad term covering many sub-fields of computer science that aim to build machines that can perform tasks that previously required conscious intelligence. Sub-fields include cognitive computing, machine learning, natural language processing and deep learning.

Robotic process automation (RPA) – The use of software to handle high-volume, repeatable tasks that previously required a human to perform by codifying rules for the computer or software to follow.

The 2019 Readiness Report The Lowdown

The Lowdown Confidence in underlying tech is growing, particularly for the Readiness Leaders, who have centralized data and embraced cloud.

Half of the firms in the Readiness Index are now confident they have the requisite technology in place to support their growth ambitions, a figure that has doubled in just three years. For the Readiness Leaders, this jumps to 71 percent.

“Back in 2017, the industry was preoccupied with doing things more efficiently, but there was a lot of uncertainty about what the technology strategy should be,” says Jason Baldesare, director, strategy and solutions management, FIS.

1

Figure 1. Growing confidence that foundations are fit to support growth plans

Operations

Technology

2017 2018 2019

5

Now we see more defined strategies that are addressing legacy technology and operational deficiencies – and firms are ready to add more value for customers. JASON BALDESARE, FIS

26%

41%

49%

28%

47%

62%

Percentages have been rounded to the nearest whole number


6

48% 26%25%4%

So, what is breeding this confidence? The experience of the Readiness Leaders, who are more confident in their technology, sheds some light. They are more likely to have modernized their technology and embraced innovation.

Greater maturity on cloud adoption: I have migrated to, or am in the process of putting applications in, the public cloud

Ahead of the curve on AI: I have already implemented an AI-driven solution in my business

Using AI to add client value: My investment in AI should improve the customer experience

Centralized organizational data: I have effectively centralized my organizational data

Readiness Leaders Readiness Leaders

Readiness Leaders Readiness Leaders

Rest of the Industry Rest of the Industry

Rest of the Industry Rest of the Industry

50% 18%

84% 31%

The impact:

The Readiness Leaders’ modernized technology architecture isn’t just a nice to have; it’s improved data management. That, in turn, is enabling them to reduce response times and provide a more customized service for customers.

Highly ineffective

Highly ineffective

IneffectiveIneffective Neither effective nor ineffective

Neither effective nor ineffective

EffectiveEffective Highly effectiveHighly effective0% 0%

1%

13%

54%

31%

0%2%

8%

53%

36%

3%

31%

60%

4%1%

3%

42%

49%

5%

Figure 2: Readiness Leaders’ data management strategy is adding value for customers

Readiness Leaders Rest of the industry


7Ability to customize services for clients Timeliness of response to clients

Readiness actions:

• Define a common, centralized data strategy for your organization that allows you to extract and deliver real-time data for internal and external customers in the required format

• Embrace cloud infrastructure and APIs to overcome the data extraction challenges posed by legacy IT systems


The Lowdown The Readiness Leaders’ digital innovation model is becoming more defined and more open, helping them improve the customer experience.

As the pressure to accelerate digital transformation has mounted, the Readiness Leaders have been actively adapting their innovation models through three distinct strategies:

2

Figure 3. Collaborative innovation models gain importance

1Promoting more open innovation across business functions

2Bringing new digital skills on board

3Collaborating with innovative third parties

Acquiring innovative firms

Outsourcing non-core services to

free up resources

Setting up incubator or accelerator programs

Appointing board-level roles with

responsibility for digital innovation

Purchasing third-party technology

Recruiting digital technology expertise

Encouraging a more open

innovation culture across functions

Collaborating with innovative third

parties

41%

45%

39%

32%30% 31%

26% 26%26%

20%

43%

50%

32%

29%

39%

30%

35%

44% 44%42%

36%

29%

26% 25%

2017 2018 2019

8


Reinforcing efforts to move toward a more open innovation model, the Readiness Leaders are also beginning to harness open APIs on a larger scale: 40 percent of Leaders have now implemented these, versus only 26 percent of other firms.

