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1
The Hunt for Growth Across Europe
Are you ready to rise?
THE FIS™ READINESS REPORT
2 The FIS™ Readiness Report: The Hunt for Growth | Contents2
Contents
3 Introduction
4 Regional growth outlook
6 FIS Readiness Index
9 Strengthening automation
10 Mastering data management
12 Embracing emerging technologies
14 Expediting digital innovation
15 Redefining the customer experience
16 Rethinking the talent mix
18 Six steps to becoming growth ready
20 Appendix
3
Automation Data management Emerging technology Digital innovation Customer experience Talent
By scoring performance on these key growth enablers, the FIS Readiness Index shows that firms that achieve operational excellence are reaping rewards: they are growing faster than their rivals.
Introduction
Growth conditions remain challenging for European financial services institutions across the buy and sell side. Unlike their U.S. peers, European firms have not been promised a return to lighter-touch regulation in the years ahead, while interest rates across the region remain at historic lows.
Yet there is reason to be optimistic: the firms that can achieve greatest operational efficiencies, accelerate the innovation process, and reshape their talent for the future environment will be in a strong position to capture new growth opportunities on a regional and global level.
Our research, which is based on a survey of 1,042 senior-level decision-makers (see About the research) uncovers fresh insights about how well-positioned industry participants are for growth – assessing their capabilities across six key operational principles:
What are the Readiness Leaders doing differently, and how can others follow their lead?
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1. European institutions are more divided on their outlook for growth than their North American peers.
Half of European institutions are confident about hitting their growth targets over the next 12 months, with the remaining 51 percent either uncertain or pessimistic about doing so.
European firms are less bullish than those in North America, where 64 percent express confidence about achieving growth objectives.
2. Europe’s financial services firms are focused on operating margins and customer acquisition.
As with other regions, European firms are focused on growth – in particular in driving new customer acquisition over the next 12 months. Where Europe differs slightly, however, is that the focus on the improvement of operating margins is on a par with acquiring new customers, while in other regions the operating margins are a secondary objective.
3. Institutions are chasing growth objectives while the threats of Brexit and digital disruption loom large.
European firms are understandably the most concerned about Brexit as a threat to their growth over the next three to five years, with 41 percent saying this, versus just 22 percent of North American institutions and 31 percent in Asia Pacific who view it as a threat. However, the same number of European firms – 41 percent – see Brexit as an opportunity.
In Europe, institutions are also more conscious of the threat posed by disruptive new market entrants such as fintech businesses: 32 percent of European firms cite this as a threat, compared to 30 percent in Asia Pacific and 28 percent in North America.
Figure 1. Hunting for growth: Objectives in the next 12 months (ranked 1, 2 or 3)
Acquire new
customers
Improve operating margins
Improve customer retention
rates
50% 50%
46%
The FIS™ Readiness Report: The Hunt for Growth | Regional Growth Outlook
The focus on operating margins is on a par with acquiring new customers.
Regional growth outlook
5
4. European institutions will see no let-up in the regulatory burden.
Firms in Europe remain most pessimistic about the regulatory outlook, with only 35 percent believing this is improving, versus 58 percent in North America.
Furthermore, 62 percent of European firms think that regulation will remain a significant hindrance to their growth plans over the next 12 months, while only 53 percent of North American firms say this.
62% of European firms think regulation will remain a significant hindrance to their growth plans over the next 12 months.
Figure 2. Opportunities and threats over the next three to five years
0
10
20
30
40
50
Countries implementingprotectionist
policies
Divergence in central
bank interest rates
Projected economic
growth in mykey market(s)
Brexit – the U.K.leaving theEuropean
Union
Politicaloutlook
in my keymarket(s)
Governmentspending
policy in my keymarket(s)
Tax policy in my keymarket(s)
Disruptive new
marketentrants
Emerging technologies
Cybersecurity Feepressure
ThreatOpportunity
13%
25%
43%
28%32%
36%31%
24%27%
20%
32%27%
14%10%
22%
6%
14%
28%
41% 41%
17%19%
The FIS Readiness IndexThe FIS Readiness Index reveals how European institutions outside of the top 20 percent (European non-Leaders) rate against the global Readiness Leaders today on six key operational enablers of growth. It indicates where capability gaps remain as institutions prepare their operating models to support growth.
