Innovating While Keeping the Trust

Leaders are confronted with the pressure to modernize tech infrastructure, but they need to be careful not to chase ‘shiny objects’ without a clear business rationale.

As?a?leader of a large financial firm with a tech focus and history going back more than 130 years, I’d be remiss to say I don’t sometimes envy the ‘move fast and break things’ ethos of nimble startups.

Startups play an important role in the evolution of technology and finance, and we certainly owe a lot to founders who push the boundaries of innovation every day. I think we can learn from them, but being part of a large, regulated financial institution means we have to move at a pace that’s aligned with the complexity of our business and the responsibilities we have to our clients.

At Northern Trust, and indeed at any organization of our size and scale — Northern Trust?has?consolidated assets of $154.5 billion and common bank equity capital of $10.9 billion, covering wealth management, asset servicing, asset management and banking solutions — we need to modernize our suite of technologies at an ever accelerating pace. As a regulated entity, however, we need to take a measured approach,?that requires rigorous testing of?new solutions to ensure continuity of service, a clear business case and benefit for our clients.

Moving beyond the hype cycle?

To get an understanding of any kind of emerging technology, you should pick a business-driven use case and implement it in a way that both solves a business problem and allows you to assess the technology. Technology isn’t always about the tech, but the ecosystem around it. Do you have an application architecture that allows you to integrate it and test it??Do you have the proper support structure to implement??These are some of the critical questions to consider.

We also need to look at the legal and compliance implications, and central to the innovation discussion is the return on investment. It also might be helpful to assess the tool’s impact in a shorter time frame: you may be able to assess the payback more readily in a shorter period of months instead of years.?

Looking to transformative tools

With the array of emerging technologies out there, we have to prioritize. In evaluating emerging technologies, we could be investing in a lot of new innovations, but we have to focus on what has the potential to become transformative. There’s a high bar for investing in emerging?technologies because?it’s on you to find a use case that sticks. Artificial intelligence is an example of an emerging technology with the potential to be transformative. AI might remind us of the early days of the?internet. We may not know what's going to supercharge adoption, but we know it’s going to be big when user uptick swells.?

Right now, we’re at the stage where we can test AI — including generative AI – and learn from these efforts. Do we leverage it as a tool to help develop client communications? Do we use it to garner insights from our internal information repository? A lot of the use cases still need to be figured out. And of course, we need to consider the regulatory and legal implications of the use of AI models.

Other emerging technologies worth paying attention to include tokenization – the process of issuing a token that represents an asset – and its capability to simplify legacy transaction types that are reliant on mountains of paper and bureaucracy. In addition, digital assets, or digital representations of physical or non-physical assets that can be stored, traded or transferred between counterparties, could be powerful building blocks to simplify many currently cumbersome transaction types. However, the real value driven by digital assets will come from the immutable data at source.

A focus on the fundamentals

In the rush to adopt new technologies, it’s important not to put the cart before the horse. We need to assess what problems we need to solve for, and what tools will help get us there. In our industry, how we manage data – including modernizing legacy infrastructure and addressing widespread inefficiencies in data management – has huge impacts on our competitive standing. We need to be able to use data more efficiently,?including through automation, to provide the same experience that our clients have on a retail level, from an institutional perspective.

A fundamental toolset that is going to help us manage data better and be able to build better applications is the adoption of the cloud, which is currently underway. In addition, microservices, an approach in which large applications are segmented into small components that can be managed and changed, is also an important part of this strategy. Once we get these fundamentals right, other tools can be built on top of that infrastructure.

Leader versus ‘fast follower’

Leaders of large organizations are constantly making calls on whether to be first to market or fast followers. There are advantages and risks to each approach. Being first to market might look good externally, but it’s usually more expensive. There?must?be a considerable competitive advantage to take that course of action versus waiting to see how others test it out. If you still want to be first to market by introducing a new and shiny tool, you need to ensure it results in a marked increase in revenue or substantial reduction in costs. If it’s neither here nor there, it’s probably not worth it.?

Being a fast follower means you benefit from others’ experience in trialing emerging technologies. But it doesn’t mean you have the luxury of resting on your laurels and outsourcing innovation to others. Fast followers also can’t wait years to implement tools that will eventually be considered table stakes. The public and our clients are increasingly demanding new tools, updates and changes at a faster pace. Effectively, choosing a fast follower path can’t be a substitute for ongoing evolution and innovation, because the time frame companies have to wait out the introduction of cutting-edge technologies continues to shrink as consumer and client expectations evolve.

Pushing innovation forward

It’s incumbent on large, established financial institutions to continually develop, test and implement new products, tools and services to ensure that clients are getting the best possible experience. Through continuous innovation efforts, we will be able to manage data more efficiently and unlock additional value for our clients and stakeholders. And we shouldn’t be afraid to delve into technologies that have the promise of transformative impact, such as generative artificial intelligence and tokenization.?

As a regulated institution, however, we need to be cognizant of the implications on resiliency while also considering the return on investment.?We also need to be open to learning from our peers and applying these lessons. I want to be clear that prudence doesn’t mean we can sit idly by: The pressure is now greater than ever on established ‘legacy’ financial institutions to develop a growth mindset, in which new products and cutting-edge technologies are tested and rolled out on a continuous basis. Our clients are demanding experiential improvements at a pace that mirrors the march of consumer technology in their personal lives and we have to be ready to take that challenge head on.