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The impact of digital transformation on regulated industries

By Andrew Doyle, CEO, NorthRow

Digital transformation, the adoption of technology to establish new (or improve existing) processes, has changed the way companies operate, communicate, and interact with their customers.

In fact, the impact of digital transformation has been so great that according to a report by McKinsey, it can generate as much as a 20-30 percent increase in customer satisfaction and economic gains of between 20 and 50 percent while improving employee and customer experiences significantly.

So digital transformation can undoubtedly bring widespread benefits to all businesses, but none more so than those operating within the regulated space, particularly financial services. These businesses are under huge scrutiny from regulators to ensure they are doing everything possible to protect their customers from incidents of fraud and financial crime and face hefty fines and massive reputational damage for failing to do so.

Yet these same industries are known for being change-averse and slow to implement digital solutions. According to data from the Digital Banking report, as many as 41 percent of financial institutions say they have only partially deployed digital transformation initiatives and 27 percent have only managed to execute a limited deployment. Data from McKinsey also shows that large banks are typically 40 percent less productive than digital natives.

So how can digital transformation help transform regulated industries and why does it need to be accelerated?

Competitive advantage

The banking and financial services industry in particular is being transformed by the emergence of a completely digitally-driven market, where customers expect immediate access to financial services and solutions from their own devices. Whether transferring money or setting up new accounts; the desire for quick, effortless access to financial products and services is at an all-time high. 

Banks and financial service providers therefore have to embrace digital transformation to remain competitive and meet the evolving needs of their changing customer base who expect a seamless and exclusively online customer experience. As a report from EY states: ‘The maturity and sophistication of digital capabilities will increasingly differentiate financial institutions from competitors, replacing the traditional drivers of profitability, scale, history, and brand recognition.’ The same applies to other more traditional and regulated industries including property and insurance.

The bottom line is that digital transformation will help businesses grow and succeed, largely due to the fact that customers now expect fast, seamless and convenient solutions from their smartphone. If companies cannot provide this level of customer experience, they will lose out to competitors that can.

Enhanced compliance

Manually completing customer onboarding and client checks which are required across all regulated industries, particularly at a high volume, are both cumbersome and open to human error. Digital interventions speed up the process hugely, are more accurate with better audit trails than their human counterparts and ultimately result in higher levels of compliance. It is no wonder regulators now expect to see digital solutions in place to counter the risk of financial crime and fraud. 

But being compliant goes beyond the onboarding process. Across regulated industries, customers and clients must be continually monitored and not doing so leaves businesses unprotected, open to risk and unable to meet their regulatory obligations, for which they can be heavily fined. 

This can be a very manual and resource-intensive process, but digital transformation automates it, saving companies huge amounts of time and resources, while reducing the risk of human error and non-compliance. This is especially important when you consider that, according to data from GlobalScape, organisations lose an average of £3.5 million in revenue due to a single non-compliance event.

Operational efficiencies

With fierce competition across most industries and business costs rising, companies are increasingly looking to become more productive with less. Automating processes, streamlining workflows, and implementing digital solutions can significantly reduce manual errors, save time, and massively improve overall operational efficiency. 

For example, traditional anti-money laundering measures are often very manual and labour intensive, requiring time-consuming checks and verification processes. Conversely, the right technology can automate many of these laborious tasks, reducing the need for large compliance teams and minimising the risk of human error. This enables compliance professionals to focus on the areas of their compliance strategy that require their expertise and input the most.

More widely, digital transformation and technology adoption enables organisations to allocate resources more effectively and focus on more strategic initiatives that drive revenue.

The future

While financial institutions and other regulated industries including property and insurance have typically been more adverse to the process of digital transformation, they can no longer afford to be. 

Large-scale digital transformation by its very nature is not easy, and so it is not surprising that many regulated businesses have struggled. However, it has now become a necessity when it comes to enhancing the customer experience, streamlining compliance practices and driving company-wide efficiencies. There is no looking back.

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Business

Building thriving innovation hubs & startup ecosystems

By Gianna Pinasco

Building thriving innovation hubs and startup ecosystems matters because they serve as catalysts for economic growth, fostering collaboration, entrepreneurship, and the development of transformative solutions to societal challenges.

For the last 6 years, I have studied and worked with government, corporate, and academia partners to create and nurture innovation hubs and startup ecosystems — also known as entrepreneurial ecosystems. In this article, we will define these concepts and zero in on the key components for building thriving ecosystems that drive innovation and entrepreneurship.

What are innovation hubs and startup ecosystems?

Before we begin, we should clarify what is a) an innovation hub and b) a startup ecosystem. Sometimes, these terms are used interchangeably. Whilst they may be related, they are very different things.

