Author: Brian North-Clauss

As Vice President of Financial Services, Bryan leads the customer-focused organization serving financial services clients at AlphaSense. Previously, Bryan spent his career working as a senior leader in markets at Morgan Stanley, Lehman Brothers, Citi, Deutsche and Natixis.

What Does Financial Technology Transformation Look Like in a Post Pandemic World?

Posted on by Brian North-Clauss

The emergence of COVID-19 early last year brought about a transformation of the financial services industry unprecedented in speed and scope. In response to the crisis, institutions made sweeping organizational changes that typically would have taken years or more in the span of just a few weeks. At the center of these changes were tech solutions that supported remote operations and a fully digitized customer experience.

The result? Companies that are more digitally capable than ever before, and a new normal where tech trends that were once cutting edge are now required for survival. Will Financial Institutions (FIs) continue to keep up? Which fast-tracked solutions will be permanent? Here we’ll explore key technology transformations that have changed the industry and what they’ll look like post-pandemic.

Quick Takeaways

  • Adoption of the cloud and AI technology made it possible for institutions to operate during the pandemic. Both will continue to increase in strategic importance and implementation going forward.
  • Use of contactless digital payment methods increased significantly during the pandemic and will have long-term implications for the future of cash and physical currency.
  • The shift from a competitive to a collaborative relationship between traditional FIs and fintechs has been accelerated by the pandemic. Industry leaders from both groups are working together toward innovative tech solutions that will continue to transform the industry post-pandemic.

Living in the cloud

At the top of the pandemic, cloud-based solutions had to be implemented at warp speed as institutions across the financial services industry transitioned employees to a work from home model and adjusted to serve clients digitally in the absence of in-person operations. Even the most hesitant cloud adopters had to make the jump.

Last summer, Morgan Stanley put cloud adoption at the top of their list of trends that would accelerate during and post-pandemic. Today, major players in the industry are working to make it possible for financial institutions to more easily adopt cloud solutions while maintaining regulatory compliance and reliable data security.

The cloud is here to stay and is becoming a ubiquitous part of financial services. Institutions must now think beyond the quick implementation required by the onset of COVID-19 and consider how cloud strategy will be integrated into their core business models.

AI becomes essential

The idea of increased artificial intelligence is often met with reservation in a world where pandemic-induced unemployment and the possibility of human-machine redundancy is a top concern for employees across the industry. Still, AI is an undeniable necessity as consumers now seek constant and instant accessibility to their finances. 

AI not only supplements employee capabilities to keep the proverbial doors open for business 24/7, but it also decreases the potential for human error, streamlines workflow, and saves a lot of money. Business Insider estimates that by 2023, AI will save banks $447B (while also reporting that 80% of banks are aware of the importance of AI capabilities). With that kind of cost savings at stake, financial institutions have no choice but to adopt AI.

Here are the key areas where AI is playing a role in finance:

  • Customer service
  • Underwriting
  • Risk assessment
  • Security / cyber-attack protection
  • Workflow automation
  • Predictive analytics

A quick AlphaSense search for “AI” and “finance” shows more than 3500 documents and a consistent upward trend over the past 12 months, with banks and capital markets ranking in the top five industries represented.

Document trend results from search for “AI” and “finance” in AlphaSense (search link)

Cash is no longer king

We recently covered how blockchain, cryptocurrency and NFTs are impacting the finance industry but traditional methods of payment are also undergoing a fundamental shift toward contactless and digital that could have implications for the future of physical currency. 

While e-commerce has been thriving for more than a decade, contactless payment options were not as widely adopted prior to the pandemic. Card payments were as quick and convenient as tap-and-pay methods like Apple Pay or Google Pay, and consumers had no real need to change their behavior.

That all changed with the arrival of COVID-19 and the need for contactless payment methods to help slow the spread of the virus. Around the world, consumer habits are changing.

Financial institutions have taken note and banks are adjusting and increasing customer adoption of digital payments and banking.  An AlphaSense search for “digital payment” and “banks” yields more than 14,000 documents and the document trend shows a steady increase over the past 12 months. 