“We’re seeing retail and commercial banks start to launch their own API gateways and developer portals, but this needs to translate into the innovation they want — and not just creating a mass of apps that aren’t adding real value for customers,” says Andrew Beatty, product management executive, global banking solutions at FIS.

Figure 4. Industry progress toward implementing open APIs

Tony Warren, head of strategy and solutions management at FIS, says it is becoming critical for both buy- and sell-side firms to implement open APIs. “There's an ongoing shift to make data online, real-time and consumable through open APIs – batch processing will be a thing of the past in the next couple of years,” he says.

No consideration

Early stage implementation

Reluctant to adopt

Implemented more than 12 months ago, but issues to resolve

Interested, but awaiting industry standards

Undertaken substantial implementation with succesful outcome

Don't know

9

Readiness Leaders

Rest of the industry

7%

13%

17% 31%

29%

24%

29%

9%

18%

7%

7%

5%

3%1%

Open APIs will be a key tool for banks to create innovation and differentiate. ANDREW BEATTY, FIS


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Small businesses and large corporate customers want easy-to-buy, easy-to-use services, just like they get from their personal accounts and companies like Amazon. ANDREW BEATTY, FIS

Digital innovation is playing a significant role in attracting new customers.

Beatty says this is illustrated by leading corporate banks. “Commercial banks are leveraging lessons learned from fintechs and retail banking to deliver a better customer experience,” he confirms.

38%25%

The impact:

The Readiness Leaders have moved more quickly toward a collaborative innovation model. As a result, they are accelerating their innovation around the customer experience, which will help them in their bid to grow their customer bases.

Readiness actions:

• Accelerate innovation by prioritizing effective collaboration and data exchange with third parties, enabled by open APIs and real-time connectivity to external partners’ platforms

• Put the customer experience at the heart of your digital innovation strategy. This requires not only investing in new platforms to connect with customers, but also adapting internal processes and systems to organize around customers’ data

Enhancing the customer experience is the biggest priority for my digital innovation strategy over the next 12 months


The Lowdown The operational performance gap is closing – but the Readiness Leaders continue to grow faster, driven by superior emerging tech and risk capabilities.

The rest of the industry is making tangible progress in bridging the operational performance gap, especially in process automation and digital innovation.

3

FIGURE 5. Readiness Leaders increase their superiority on emerging technology and risk management

Difference between Readiness Leaders and the rest of the industry on index pillars

Nevertheless, the Readiness Leaders continue to grow their annual revenue more than twice as fast. The Leaders’ higher scores across the FIS Readiness Index indicate their advantage in operating efficiency. And they have increased their advantage in emerging technology and risk management.

These gains are helping them to preserve better margins, deliver better customer outcomes and better differentiate themselves in a competitive market.

Overall

Emerging technology

Automation

Data management

Digital innovation strategy

Client services

Risk management

2017 2018 2019

Leaders stand out

Gap closing

Gap closing

Leaders stand out 11

2.2

2.6

2.4

2.2

1.8

1.6

1.8

1.7

1.8

1.6

1.5

0.6

1.5

1.1

1.3

1.6

1.9 2.0

1.7 1.4


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The impact:

The Readiness Leaders have increased their superiority on emerging technology and risk management and continue to enjoy a marginal lead on operating efficiency. This is helping them boost their margins and win new business at a faster rate – they grow their revenues 2.2 times faster than their rivals.

Readiness actions:

• Build more functionality into your core systems to create the agility you need to respond to individual customer's specific data requirements

• Develop more advanced risk analytics tools to add new value for customers through risk information services

• Seek out use cases for AI that can simultaneously add value on two fronts: improving operational efficiency and delivering a better customer experience

This is a critical time for financial institutions to define how and where they are going to compete and win and, to enable this, what they will do to add value for customers in the future. The industry isn’t just transforming, it’s revolutionizing, and those that aren’t clear in their technology strategy will be left behind.MARTIN BOYD, DIVISION EXECUTIVE, CAPITAL MARKETS, FIS

The 2019 Readiness Report The Readiness Index

The Readiness Index 2019The Readiness Index scores industry respondents against six key operational pillars that will be important levers of growth in the years ahead.