6 The FIS™ Readiness Report: The Hunt for Growth | FIS Readiness Index
Emerging Technology
Customer ExperienceDigital Innovation
Talent
Data ManagementAutomation
European non-LeadersReadiness Leaders (global)
2 4 6 8 10
Six operational principles are critical levers of growth in the years ahead:
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Automation: The level of process automation across the transaction lifecycle; artificial intelligence (AI) in combination with exception-based workflow is the highest parameter
Data management: Data management capability, including integration of data across the organization, predictive analytics and visualization
Emerging technology: Maturity of emerging technology adoption across mobile, AI and distributed ledger solutions
Digital innovation: Level of activity directed at strengthening digital innovation and propensity of organizational culture for innovation
Customer experience: Performance across customer service metrics, including customization of products and services, mobile delivery, responsiveness and transparency
Talent: Level of digital competencies in data analytics, software development, digital distribution and digital transformation
Accelerating growth readiness: Rise to meet the future faster
As European institutions face a variety of challenges, from political change to digital disruption, they are uncertain about hitting their growth targets. However, our research finds that many firms are focusing on areas that will help improve their growth readiness.
8 The FIS™ Readiness Report: The Hunt for Growth | Accelerating Growth Readiness
European firms plan to make significant leaps in the automation of middle- and back-office processes.
Currently, they have relatively high levels of automation for trade execution. For instance, 45 percent of buy-side firms say their trade execution is near-fully or fully automated. This will increase to 60 percent in the next three to five years.
However, the bigger transformation will be in the automation of middle- and back-office processes. Among buy-side firms, post-trade processing will increase from the 23 percent that are at high levels today to 44 percent in the next three to five years.
The FIS™ Readiness Report: The Hunt for Growth | Strengthening Automation
Strengthening automation
The bigger transformation will be in the automation of middle- and back-office processes.
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Figure 3. Buy side: Near-full or full middle-office automation
Current3 – 5 years
Current3 – 5 years
Post-trade processing
Derivatives lifecycle
management
Collateralmanagement
Assetpricing
Compliance Riskmanagement
Integrated Investment
Book of Record (IBOR)
23%
14%18%
12%
18%14%
21%
32%
47% 46%42%44% 40% 44%
Post-trade processing
Collateralmanagement
Risk managementand compliance
52%
33% 33%
55% 52%46%
Current3 – 5 years
Current3 – 5 years
Post-trade processing
Derivatives lifecycle
management
Collateralmanagement
Assetpricing
Compliance Riskmanagement
Integrated Investment
Book of Record (IBOR)
23%
14%18%
12%
18%14%
21%
32%
47% 46%42%44% 40% 44%
Post-trade processing
Collateralmanagement
Risk managementand compliance
52%
33% 33%
55% 52%46%
On the buy side, collateral management will rise from 18 percent at high levels of automation to 44 percent, and compliance automation rates will jump from 18 percent to 46 percent.
Collateral management will be a focus on the sell side too, as 33 percent have high automation today, but 52 percent expect to achieve this in three to five years’ time.
Figure 4. Sell side: Near-full or full middle-office automation
1010 The FIS™ Readiness Report: The Hunt for Growth | Mastering Data Management
Mastering data management
European firms have strengthened data integration but must catch up on more advanced analytics. Institutions in this region are more accomplished at unifying data sources across the organization to achieve a “single view of the truth” than they are at undertaking big data analytics, perhaps as regulation has propelled them to integrate fragmented systems in recent years.
