In this episode of the Futurum Tech Webcast, fellow analyst Sarah Wallace and I explore the COVID-19 driven evolution of the financial services sector and how these institutions and their IT teams are adapting to remote work, security and compliance issues, integrating things like RPA and contactless payment systems and more. Most importantly, we explore how the financial services sector will be forever impacted by these changes and what’s ahead. This conversation is a precursor to the Financial Services Market Insight report that Sarah and I are currently developing, which will be published in the next few weeks.
The COVID-19 Driven Evolution of the Financial Services Sector
Our conversation in the webcast explored the reality that as a result of the COVID-19 pandemic, financial services companies have had to be agile in the way they handle business and customers across all distribution channels and they also must address cybersecurity, compliance, and business continuity and resiliency needs. Banks and other highly regulated businesses in the financial services space have some unique needs and serving them, especially as it relates to pivoting to hybrid cloud architectures, hasn’t always been easy. We discussed financial services cloud offerings from technology vendors like AWS and IBM and covered some exciting announcements from those companies.
The things we touched on this episode included:
- Technology that speeds up financial institutions’ ability to serve customers by both facilitating remote operations, as well as speeding up processing time for loan applications and other customer-facing services.
- IT Infrastructure. The impact of remote work and remote customer service support to the back office and how IT departments have had to make sure virtual capabilities are fully supported, always on, and making sure there is a balancing of new workloads.
- The role of RPA. Banks and financial institutions are relying on robotic process automation to speed up manual, error-prone processes, and also deliver a better digital process to customers. We have seen that with RPA offerings from Automation Anywhere, UiPath, Pega, and IBM, to name just a few.
- Network Security. With employees are working remotely, and often using mobile devices, network security is critically important. Facilitating the accessing of corporate email on personal mobile devices requires the right kind of security measures. This is also where security operations centers (SOCs) and security information management systems (SIEMs) play an outsized role today, helping financial institutions detect, isolate, and mitigate security risks.
- The Importance of SOC and SIEMs. Banks obviously have to address cyber security challenges on a daily basis, before the COVID-19 pandemic. Our conversation covered the importance of the Security Ops Center (SOC) and SIEMs (security information and event management software) and the role of that technology in assisting financial institutions to detect, isolate and mitigate security risks.
- Digital Payments. The pandemic has spurred digital payments at a time when personal contact and touching common things is dangerous. It only makes sense that we are seeing a big transition to contactless payment systems.
- Financial Services Cloud Offerings. We discussed technology that financial institutions are relying on to evolve as we collectively navigate the COVID-19 pandemic, which is dominated by financial services cloud offerings. These include:
IBM. IBM’s financial services-ready public cloud was developed by IBM in partnership with the Bank of America, launched in November 2019, and designed to address financial services workload, security, and compliance requirements. At IBM’s Think 2020 digital event this past week, the partners relaunched this collaborative cloud offering with a vertical approach intended to better serve the unique needs of the financial services industry. This cloud offering features on-prem like security with a cloud control and orchestration layer, an expanded ISV program, and hyper protect crypto services with keep your own key (KYOK) capabilities.
AWS. Amazon’s AWS is working with financial institutions to enable remote work, maintain the resilience of applications, scale systems to process increased volumes, ensure digital engagement offers an easy user experience, and optimize applications and IT environments for cost-effectiveness. AWS offerings include Amazon WorkSpaces, a managed, secure Desktop-as-a-Service (DaaS) solution, Amazon Connect, which enables businesses to stand up a fully operational contact center in minutes and operate it virtually anywhere and AWS Client VPN, a fully managed, pay-as-you-go VPN service that elastically scales to support thousands of remote users.
COVID-19 Has Shifted Financial Services More Rapidly into Digital Transformation
COVID-19 has shifted financial services more rapidly into digital transformation, which is a good thing for pretty much organizations and consumers alike. We shared tons of great information in this show today related evolution of the financial services sector. We hope you’ll be on the lookout for our soon-to-be-released Financial Services Market Insight Report. Chances are good there will be two separate reports, one on the Financial Services Market as a whole and the other solely focused on Financial Services Cloud Market Insights.