The index pillars

Automation: the level of process automation across the transaction life cycle. Robotic process automation (RPA), in combination with exception-based workflow, is the highest parameter

Data management: data management capability, including integration of data across the organization, big data and delivery of self-service analytics

Emerging technology: maturity of emerging technology adoption across mobile, AI and distributed ledger solutions

Digital innovation strategy: level of activity directed at strengthening digital innovation and propensity of the organizational culture for innovation

Client value: performance across client service metrics, including customization of products and services and mobile delivery, as well as strategy to differentiate the service offering

Risk management: competence in regulatory, operational, cyber and market/credit risk management

2017 2018 2019

7.4

8.3

7.8

6.9

8.7

6.9

8.2

7.1

6.9

7

9

6.3

7.6

7.4

6.6

7.6

8.2

5

6.1

5.2

5.1

7.1

5.1

6.5

5.2

5.1

5.4

7.5

5.6

6

5.4

5.5

6.2

6.5


Figure 6. FIS Readiness Index 2017-2019: Readiness Leaders vs. Rest of the industry

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The 2019 Readiness Report The Scoop

The Scoop: How Readiness Leaders Are Maintaining Their Edge If we take a deeper dive into the Readiness Leaders’ strategies, we can see that when it comes to investing in technology, they are not only targeting different areas of their businesses; they are also taking alternative approaches to building the right organizational structure and talent to drive growth.

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Doubling down on AI

Over the last 12 months, the Leaders have increased momentum on developing and deploying AI solutions.

My business is live with AI

2018

2018

2019

2019

15%

2%

26%

4%

Readiness Leaders



As the industry’s focus on customer acquisition intensifies, it is telling that the Readiness Leaders’ most commonly cited objective for developing AI solutions is to improve the customer experience. Contrast that with the rest of the industry, where the biggest priority is to streamline and simplify operational processes.

FIGURE 7. Differing priorities for investment in AI solutions

Improve the customer

experience

Improve cyber

security

Streamline and simplify operational processes

Prevent fraud Reduce costs Better manage

investment decisions

Improve the employee

experience

Reduce employee headcount

Better manage risk

Speed up compliance

management

18%

24%

36%

9%

16%

27%

33%

22%

9%

7%

31% 31%

25%24%

23%22%

16%

13%

9%

6%

Readiness Leaders Rest of the Industry

15

Moreover, because the Leaders have already achieved significant process automation, they can apply AI to continue their efficiency drives even as they use it to address customers' heightened expectations.

46% 45%


Turning risk into a differentiator

The Readiness Leaders have also managed to increase the performance gap when it comes to risk management capability, comfortably outstripping the rest of the industry on all of the elements that we tested in our study.

FIGURE 8. Readiness Leaders’ more advanced risk management capabilities

Somewhat strong Very strong

16

Cyber risk management

Operational risk management

Regulatory/compliance risk

management

Market/credit risk management

55% 7%

67% 6%

54% 38%

32% 6%

42% 38%

47% 7%

50% 44%

Readiness Leaders

Readiness Leaders

Readiness Leaders

Readiness Leaders





Given the rapid pace of change in technological and business models, a sophisticated approach to operational and cyber risk management is essential to supporting Leaders’ growth ambitions.

As cloud, collaborative innovation and open APIs become more important elements of the digital innovation model, institutions need to recognize that they will increase the number of potential target areas for cyberattacks.

Not only are the Leaders more confident about their cyber risk capabilities; they are more sophisticated with their approach to risk management, seeking to add value for their customers by providing more sophisticated risk information.

Among our investment banking respondents, for instance, the Readiness Leaders feel this is the area where they can provide the greatest marginal difference in added value for customers in comparison with their competitors.


