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CFO Insights on Digitalisation: Taking Advantage of the Changing Face of Global Technology

February, 2017

CFO Insights on Financial Services

Chris Landis, Division CEO, SIX Swiss Exchange

The world is experiencing major digital advances which will create new opportunities for global markets

Digitalisation is changing the world. It permeates almost all segments of society and sectors of the economy and will be a key driver for future growth of economies and companies. As people, machines and objects become more interconnected, existing value chains are breaking up. Established business models are being challenged and new models are appearing. This presents both opportunities and risks. Although there is a clear trend towards an increasingly digital economy and society, the pace of change depends on various factors and is not consistent around the globe. It also raises a series of questions. What do companies need to do to keep up with the fast pace of evolving digitalisation? Who are the winners and losers?

Disruption of business models

At SIX, we view digitalisation as a major opportunity for the financial sector as it brings a range of advantages, not only for financial providers, but also for clients: focussing on mobility, simple comparability, accessibility, the continual availability of services and the automation of processes.

In our view, the increasingly dominant role of the internet is paving the way for the biggest changes. A changing environment within the financial sector is, of course, not new – we have seen many shifts in the past 200 years. What is new, however, is the speed of these changes and their global impact.

Technology means small providers are now able to create services and solutions that extend the existing offerings or to combine the services of multiple providers in a streamlined package, all for a comparatively small development cost. New providers, most of which are from outside the sector and operate on a global basis, are also entering the market and challenge the business models of established providers. Yet the main challenge today for financial services providers and regulatory bodies alike is to acknowledge this rapid change and the emerging business models these changes imply.

One the one hand, this is going to be ever more important for the financial services providers themselves in order to best navigate their client channels. On the other hand, the regulators need to adapt at the same time in order to insure integrity at all times and protect at the same constant level that financial services and clients need.

Fintech innovation lab

SIX, as the backbone of Switzerland’s financial infrastructure, demonstrates innovation and agility when devising its business models so it can react flexibly and confidently to the new realities of digitalisation. We have made innovation one of our strategic priorities, having operationally integrated it into our organisation with the creation of our F10 Incubator – the driving force behind our technological developments which provides scouting, quick prototyping and faster “idea-to-market” time services.

Our intention is to grow F10, together with other Swiss companies from the banking, insurance and consulting sectors, to make it Switzerland’s largest fintech innovation lab. This initiative can already count on two well-known backers in the form of Julius Bär, Switzerland's leading private banking group, and PwC Switzerland, Switzerland's leading professional services firm. Through their respective expertise, together with SIX, they strengthen the innovative capacity of the Swiss financial centre and thus invest in the future.

The initiative brings together financial services providers, academia, fintechs and start-ups, and networks them with relevant opinion formers and subject leaders in the financial sector. Being an integral part of the community guarantees cultural spill-over and acceleration of innovation initiatives and we are creating an innovation pipeline, strengthened by deep and long-lasting community ties that go beyond the terms of any given project. We believe that new technologies will not only create new business models, but will also have the potential to break-up existing value chains, not least in financial market infrastructure, and place new demands on systems.

Digital technologies will lead to the increased automation of procedures and processes, with the aim of having less manual interaction in the client-bank relationship while at the same time massively increasing efficiency and profitability. We are seeing that clients require, and expect, full end-to-end automation with their interactions all of the time, the best quality data possible, guaranteed safety from cyber security and data leaks, and faster processing times. It is probably only a matter of time before value chains are fragmented and activities begin to be outsourced. This will bring with it an increased standardisation of products.

Exploring new digital business models

SIX is continually reviewing the possibilities of using digital technological developments for new business ideas. This includes mobile payments, where the world has experienced technology firms quickly encroaching on the traditional banking industry with their mobile, cashless systems. The convergence of online and offline channels in a mobile environment has led us to explore new payment related services for banks, merchants and consumers. Recently we, Switzerland’s biggest banks and its largest retailers combined their efforts to develop a Swiss standard solution in the area of mobile payments.

Furthermore, our exploration of new technologies includes examining the potential of distributed ledgers (blockchain). This new technology, into which little research has thus far been carried out, establishes a completely new method of handling encryption, digital signatures, open systems and transaction functions.

In order to better understand the potential of this new technology, our SIX Securities Services division, the post-trade infrastructure operator for the Swiss financial sector, and Digital Asset Holdings, a developer of distributed ledger technology for the financial services industry, are developing a proof of concept that demonstrates the commercial viability of distributed ledger technology across the Swiss financial market, with an initial prototype for securities lifecycle processing.

Future-oriented solutions

The world is currently experiencing major digital advances which will create many new opportunities for global markets. At SIX, we are in the best position to anticipate our clients’ needs at an early stage. We have an innovation system that allows us to mobilise our employees and networks to quickly identify changing needs and explore solutions that can be implemented together with our stakeholders.

SIX is confident that across all divisions, we can offer ideal future-oriented solutions and play a leading role in the digitalisation of finance and be at the heart of this exciting industry change.

Opinions expressed in this article are the author’s own.