Figure 5. Data management capability
Highly effective
Ineffective
Highly ineffective
Don’t know
Effective
Neither effective nor ineffective
Unifying data sources across the organization
Combining external data with internal data to better inform our decision-making
Ability to visualize and simplify complex organizational data for decision-making
Advanced analytics for predictive identification of risk and opportunities
1%
2%
1%
2%
3%
2%
3%
3%
12%
13%
10%
13%
25%
27%
27%
25%
41%
43%
49%
46%
17%
13%
11%
11%
11
However, firms are still focusing technology spending predominantly on reducing operating costs (39 percent) and rationalizing the IT architecture (30 percent). So as they look to drive growth, European firms will need to continue strengthening their big data and predictive analytics
Firms need to continue strengthening their big data and predictive analytics capabilities to drive better investment and risk insights.
capabilities to drive better investment and risk insights. Today, only 56 percent say they’re effective at combining external, unstructured data with internal data to extract insights, versus 67 percent of North American firms that say this.
12
Europe trails North America on implementing AI, but there is a hive of research and development activity underway.
Only 9 percent of European institutions have implemented AI solutions, while 16 percent have done so in North America. However, 59 percent of European firms are developing or testing AI solutions, versus just 44 percent in North America.
The biggest focus of European institutions’ AI innovation is to strengthen risk management and further increase the automation of processes.
12
Firms that can marry enabling technologies with new business models can create a compelling new value proposition.
Embracing emerging technology
Mobile customer services
The FIS™ Readiness Report: The Hunt for Growth | Embracing Emerging Technology
13
16%
9%
32%
27%
29%
16%
32%
24%
31%
30%
16%
27%
25%
25%
24%
19%
12%
10%
11%
9%
Figure 6. Progress on implementing emerging technology
Distributed ledger technology
Artificial intelligence/ machine learning
Advanced customer relationship management software
eDelivery/online customer services
Mobile customer services
8%
4%
3%
3%
3%
4%
4%
3%
12% 16%
Some live implementation
Considering its potential application
No plans to implement
Don’t know
Piloting/testing
Researching/developing
13
141414
Existing financial services business models are already being challenged. Automated investment services providers are gaining a foothold in the wealth management market, crowdfunding businesses are beginning to encroach on commercial lending, and peer-to-peer models are emerging in the insurance sector.
Financial services institutions remain in a position of strength, but they must accelerate their own innovation to remain competitive. The imperative to develop new digital services is strong, but pressure from customers and EU lawmakers on cybersecurity means financial institutions must take great care in their approach to doing so.
Across European firms, 26 percent cite cybersecurity risk and complex legacy IT systems as the biggest barriers to expediting their digital innovation.
Recruiting digital technology expertise (38 percent), collaborating with innovative third parties (29 percent), and purchasing third-party technology (27 percent) will be the most important strategies employed by European firms to accelerate their digital innovation over the next 12 months.
Cyber risk and legacy IT estates are hampering European firms’ digital innovation.
Figure 7. Strategies to expedite digital innovation
Outsourcing non-core
services to free up resources
21% 20%
Acquiring innovative
firms
13% 14%
Setting up incubator or accelerator
programs
21% 20%
Recruiting digital
technology expertise
32%38%
Appointing board-level
roles with responsibility
for digital innovation
15% 15%
Encouraging a more open
innovation culture across
functions
30%
24%
Purchasing third-party technology
27% 27%
Collaborating with innovative
third parties
29% 29%
Past 12 months Next 12 months
Expediting digital innovation
The FIS™ Readiness Report: The Hunt for Growth | Expediting Digital Innovation
15The FIS™ Readiness Report: The Hunt for Growth | Redefining the Customer Experience
Redefining the customer experience
The customization of products is a particular challenge for European firms.
European firms feel they match their North American peers in delivering transparency on fees and online or mobile access to services.
However, there is a gap in effectiveness between European and North American firms when it comes to delivering customized products: 23 percent say they are highly effective, versus 32 percent in North America. When it comes to delivering a personalized service, 22 percent say they are highly effective, compared to 31 percent in North America.
Among European firms that see elements of their customer experience as ineffective, inadequate technology and talent gaps are considered to be the most important reasons.