FIGURE 9. Readiness Leaders tend to see the risk information services they provide as a key differentiator

Importance of functions in firms' ability to add value for clients

Investment banking – Readiness Leaders Investment banking – Rest of the industry

17

Risk information

services

Capital raising advisory

Digital communications

M&A advisory services

Investment research offering

86% 63%

45%

34%

55%

65%

53%

51%

49% 47%


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Standing apart on organizational structure and talent

But it’s one thing to invest in emerging technologies such as AI and risk management with the intention of gaining a competitive edge. In practice, this will only translate into better outcomes if organizations have a clear plan for rolling out such solutions across the business.

44% 37%

We have promoted cross-functional innovation over the last 12 months

Readiness Leaders


It is telling, therefore, that the Readiness Leaders are also distinguishing themselves when it comes to putting the people, culture and organizational structure in place to support new digitally driven business models.

For example, they’re more likely to upskill existing staff and partner with third parties to access new skillsets. They also pay more attention to promoting cross-functional innovation across their organizations.

48%

Figure 10. Readiness Leaders take a different approach to promoting digital innovation over the next 12 months


30%

26%

39%

32%

27%

42%

33%

30%

24%

28%

21%

Training/upskilling existing staff

Partnering with or outsourcingto a third party

Appointing new leadership roles with responsibility

for these areas

Embedding these skills from elsewhere in

the organization into operations/project teams

Recruiting/hiring new experts from other

organizations in our industry

Recruiting/hiring new experts from other

indusrties

As emerging technologies become pervasive across firms’ organizations, the workforce must integrate these new tools into their day-to-day jobs to ensure that these investments deliver maximum value.


Focusing on adding value

The Readiness Leaders are also thinking carefully about their technology management. Nearly three-quarters are seeking to hand over non-differentiating activities to third-party providers, freeing up their own resources for activities that add value for customers.

19

I will hand over non-differentiating functions to technology vendors over the next 12 months

This will be increasingly important in ensuring that institutions can keep up with the rapid pace of technological change.

“For example, some institutions, particularly on the capital markets side, might be running many different versions of software to manage compliance for a particular product, which is very difficult to maintain,” says Warren. “Ultimately, you want to have one version of the code that you maintain. If you can have a third-party running this function on a public cloud or within a private cloud, then when a regulation or a change gets mandated, they can run a single update that will solve this, so it protects firms from the costs and risks associated with ongoing regulatory change.”

72%

55%

Readiness Leaders


The 2019 Readiness Report The Way Forward

The Way Forward: Get Set for Growth The 2019 Readiness Index shows a collective recognition by the industry of the future operating model that is required to support growth. This model entails a defined data strategy, a joined-up approach to risk management and the targeted application of emerging technologies such as AI.

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The Readiness Leaders in our index are further advanced in implementing this new model, but the rest of the industry is moving in the same direction and has gained ground in 2019.

Looking at the broader picture gives us an indication of why the Leaders continue to maintain a growth advantage: they are implementing new technologies and processes, but they are also aligning other aspects of organizational strategy around these new models.

FIGURE 11. Readiness Leaders align technology, operations and talent to support new business models

Culture

Outsourcing

AI

Risk

SkillsServices

Outcomes from AI• 31% of Leaders are targeting AI investment

on enhancing the customer experience vs. 18% of the rest of the industry.

Innovation culture• Leaders' top strategy to develop digital skillsets

is to upskill exisiting staff: 48% prioritize this vs. 30% of the rest of the industry.

• Only 12% of leaders say culture is a barrier to digital innovation vs. 26% of the rest of the industry.

Customized services• 81% of retail banking Leaders are

sophisticated at using data to personalize their cuntomers' banking experience vs. 46% of the rest of the industry.

Talent strategy• Leaders are putting greater emphasis on

strengthening AI skills (34% vs. 28% of the rest of the industry) and cyber security skills (47% vs. 41%).

Risk insight• 78% of Leaders have enabled their risk

teams to readily access organizational data in a timely manner vs. 48% of the rest of the industry.