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Note that this show is intended for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Shelly Kramer: Hello, and welcome to this week’s episode of the Futurum Tech Webcast, also available in podcast form if that’s your preference. I’m your host Shelly Kramer, and I’m joined today by my colleague and fellow analyst, Sarah Wallace.
Today, we’re going to talk about the COVID-19 driven evolution of the financial services sector. Before we get started, I want to make sure you understand that this show is intended for informational and educational purposes only. We might mention publicly traded companies. We might, we probably certainly will share thoughts and opinions about those companies. Know that we do not expect this to be taken as investment advice. And with that disclaimer out of the way, we are on to our conversation.
During the COVID-19 pandemic, financial services companies just like every other company out there have had to be agile in the way that they handle business and customers across distribution channels. They have to address cyber security and compliance regulations and business continuity and resiliency needs. And so it’s been an interesting time because financial services also… We’re talking about banks, we’re talking about wealth management, we’re talking about insurance companies. We’re talking about a wide spectrum of companies involved in the financial services sector. And really what all of these companies have in common is that they’re relying on technology that helps them speed up their ability to serve their customers. It helps them make a transition to working remotely, that technology can help offer security protections and all that sort of thing. That’s what we’re going to take a look at on this show.
Sarah, it’s great to have you. Let’s talk a little bit. I know that we’re both immersed in working on a market insight report in the financial services sector right now. So our heads are kind of filled with this information. Why don’t you share with us a little bit about what’s going on in the banking industry in particular, as it relates to the COVID-19 shift that we’ve had to make?
Sarah Wallace: Yeah. Sure, Shelly. Thanks. It’s always good to collaborate with you and have a great conversation. In the banking industry, the major shift has been how they deal with their customers. As we know, logically branches have been either totally closed or restricted in terms of who can go into the branch and when. So this has shifted a lot of the customer experience for banks to be for the most part virtual.
In terms of the back office, this means that banks, their IT departments have really had to make sure that all virtual capabilities are fully supported and always on 24/seven with no failure. This also means balancing of new workloads because even certain tasks that were done in the branch have now been moved to virtual with customers. That means in terms of customer experience, banks have had to make various ways and even reaching out proactively to handle the temporary relief of things like loans, mortgages, credit cards. And this meanings in terms of the backend, making sure we’re really collecting the customer data to see who might be at risk and who might need help, and then proactively reaching out to those people.
Shelly Kramer: One of the things that interests me a lot is security. And I was reading an interesting story earlier today of an example of a bank in Egypt who is using a product that happens to be from IBM. The product is IBM Security MaaS360 product with Watson’s Unified Endpoint Management. And what this bank needed was they knew they had their employees working remotely and many of them were working from their mobile devices. And so they needed to be able to facilitate the way that these employees could access corporate email on their mobile devices, but also with the right security measures in place. So it’s kind of like, “Wow, it never even occurred to us that employees were going to have to be doing bank work on their mobile devices. Now they are, we have to make that secure.” So I think that’s an interesting challenge that technology is helping us solve.
Another thing I think that becomes even more important, certainly for any financial institution, but for banks, it’s the importance of their security operations center has never been more important. Relying on security information and event management software, I think has gone up, we’ve got some clients that are in that space. IBM has an offering like that. Splunk has an offering like that. We just finished a research paper for Splunk on security operation centers and their evolution. But I think that if companies didn’t already have security operation centers, they’re probably finding a very rapid transition to that and that being a critical part of their operations.
What other things are you seeing Sarah, with regard to banks? I know you have been talking with some different clients as well as we’ve worked on this report. Do you have anything else, top of mind that is relevant?
