Digital transformation is today commonplace in the traditional financial sector, which is under increasing pressure to create products and services valued by clients and deliver a better customer experience to compete against new technology enabled new entrants.
At Nomura, we believe digitization could transform as much as 30-40 percent of our business in the next few years; clearly it makes sense to be ahead of that process and not be dealing with its consequences. This realization led our wholesale business division, two years ago, to embark on a digitization process. Our approach covered three broad areas:
That required looking at a range of technologies, from artificial intelligence (AI) to cloud-based solutions, and from predictive analytics to blockchain. This challenging process was made easier by Nomura’s lean and agile operating model, which allowed us to quickly adapt and roll out toolkits. Some of those proof-of-concept tools have already proven their worth and
Staying at the forefront of digital innovation is a key priority for Nomura – at both the group level and for the Wholesale business.
The purpose of the Wholesale Digital Office is to leverage digital innovation across our platform in order to: provide differentiated products and services; support superior price discovery and client services; drive greater productivity and efficiency; and build out our footprint in digital assets.
A recent Gartner survey found digital initiatives, already a top priority for chief information officers (CIOs), would reach a tipping point this year. One-third of CIOs – twice as many as last year - said their organization was scaling up or refining their digital transformation. The main external drivers of this change are consumer expectations and the need to protect the brand. Internally, the pressure to grow while simultaneously cutting costs, is key.
Most firms that implement a digital strategy soon realize that dealing with the vast amounts of data they have collated is critical to the process. As Japan’s leading financial services group with an integrated global network spanning over 30 countries, this was certainly true for us. A key issue was devising a way to use that data actively in order to enhance the client experience, deliver a better service, and determine solutions to improve profitability.
The first step was to digitize our existing data effectively. That meant building databases – on markets and clients, as well as our own corporate data – to ensure they were in a format to which we could apply AI and machine-learning. In this way we could generate insights about the markets and improve efficiencies.
But success in this arena doesn’t mean going it alone – in many cases it requires partnering with others (see below). AI, cloud-based services, advanced predictive data analytics and blockchain are all areas where working with others to develop or personalize solutions can make more sense, and where many firms are creating such solutions, including for aspects such as KYC and trade finance.
One key partnership solution is in digital custody, where we co-founded Komainu, a venture to overcome barriers to institutional investment in digital assets using blockchain technology.
Komainu brings together the traditional and disruptive worlds of asset custody to create infrastructure and operational frameworks for new services, standards and best practices for digital assets – an area of growing investor interest.
To date, a lack of these aspects has held back investors from participating in the digital asset class. Komainu brings them peace of mind, allowing digital assets to be integrated with more traditional investment vehicles such as mutual funds.
One aspect we repeatedly encountered during our digitization process was the issue of legacy systems. Success in digital transformation requires working out how to navigate these systems that, for reasons of history and a lack of latency, require integration with the new systems. We used a number of methods – in some cases, using application program interfaces (APIs) for interconnectivity; in others, replacing legacy technologies over time with new solutions.
That brings up another important issue: changing the business model that has traditionally regarded legacy systems as a fixed-cost item – given that new technologies are typically a variable cost (think cloud-based solutions versus in-house hardware, for instance).
Another of our key digital partnership is an investment in AIM2, which specializes in building AI-powered financial solutions.
We began collaborating with AIM2 in 2018. Today the tool uses data science and machine-learning to analyze large sets of high-frequency historical and real-time data to develop a range of alpha investment strategies – including quotes and recommendations for participants in wholesale financial markets.
The result? An industry-leading AI engine that we will use across all asset classes to enhance the client experience and increase our market share in flow products.
There is little doubt that one of the biggest threats facing the traditional financial services industry is the incursion of disruptors such as technology firms and non-banks. At Nomura, we recognize the ability of digital technology to transform our industry for the better and we remain confident that our time-tested products and services, enhanced by ongoing digital transformation, will continue to provide the customer experience our institution is renowned for around the world.
Global Chief Digital Officer, Wholesale
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