Firstly, an innovation hub is a physical or virtual place designed to foster creativity, collaboration, and technological advancement, offering access to resources like mentorship, funding, and workspace.

In contrast, a startup ecosystem (also known as an entrepreneurial ecosystem) is an interconnected network that works together to nurture entrepreneurial development and societal growth. An innovation hub, for example, is only a small component of an entrepreneurial ecosystem.

The Building Blocks of an Entrepreneurial Ecosystem

At a basic level, most entrepreneurial ecosystems share six key interconnected elements that work independently and with one another to support entrepreneurs and drive innovation. These include:

Human Capital

Human capital is crucial for the success of an entrepreneurial ecosystem. Talented individuals bring expertise, creativity, and experience – essential for developing new ideas, solving complex problems, and scaling businesses. These drive skilled workforce, innovative entrepreneurs, and knowledgeable investors needed to drive growth and innovation.

By investing in and collaborating with universities, educational institutions, and training programmes that nurture desirable skills, you can develop skilled entrepreneurs and employees to secure a continuous pipeline of capable professionals to sustain the ecosystem’s dynamism and competitiveness.

For example, our team recently visited Kuwait to help launch the Kuwait Digital Startup Campus project. The project results from a public-private partnership aiming to nurture local talent to support the development of the Kuwaiti ecosystem. The project partners understood that Kuwait would need to invest in its human capital to achieve its vision of becoming a leader in finance and trade. This project will help to support the overall ecosystem by supporting the development of skilled entrepreneurs and employees.

Policy

Thriving entrepreneurial ecosystems require the implementation of policies that create a conducive regulatory environment for innovation. This necessitates the intervention of policymakers, regulators, and experts to formulate and implement suitable policies. Effective policies are typically designed to promote entrepreneurship, remove bureaucratic barriers, and provide incentives and support for startups (Stam & Spigel, 2016).

One can look to the UAE as an example of how progressive policies have helped it become a leader in developing and adopting innovative vertical take-off and landing (VTOL) technology. Last year, the UAE General Civil Aviation Authority published the world’s first national regulation covering vertiports’ design and operational requirements and the efficient and safe operation of VTOL aircraft. Looking ahead, the UAE can expect to roll out the world’s first air taxi services.

Finance

Access to financial resources and funding is critical for an entrepreneurial ecosystem as it fuels business growth and innovation. Startups need funding to develop products and services, hire talent, and scale operations. Adequate financial resources enable entrepreneurs to access critical capital streams to drive growth and navigate early-stage challenges.

Diverse funding options, including venture capital, angel investors, and grants, attract and retain startups. A major part of London’s success is due to its strength as a leading financial hub, providing access to venture capital (VC) firms, angel investors, banks, and other financial institutions. According to the Startup Genome, available VC funding for startups in London alone was $101 billion (2019-2023) compared to the global average of $4.6 billion. Additionally, the government’s startup loans scheme offers new businesses up to $31,500 per co-founder at a 6% interest rate.

Access to finance ensures that promising ideas can be transformed into viable businesses, driving economic growth, job creation, and technological advancements within the ecosystem.

Markets

Market access is vital for thriving startup ecosystems. It enables startups to connect with potential customers, suppliers, and partners. A healthy ecosystem facilitates these connections, providing opportunities for startups to gain traction and scale. For example, large corporations within the ecosystem can become key customers, suppliers, or partners, offering valuable resources and market reach.

Further, access to local and international markets ensures startups can grow, innovate, and compete globally, driving economic growth and sustainability within the ecosystem. London does this well, offering access to potential customers, suppliers, partners and other resources and connections needed to grow and succeed. This market access ultimately fosters a vibrant environment where startups and entrepreneurs can thrive and succeed.

Culture

Culture is another vital component in building a thriving entrepreneurial ecosystem as it shapes societal attitudes towards entrepreneurship. A supportive culture values innovation, risk-taking, and learning from failure, encouraging individuals to pursue entrepreneurial ventures. It fosters an environment where role models and success stories inspire aspiring entrepreneurs.

A strong network of experienced entrepreneurs also provides mentorship and guidance, helping new startups navigate challenges. This positive cultural foundation attracts talent, investment, and collaboration, creating a dynamic and resilient ecosystem where startups can flourish and contribute to economic growth and innovation.

Ecosystems like Silicon Valley in the USA, London in the UK, and Dubai in the UAE owe a great deal of their success to having cultivated cultures conducive to entrepreneurship, providing support and incentives for entrepreneurs and innovators, encouraging risk-taking and the ability to learn from failure, making them leaders in the development and adoption of several groundbreaking technologies.