Sarah Wallace: Yeah. Sure. So on the backend, we’ve seen, especially with the cloud players, really the big trend I’d say in the last five or six years is cloud, especially in the last decade, has become more ubiquitous with enterprises across the board. Having a horizontal cloud play, that’s always been a little tricky for banks and financial services because it’s very specific and very highly regulated. And we’ve seen the big cloud players, the past five or six years especially, being really laser focused on serving banks and financial service companies. And this is actually perfect timing, especially as I’ve just mentioned, they’re having to be all virtual and be very agile during this time to support customers in a way that’s not necessarily in person. You gave an example of IBM and we also have companies such as AWS, which is one of the major cloud players really placing emphasis on its abilities for its customers.
AWS has this Amazon WorkSpace, which is really helping financial services companies with their desktop needs. And we have Amazon Connect, which is helping mobilize and taking context center employees and letting them work from home. And then there’s also virtual VPN capabilities. And then AWS also has… As we know, New York City has been quite a hotbed with COVID-19. And with the restrictions, a lot of people haven’t even been allowed to leave their homes. So AWS had combined with Bain & Company and also to help on insured called MetroPlus and a nonprofit called AIRnyc. And they realized that a lot of their customers, they wanted to proactively reach out to these insurance customers. I believe originally the plan was to reach out to 85,000 members to just say, “If you’re not able to leave your home to go get your blood pressure medicine, how can we proactively help you?”
And actually, AWS volunteered and built a chatbot for this insurance company. And they reached out to 54,000 members and I think 9%, and this was through a chatbot through text. And in the end about 1500 members were connected and were given help. And of course the main focus of this was to give them help before they… You didn’t have to necessarily have COVID-19, but it was to proactively help prevent and keep people out of the hospitals. So we’ve seen a lot of efforts, for instance, IBM had partnered with a Bank of America back in November for this financial services-ready cloud, and IBM last week at their IBM Think Conference had some add on announcements to this.
So we’re seeing a lot of these cloud players combine with these financial services companies, which is a great combination because it’s making things more agile during this time and helping customers whether it be through customer service, proactively reaching out and helping them and also giving them support because one of the big topics of this pandemic is the financial repercussions.
Shelly Kramer: That’s a great lead in to another thing that I think is really significant and that’s robotic process automation and we’re seeing banks and financial institutions have been big adopters of RPA for the last couple of years. But I think that we’re seeing even more banks using RPA to speed up their processes and to better serve their customers. I was talking with some friends at Pega last week and they were talking about as an example, they developed an app for the Bavarian government and the government needed to be able to provide emergency COVID-19 financial aid to self-employed workers and farmers and small to midsize companies. All people who desperately need financial help right now. And so this low-code app that was provided by Pega, allowed the government to create an app to distribute those loans. And that success wasn’t really expected. I mean, it wasn’t an expected use case, but that led Pega to develop what they call a Crisis Small Business Lending app that they then made available to any client to use.
And we’ve been seeing that kind of stepping up to the plate from companies like Pega, from IBM. Although this certainly isn’t an IBM centric conversation, but I know IBM has done that as well, but also companies that are big in the RPA space like Automation Anywhere and UiPath. And so it really has been a time where more than ever companies are able to see how technology like robotic process automation and also intelligent automation can help do things, remove kind of manual repetitive tasks from a workforce that is now remote and really speed up things like these loans to the customers. That’s kind of an important part of everyone’s existence. So I thought that was interesting.
We’re going to move on now to talk about another thing that is admittedly, probably my favorite thing on the planet, and that is digital payments. I have been a lover of digital payments for a very long time, and I’m also paid a lot of attention to what’s going on in Asia and their adoption of technology and mobile payment. It’s in a way that really hasn’t happened here. And part of that was propelled by the SARS epidemic that happened in China. And so they have experience because of a virus in figuring out how to remove money from the equation, the physical touching of money and things. I will admit that every time I’m in a store right now, where I have to use a terminal to sign something or where I have to touch a button, I’m just instantly kind of skeeved out. I don’t do a ton of shopping now, but when I am shopping physically, I’m always wearing a mask, but I don’t always wear gloves because I really don’t buy into the fact that you need gloves everywhere.