Figure 8. Reasons for an ineffective customer experience
Outdated/ inadequate technology
Organizational talent gaps
Reactive instead of proactive in customer
management
Internal/structural issues (e.g.,
organizational silos)
Product or service limitations
Inability to understand/
analyze customer needs
55%
38%32%
28%
17% 15%
Only
23% of firms say they are highly effective at delivering customized products.
16 The FIS™ Readiness Report: The Hunt for Growth | Rethinking the Talent Mix 16
Talent gaps are also holding back innovation. European firms are more likely to say that talent gaps are a barrier to accelerating their digital innovation, with 22 percent citing this, versus just 16 percent in Asia Pacific and 15 percent in North America.
As such, European institutions are on a digital recruitment drive: recruiting digital technology expertise (32 percent) was the most common action undertaken to expedite innovation last year, with 38 percent planning to do this in the 12 months ahead.
U.K. institutions may seek to accelerate this recruitment if they intend to attract overseas talent before the Brexit process is over.
European firms also place greater weight on big data and AI expertise as skills that will drive future growth: 69 percent cite big data expertise as highly important for future growth, versus 65 percent in North America and 56 percent in Asia Pacific. While 57 percent of European firms think strengthening AI expertise will be key to growth, only 50 percent in North America and 46 percent in Asia Pacific say the same.
Rethinking the talent mix
Figure 9. Importance of digital skills for growth (next 12 months)
Big data analytics/
data science expertise
Software development/programming
expertise
Digital change/
transformation expertise
Digital distribution/
delivery expertise
69% 67% 67%62%
Distributed ledger
technology expertise
48%
Artificial intelligence/
robotics expertise
52%
Algorithmic and
automated trading
developers
59%
17
European firms also place greater weight on big data and AI expertise as skills that will drive future growth.
17
Six steps to becoming growth ready
European firms are in a state of uncertainty. They’re divided about their ability to achieve their growth targets for the coming 12 months, perhaps understandably as Brexit and digital disruption loom on the horizon.
But even if European institutions have limited ability to shape these macro challenges, our research shows that they can increase their growth readiness by addressing six key areas of their operating model.
18 The FIS™ Readiness Report: The Hunt for Growth | Recommendations
19
WHAT’S YOUR GROWTH READINESS?ARE YOU READY TO RISE?
Benchmark your growth readiness FISReadinessReport.com
1. DEEPEN AUTOMATION Institutions must respond to efficiency and data needs by increasing automation across more areas of trading and back-office operations – but also areas of low automation such as middle-office activities. They need to overlay workflow onto exception management before they can implement AI and machine learning solutions.
2. EXCEL WITH DATAAt a minimum, firms need to draw a line under fragmented systems, moving to a single source of truth on data across the organization. But this is just the first step of a multi-tiered approach. Customized real-time data must be available to business users, while advanced AI solutions should be layered on top to create better predictive insights.
3. ADD VALUE WITH EMERGING TECHNOLOGYSenior leaders must take a longer-term outlook on embracing enabling technologies such as AI, blockchain and mobile to create a compelling new value proposition for customers. Our Readiness Leaders are adopting AI to drive automation, performance and risk analytics, but an even more transformative approach may be necessary: players that redefine how they service customers will differentiate themselves the most and capture new opportunities.
4. ACCELERATE INNOVATIONResponding to regulatory requirements, cyber risk and complex legacy IT is stifling progress on digital innovation. Institutions must find ways to overcome these issues to expedite the process. Teaming up with innovative third parties – and finding ways to make these collaborations more effective – will be an increasingly important part of the solution.
5. REIMAGINE THE CUSTOMER EXPERIENCEFinding new digitally-driven mechanisms for engaging customers will be a critical driver of growth in the years ahead. Digital and mobile access to services are the industry’s weakest area of customer servicing. New offerings will need to provide not only greater access to real-time information via online and mobile but through direct market access too, such as enabling trading activity.