Outsourcing• Leaders are moving faster to outsource non-

value adding activities: 72% will hand over non-competing functions to tech vendors over the next 12 months vs. 55% of the rest of the industry.

Readiness Leaders

The 2019 Readiness Report The Way Forward

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Recommendations

1 Leave legacy models behind

Define a common data strategy that enables your organization to utilize data analytics for operational efficiency and, importantly, enhance the customer experience.

Draw on cloud infrastructure to enable more sophisticated analytics and effectively implement emerging technology, but also as an enabler of process change.

Overhaul your business processes as dramatically as your technology – otherwise the impact of a new architecture will be lost.

2 Move toward a more agile, open innovation model

Adopt an open API strategy to offer greater agility and enable rapid, adaptive change.

Winning organizations will simplify integration across dissimilar systems – both internal and external – and add new capabilities more quickly without compromising access to the firm’s ecosystem.

Capitalize on external innovation through fintechs and other vendors – and even other industries.

3 Take a targeted approach to emerging technology

It is time to move emerging technology strategy from the exploratory to the tangible.

Proven business use cases for technologies such as AI are now a reality, and Leaders are embracing these technologies – remaining on the fence is no longer acceptable.

To derive the greatest value from emerging technologies, solutions need to focus not merely on enabling operational efficiency gains but on adding value for customers and supporting customer acquisition.

As emerging technologies become pervasive across firms’ organizations, the workforce must integrate these new tools into their day-to-day jobs to ensure that these investments deliver maximum value.

The 2019 Readiness Report About the research

About the research Between December 2018 and March 2019, FIS and Longitude, of the Financial Times Group, conducted a survey of 2,034 senior-level respondents across the buy side, sell side, insurance, and retail and commercial banking. We also conducted a number of in-depth qualitative interviews with industry specialists at FIS.

Demographics

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Sectors Regions

Seniority Function

26% 31%

30%

30%

74%

22%

20%

18%

16%

11%

9%4%

26%

10%

19%

18%

15%

8%

8%8%

Investment banks Europe

North America

Asia Pacific

Head of business unit/director-level

C-suite

Middle East and Africa

Asset managers

Commercial banks

Insurance companies

Retail banks

Broker-dealers

Fund administrators

Risk and compliance

Finance and treasury

Operations

IT

Trading and investment

Distribution and sales

Executive management (overseeing multiple functions)

The 2019 Readiness Report About Research

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About the FIS Readiness Index

The index collates and measures more than 2,000 executives’ self-assessment of their institutions’ performance in six operational areas that are representative of how firms achieve growth.

Key areas

Scoring

The majority of questions included in the index asked executives to rank their businesses on a scale of 1 to 5, where 5 = highly effective/active, etc., and 1 = highly ineffective. Respondents who chose “Don’t know” were given a neutral score of 3.

Several questions, such as those related to digital innovation strategy, asked respondents to choose from a range of activities or strategies that their companies may be involved in, such as M&A, third-party collaborations or incubator programs. For these questions, companies undertaking at least five activities were awarded a top score, with the remaining responses scaled accordingly.

Building the Readiness Index

The question scores were aggregated for each individual respondent – first to a category score and then overall. To allow for more refined insights, both category scores and overall scores were placed on a scale of 1 to 10, where 10 is best. As shown above, the categories each receive an equal weighting in the index because we believe that each area should be accorded equal merit.

Questions

For each category, executives were asked to respond to a series of self-assessment questions about their companies’ performance within each area – for example, how well their company performs in unifying data sources across the organization or the extent to which it has adopted AI solutions. The questions were tailored to different types of businesses and functions.

Automation17%

17%

17%17%

17%

17%

Data management

Emerging technology

Digital innovation strategyClient value

Risk management

©2019 FISFIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties’ marks are the property of their respective owners.

fisreadinessreport.com

About FIS

FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 55,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500® Index. For more information about FIS, visit www.fisglobal.com

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