But what I think is really interesting is that we’re seeing the digital payments space just blow up because once people realize that I can go anywhere and pay for anything with this thing in my hand, it makes a huge difference. And I know that you’ve done some research on digital payments and what that market’s supposed to look like is in coming years. You maybe want to talk about that a little bit?
Sarah Wallace: Yeah. Sure, Shelly. I totally agree. I mean, I have friends and relatives that are in their 80s and using Instacart for the first time and seeing the mobile payment over Instacart and how easy that is. And even before the pandemic, it was projected by the end of 2020, the digital payments market in the US was going to be around 4.7 million. And that was a 15% year over year increase from 2019. That was even before the pandemic came to light. But the shift to e-commerce, even myself, I feel that I’m pretty tech savvy and I’ve been paying for everything digitally. I haven’t gotten into a physical store in about five or six weeks. So everything has been online, either mostly delivered to me. And so I’ve been using outlets like PayPal, Venmo, Instacart, DoorDash. And so even these generations that haven’t used digital payments before are using them, which I think is great. Because whether it be for COVID-19 or other purposes, it’s becoming more ubiquitous.
Shelly Kramer: I think that we just don’t know what we don’t know. And what they learned in China as a result of the SARS outbreak is that they had to contain disease and they had to be able to stop people having to touch things. And so that quickly becomes their new normal, and we haven’t had something like that here in the United States and in some European countries. And so I think it really is, your example, my 83-year-old mother-in-law orders groceries from a local grocery store and pulls up and they put them in her trunk. In the past, she hasn’t minded going to the grocery store to do it, but it’s nice to be able to, sort of have that.
I needed some dog food. Gosh, it’s really been probably about eight weeks ago. And the only reason it’s top of mind is because I’m out of dog food, but I just went online to my local pet supply store and ordered it and I drove over to pick it up and they put it in my trunk. And so those kinds of things here have been spurred by the COVID-19 pandemic, but I think we’re going to see as people realize, “Oh my gosh, this is so easy. It’s like Venmo and paying people by PayPal. Oh my gosh.” Once you realize how stinking easy it is to pay people that way, cash becomes a thing of the past.
I think it really will be interesting to see. I know that we have seen e-commerce transactions up 23% in March. I’m sure that number is even higher in April. So it’ll be kind of interesting to watch what happens there.
I’m also really interested to see what’s happening… It’s logical to talk about banks when we’re talking about the financial services sector, but there’s so much more to that sector than just banks, financial institutions, insurance companies. One of the things that we’ve seen happen early on with insurance companies is that they were rebating premiums because people weren’t driving as much. And that’s not technology driven, but it’s just kind of interesting how this player in the financial services sector is operating.
I read an article this morning that I thought was really fascinating and the headline was: Nationwide has Left the Building. And I thought, “What in the world does that mean?” And so I was reading the articles. So Nationwide Insurance, Fortune 100 insurance company, they announced that they’re making remote work permanent across their organization in five states. They’re still going to have a few places where they have corporate headquarters, but by and large, they’re getting rid of the concept of offices, which will have a huge impact on the commercial real estate market. But I think it was their CEO, but I’m not 100% sure, was quoted as saying this, “We’ve been investing in our technological capabilities for years. And those investments really paid off when we needed to transition quickly to a 98% work from home model.”
So I think that one thing that we know to be true given what we do is that those companies who were transforming digitally, who were changing the way they did business are really in a much better and stronger position today, as we navigate this pandemic and try to get our arms around what business as usual it looks like. But I thought that was a really an interesting thing. Nationwide has Left the Building. Somebody wrote a great headline there.
Sarah Wallace: Shelly, you and I, as analysts, we’ve been covering digital transformation for about a decade now. And as we know, a lot of enterprises have been either in the midst of it or have done a good job of it, but now they’re really being forced. Now it’s who’s prepared, who’s doing what, and it’s here. So they don’t really have a choice. But I think that between the enterprises and the vendors, I think they’re all working together fairly well to really have to do this suddenly.