Support Systems

Support systems within an entrepreneurial ecosystem encompass a wide range of resources and services that facilitate the growth and success of startups. Key supports include access to innovation hubs such as incubators, accelerators, and coworking spaces, which provide essential infrastructure, mentorship, and networking opportunities.

It also refers to university availability and professional services like legal, accounting, and marketing which are crucial for startup development and growth. Likewise, educational and training programs on entrepreneurship offer valuable knowledge and skill development, empowering entrepreneurs to innovate and scale their ventures. Together, these supports create a robust foundation that nurtures startup potential and drives sustainable economic growth.

Remember: context is king.

Whilst the elements outlined above are essential for building a thriving entrepreneurial ecosystem, potentially the most crucial element of all has yet to be mentioned: context.

When setting out to create a thriving entrepreneurial ecosystem, it is important to understand the unique social, economic, and environmental context within which it will exist and operate. Each local or virtual community has its own needs, strengths and weaknesses. Depending on where and when you are operating, you will have differing levels of access to resources, talent, and market opportunities. This is why you can take lessons from other thriving entrepreneurial ecosystems, but you cannot expect to replicate the results. You will need to tailor your support systems, policies, and initiatives to fit your unique context to allow for success.

Lastly, all ecosystems are vulnerable to disruption, affecting overall stability and success. By prioritising development based on your strengths and actively working to manage your weaknesses, you can build a more resilient ecosystem. At the end of the day, a context-aware approach creates a more sustainable and impactful ecosystem that will resonate with and benefit the community it serves.

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Why fintech is the catalyst for a new and bold generation of investors

Source: Finance Derivative

By Jeremy Baber, CEO of Lanistar

Investing has evolved since the days of safe blue-chip stocks and government bonds. There’s a new wave of bold investors who have been inspired by the accessibility and ease-of-use offered by fintech innovation. According to Charles Schwab UK’s Investment Forces report, this new generation of investors is taking a bolder approach. Dubbed ‘Gen T’, this generation is taking a pass on the slow game, and the influence of fintech has helped them gain the confidence to do so.

A new way to invest

Investing in stocks has been a route to growing cash for hundreds of years. Since the opening of the Amsterdam Stock Exchange in 1602, the fundamental principles of investment have essentially stayed the same. Investors balance risk and reward to maximise their return on investment. What has changed, particularly in the last decade, is that the ability to invest has become a much more democratised process, with many more people able to educate themselves on investment strategies and access a wide array of online investment platforms. Fintech has been a crucial component of this change.

What fintech offers consumers is an intuitive, tech-fuelled approach to finance with a focus on simplicity. At its core, fintech is consumer-centric, placing the user at the heart of all its products. It has also brought on a new wave of technological innovation to the financial world, producing the next generation of apps and platforms. Consumers today not only have access to a wide array of investment platforms that are simple and easy to use, but they also have greater access to financial education resources. A strong example of the broader range of investment options available today is micro-investing platforms, which allow their users to invest small sums into a diversified portfolio of assets that might include stocks, exchange-traded funds (ETFs), or even cryptocurrencies. This market continues to grow year on year, valued at $19 billion in 2023.

From the fintech wave has emerged a new way to invest. Investment platforms make use of the latest innovative technologies, like real-time data and analytics and automation, to deliver a hyper personalised customer experience that makes investing simpler and easier than ever before. In simple terms, these platforms are built using the fintech model.

Staying financially literate in a chaotic world

Whilst ‘Gen T’ are demonstrating behaviours closer to professional traders, according to Charles Schwarb UK’s report, they also harbour strong concerns over whether investment strategies will lead to heavy losses. Where 50% of boomers said they were unsure of how to adapt their investment strategies to avoid losses, 74% of millennials and 73% of Gen Z said the same. In this way, whilst investing has become easier and more accessible, younger and more inexperienced investors are feeling the heat of today’s turbulent financial markets.

Just as fintech helped to democratise access to investing, it also needs to ensure that all investors – from teenagers to old-age pensioners – are financially literate enough to know what they are investing in. The Organisation for Economic Co-Operation found that just 67% of UK adults were financially literate. This places the UK 15th out of 29 OECD countries for financial literacy. At a time where living costs are sky high and many people are struggling with their finances, it is crucial that financial services providers help to educate their customers and increase the UK’s financial literacy rates. In its customer-centric and highly personalised approach, fintech can lead the way with helping the UK to become more financially literate.

