Ongoing margin pressure – together with intense competition for asset gathering – are taking their collective toll on global custodians. Adapting to COVID-19 has also incurred major costs at these firms. In response, sub-custodians are working with fin-techs and their own clients to help generate operational efficiencies.
Custodians have been monitoring developments at emerging technology providers for some time now, and the synergies between them are obvious to see. Whereas custodian banks are well capitalised, resource-heavy, subject to prudential regulation and brimming with years of experience, fin-techs are often agile, innovative and bring a different perspective to problem solving. By collaborating with best-in-class fin-techs - which offer compelling solutions that address real – as opposed to imagined – industry challenges - custodians will be in a strong position to support their clients. However, onboarding fin-techs does carry risk, so it is vital custodians undertake extensive due diligence on their partners. While this can be a time-consuming exercise, it is vital to ensure that fin-tech providers meet the highest standards.
Many fin-tech partnerships are enabling custodians to develop solutions that help clients either identify potential investment opportunities or obtain much-needed operational benefits. Standard Chartered’s internal technology team, for example, is currently working on two proof of concepts (POCs) with an external fin-tech to enhance its client newsflash service. Right now, client service teams scan market websites on an intra-daily basis to acquire critical local market information from regulators, central banks, stock exchanges and central securities depositories (CSDs), which is then shared with clients in the form of newsflashes. However, the process of scanning for this information is manual and labour intensive. In order to remedy this, the POCs are assessing whether it is viable to auto-scan market sources for information, creating auto alerts based on key words and then identifying if these need to be turned into newsflashes. The fin-tech provider is also building an artificial intelligence solution so that it can monitor announcements more effectively and determine if these need to be incorporated into newsflashes. In addition to driving efficiencies at Standard Chartered - this AI tool could potentially help clients access more accurate and relevant market data.
While banks are working closely with fin-techs to strengthen their product suites, many are also co-creating solutions with clients. Standard Chartered has regular dialogues with clients about how it can improve its service offering. For instance, a major global custodian – which uses Standard Chartered in multiple markets - wanted to reduce the number of queries it received from end clients by providing enhanced settlement narratives, including tailored responses that cannot be carried out by using SWIFT MT548. In order to meet the client’s request, Standard Chartered enriched its core settlement platform to allow for the semi-automated capture of enhanced narratives. The information was then relayed to the client via a dedicated channel – XML over MQ. This allowed the custodian’s end clients to self-serve and receive better quality and timely information - leading to an 85% drop-off in queries.
In another instance, a global custodian told Standard Chartered that it wanted to augment its own end client experiences by providing reduced latency and improving its transparency and responsiveness. Standard Chartered conducted a POC in South Africa, whereby it tailored its transaction status API (application programming interface) to include six additional data fields such as market reference and enhanced status information. Through a push API, the data was relayed to the client. The time between the CSD update; processing at Standard Chartered; right through to receipt by the end client took less than 7 seconds for both the API and SWIFT, suggesting latency is no longer an issue. With this added data, the custodian can now resolve over 60% of client queries without needing to reach out to Standard Chartered-an outcome which has had a positive impact on the overall user experience.
Fin-tech partnerships and close working relationships with clients are enabling custodians to innovate and deliver solutions which provide a value add. At a time when clients are facing mounting operational complexities and escalating costs, custodians are providing technology solutions that are helping mitigate some of these challenges. Through these intelligent and thoughtful partnerships, custodians can help their clients realise investment opportunities together with operational benefits.