Shelly Kramer: I wrote an article this weekend on marketing and how marketing needed to shift, and I think that this is true. Some of the things I talked about in that article are as true of this conversation. I think what customers are going to remember about the brands who serve them, whether they’re financial services brands, or any other brands, is what they did to help me when I needed it most. Did they facilitate the loan that could help my business alive as quickly as possible? Did they make contactless payments happen? Did they help me make that happen? Did they help me be able to pay in that way? Did they recognize that I shouldn’t perhaps be paying a full-price insurance premium when I’m not driving anywhere? All of those little nuances.
How did they make it possible for me to manage my investment portfolio? How were the cloud services that these technology companies provide, how did they help me keep my business safe, allowed me to hit where I needed to hit in terms of security and compliance and provide VPN access? All of those little touch points, I think are the things that consumers… And when I say consumers, I mean, me buying something, you buying something, but I also mean enterprise-level companies who are customers and small to midsize customers. I think that we learn so much at a time like this. We are forced to do…
I’ve heard this said so many times in the last couple weeks. I almost hate to say it, but what we’re seeing happen is really kind of two years of digital transformation take place in the space of two months. Which is good and terrible because we are no doubt going to make mistakes along the way, but we also will be seeing those companies who have been perhaps slow to embrace technology, have been slow to plan for business continuity and resiliency, and perhaps not had security operation centers in place or things like that. So we’re seeing a need, very, very rapid shift. And those companies who are able to do that and who are able to work with Find and work with the best technology partners to serve their needs are really not only going to be the strongest companies that remain, but they’re going to be the companies who are able to serve their customers best too. And so I think that that really is from a prediction standpoint, what I see as being important in terms of customer loyalty and customer attention and that sort of thing.
Do you have any other thoughts on predictions as we wrap up this conversation?
Sarah Wallace: Yeah. My prediction is some of these practices, even… Of course, we can’t predict the timeline of when things will be “back to normal”. Of course, I hate using the phrase, but it will be a new normal. My prediction is some of these practices will stay in place because they’re going to see, “Okay, if I can serve a customer segment that maybe they’re not as mobile or they’re home bound and having these virtual services was very helpful in serving them.” I think a lot of these practices will stay in place. And also, in case something like this happens again, they’ve been able to virtualize a lot of these operations and I think they’ll keep them in place and also just have it as a backup if they do have to move everyone to remote. And now they’ve kind of bolstered the backend and the IT support systems which is a good thing.
Shelly Kramer: Well, and also facilitating the move to hybrid cloud solutions and things like that, I think have been areas where financial services organizations have been sort of slow to dip their toes in those waters specific to hybrid cloud, because there was some uncertainty. Some of the solutions maybe weren’t where they needed to be. I think we’re heading in a good… Like none of this is a negative really.
Well, all right. I think that we are going to call this a wrap. As I said, Sarah and I are working on a market insight report on kind of the state of the financial services industry, where we are, what we see moving forward. That report ought to be out probably within the space of about a month to six weeks. And so we invite you to look for that and we’ll certainly share that once it’s available. But as always, Sarah, thanks for hanging out with me today and sharing your thoughts. And to our audience, thanks for hanging out with us and we’ll see you next time.
Shelly Kramer is a Principal Analyst and Founding Partner at Futurum Research. A serial entrepreneur with a technology centric focus, she has worked alongside some of the world’s largest brands to embrace disruption and spur innovation, understand and address the realities of the connected customer, and help navigate the process of digital transformation. She brings 20 years' experience as a brand strategist to her work at Futurum, and has deep experience helping global companies with marketing challenges, GTM strategies, messaging development, and driving strategy and digital transformation for B2B brands across multiple verticals. Shelly's coverage areas include Collaboration/CX/SaaS, platforms, ESG, and Cybersecurity, as well as topics and trends related to the Future of Work, the transformation of the workplace and how people and technology are driving that transformation. A transplanted New Yorker, she has learned to love life in the Midwest, and has firsthand experience that some of the most innovative minds and most successful companies in the world also happen to live in “flyover country.”