Some fintechs have already started to turn the wheel on financial literacy, providing educational resources within their apps and products. Data and analytics are also key to financial literacy, helping consumers to understand their specific spending habits and support them in making extra savings. When it comes to investing, there have been examples of apps that allow customers to set aside their savings to create portfolios, promoting a sustainable method of investing. Ultimately, where fintechs will deliver the most value to consumers is in providing a truly personalised and simple way to understand their finances.

Fintech’s enduring role

Times have changed, and with a new era of investing being ushered in by an array of new apps and products, the financial services industry must take steps to protect its customers. Whilst it’s a good thing that investing has become easier and more accessible, those who are signing away their savings must be protected. Regulation will play a key role, and the FCA has already enacted some encouraging work in its Consumer Duty regulation brought on in July 2023.

How we as an industry choose to enact this protection will be crucially important in the next decade. I am confident that just as it played a large role in democratizing investing, fintech will be a significant player in the continuing to shape the investing market in the future.

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The Future of Financial Services: Personalised experiences powered by AI, secured by privacy

Source: Finance Derivative

By Erin Nicholson, Global Head of Data Protection and Privacy at Thoughtworks

Over half (51%) of European consumers want more personalised financial services, but a
significant minority (22%) are less comfortable sharing data for this purpose compared to last
year, according to a report by Twilio. This highlights the core tension in today’s financial
landscape: personalisation and privacy.

Consumers crave tailored financial advice and products. They want their banks and financial
advisors to understand their unique needs and goals. Yet, data privacy regulations like GDPR and CCPA make leveraging personal data for such purposes a challenge. These regulations restrict how financial institutions can collect, store, and use customer data.

As a data protection and privacy specialist, I am fascinated by bridging this gap. I question how we can achieve personalisation for clients while remaining compliant with these regulations?

The answer lies in a three-pronged approach utilising Artificial Intelligence (AI): leveraging both predictive AI and generative AI (GenAI) and also leveraging Privacy Enhancing Technologies. This approach empowers financial institutions to personalise the client experience while safeguarding sensitive data.

AI-driven lead generation with privacy at its core

Traditional prospecting methods often rely on incomplete data or outdated strategies. Sifting
through vast datasets to identify potential clients can be a time-consuming and inefficient
process. Here’s how AI can help:

Predictive AI can analyse anonymised or aggregated data sets to uncover patterns and trends. This data can be used to create a “probability-weighted list” of potential clients, highlighting those with a higher likelihood of being receptive to specific financial products or services. This approach provides valuable insights without requiring access to sensitive personal information.

Cross-selling reimagined: connecting the dots without data sharing

Cross-selling within a financial institution can be a powerful strategy to deepen client
relationships and drive revenue. However, identifying potential connections between existing
clients and those who might benefit from products offered by different divisions has always been a challenge due to data silos and privacy concerns.

Here’s where GenAI comes in.

GenAI, Federated Learning, and Homomorphic Encryption unlocks the power of graph-based
algorithms. These algorithms can analyse connections between data points without actually
sharing the underlying sensitive data itself. Imagine a system that can identify potential
cross-selling opportunities between different client segments, allowing banks to recommend
relevant products or services while maintaining strict data privacy boundaries.

The power of combining personalisation and privacy

This two-pronged AI approach offers significant benefits for financial institutions:
Increased efficiency: AI streamlines prospecting efforts, allowing institutions to focus
resources on qualified leads.
Enhanced customer experience: Personalised recommendations based on anonymised
data insights foster stronger client relationships.
Reduced regulatory risk: Minimising reliance on sensitive data minimises regulatory risks
associated with data privacy violations.

The broader potential of genAI

GenAI’s potential extends beyond initial client acquisition and cross-selling. Imagine, for example, using genAI to create educational content tailored to each client’s needs and financial literacy level. This empowers investors to make informed decisions based on clear and relevant information, ultimately strengthening the client-advisor relationship.

Responsible AI adoption: a critical priority

While genAI offers exciting possibilities, responsible adoption is crucial to ensure the protection of the public’s data. Here are some key considerations:
Focus on high-value use cases: Identify genAI applications that deliver significant value
while minimising complexity and cost.
Ensure data security: Implement robust security measures to safeguard sensitive
customer data from potential risks associated with genAI models.
Combat bias and factual errors: Be mindful of potential biases in training data and
incorporate human oversight to prevent biased or inaccurate outputs.
Leverage Privacy Enhancing Technologies: PETs such as Federated Learning and
Homomorphic Encryption will enhance the utility of your data without infringing on
privacy.

By embracing AI in a responsible manner, the financial services industry can achieve its
personalisation goals while ensuring customer data remains protected. This paves the way for a future where personalisation and privacy go hand-in-hand, fostering a more secure and
empowering financial landscape for all.

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