6. RECRUIT THE SPECIALIST TALENTThe new operating model for growth will be ineffective unless the financial services workforce is rethought. In particular, this means putting new skills such as data science specialists in place, enabling them to work in close collaboration with the front office to drive more value and better outcomes for customers.
20
Appendix
The FIS™ Readiness Report: The Hunt for Growth | Appendix
Commercial and investment banks
Broker-dealers
Asset managers
Pension funds
Insurers
Fund administrators 25%
23%16%
15%
14%
6%
C-suite26%
74%
Head of business unit/director-level
Trading and investment
Risk and compliance
Operations
SalesOther
Finance and treasury
IT 15%
18%
18%
18%
4%
7%20%Europe
30%
30%
16%
25%
North America
LAMEA
APAC
Survey Between March and May 2017, FIS and Longitude Research conducted a survey of 1,042 senior-level respondents across the buy and sell side of the financial services market.
Interviews We also conducted more than 20 in-depth qualitative interviews with industry leaders.
About the research
SECTORS
REGIONS
SENIORITY
FUNCTIONS
CHARTS MAY NOT ADD UP TO 100 PERCENT DUE TO ROUNDING.
21
AboutThe index collates and measures 1,042 executives’ self-assessment of their institutions’ performance in six operational areas that are representative of how firms achieve growth:
QuestionsFor each category, executives were asked to respond to a series of self-assessment questions about their company’s performance within each area (for example, how well their company performs in unifying data sources across the organization or the extent to which it offers customers a tailored service). The questions were tailored to different types of businesses across the buy and sell sides.
ScoringThe 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 innovation, 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 FIS 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 and overall scores were placed on a scale of 1 to 10, where 10 is best. As shown above, as we believe each area accords equal merit, the categories each receive an equal weighting in the index.
FIS Readiness Leaders Based on those scores, the top 20 percent of all respondents were deemed Readiness Leaders. The industry breakdown of the Readiness Leaders versus the total survey responses is as follows:
The FIS™ Readiness Report: The Hunt for Growth | Methodology
Automation
Insurers
Assetmanagers
Broker-dealers
Fundadministrators
Asset managers
Pension funds
Fundadministrators
Commerical and investment Banks
Commerical and investment Banks
Broker-dealer
17%
17%
17%17%
17%
17%
Data management
Emerging technology
Talent
Customer experience
Digital innovation
29%
13%
25%
15%
22%
16%
12%
18%
14%
23%
6%
Pension funds
6%
Insurers
Broker-dealers
12%
15%
ReadinessLeaders
Responsesby industry
Fund administrators
13%
14%
ReadinessLeaders
Responsesby industry
Asset managers
22%
23%
ReadinessLeaders
Responsesby industry
Pension funds
6%
6%
ReadinessLeaders
Responsesby industry
Commercial and investment banks
29%
25%
ReadinessLeaders
Responsesby industry
Insurers
18%
16%
ReadinessLeaders
Responsesby industry
Automation
Insurers
Assetmanagers
Broker-dealers
Fundadministrators
Asset managers
Pension funds
Fundadministrators
Commerical and investment Banks
Commerical and investment Banks
Broker-dealer
17%
17%
17%17%
17%
17%
Data management
Emerging technology
Talent
Customer experience
Digital innovation
29%
13%
25%
15%
22%
16%
12%
18%
14%
23%
6%
Pension funds
6%
Insurers
Broker-dealers
12%
15%
ReadinessLeaders
Responsesby industry
Fund administrators
13%
14%
ReadinessLeaders
Responsesby industry
Asset managers
22%
23%
ReadinessLeaders
Responsesby industry
Pension funds
6%
6%
ReadinessLeaders
Responsesby industry
Commercial and investment banks
29%
25%
ReadinessLeaders
Responsesby industry
Insurers
18%
16%
ReadinessLeaders
Responsesby industry
Methodology – The FIS Readiness Index
©2017 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.
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About FISFIS 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 100 countries. Headquartered in Jacksonville, Florida, FIS employs more than 57,000 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