Document trend results from search for “digital payment” and “banks” in AlphaSense (search link)

Fintech is a friend (not foe)

Agility is essential as technology advances more quickly, and traditional FIs can’t do it alone. Post-pandemic, we can expect to see the interaction between incumbent financial institutions and fintechs shift from competitive to collaborative. This is a shift that began before the pandemic hit but has accelerated over the past year.

Beroe reports that 80% of banking executives anticipate that their fintech partnerships will increase in the next 3-4 years, and researchers at The Chinese University of Hong Kong (CUHK) Business School found that while fintechs can sometimes make the market more vulnerable and unpredictable, they are also making traditional FIs more innovative, efficient, profitable, and accessible.

“Fintech is disruptive but it is also a force for emancipation,” says Professor Jason Yeh, Associate Professor in the Department of Finance at CUHK. “Not only has it democratised the access to financial services for the masses in emerging markets, but it also plays a pivotal role on the road to greater financial inclusion.” (source)

An AlphaSense search for “fintech” and “partnership” shows a clear and steady document trend increase, with the number of documents in April 2021 showing double the amount as the same time last year and industry giants Mastercard and Visa sitting atop the list of companies mentioned.

Document trend results from search for “fintech” and “partnership” in AlphaSense (search link)

This seems to be just the beginning of the fintech impact, and it will be interesting to see how the ecosystem and the relationships between its players continue to evolve. UConn is even offering a master’s degree in fintech for professionals aspiring to become experts in the space. It will be a missed opportunity for any FI to not consider how they can benefit from the extraordinary innovation fintechs are bringing to the industry.

Conclusion

Tech transformation has been at the center of the financial services industry over the past year as institutions have navigated unprecedented change and market uncertainty. Key enablers like the cloud, AI, and contactless payment options have been essential to survival for FIs during the pandemic and will likely increase in strategic importance moving forward.

Better collaboration between FIs and fintechs during this time has fueled innovation, scaled up tech solutions that work, and will continue to be essential to the industry’s ability to adapt to a post-pandemic world.

In the future, technology will only continue to evolve more widely and rapidly, and the smartest institutions will focus not only on adopting new technologies as they arrive but on creating more agile, forward-thinking organizational practices that keep them one step ahead.

As we’ve seen quite often in the past year, this is likely just the tip of the tech transformation iceberg.

To learn more about innovative technology is disrupting the traditional finance industry, check out our webcast on CBDC and Digital Currency here.

5 ESG investing trends (and strategies) for responsible investors

Posted on by Brian North-Clauss

Environmental, social, and governance investing, also known as ESG investing, seems to be everywhere. The sharp increase in connectivity brought about by the rise of smartphone adoption over the past decade has served as a tipping point for ESG in the market. Social issues are more visible than ever and information accessibility is creating a general public that is more educated and aware.

With so much information being churned out, it can be challenging to filter out usable strategies for investors looking to enter the ESG market. Here are five quick ESG investing trends that we think will emerge or grow in the near future (and helpful strategies for ESG investors to consider).

Quick Takeaways:

  • Information is more accessible than ever before,  and the general population is more educated on ESG issues. As a result, companies must be authentic and transparent in their ESG efforts.
  • Social issues have surged to the forefront of public discussion as the COVID-19 crisis and death of George Floyd have exposed systemic social problems in our society. It is critical for ESG investors to know the discourse on current social issues beyond what is on the evening news.
  • Healthcare accessibility and affordability have been highlighted in the past year as the world coped with the COVID-19 pandemic, and its increased level of priority won’t end as we move toward a post-pandemic stage. Vaccines and evolving employee health benefits are two trending topics to watch.

The Trend: ESG Reporting Will Improve
Your Strategy: Seek Authenticity

As the emphasis on ESG continues to grow across industries, so too will companies’ desire to appear ESG-focused. But the best investments are made in companies whose ESG efforts are authentic and truly integrated into their mission and business model.

It’s important for both beginner and seasoned ESG investors to stay in the know about specific ways a company’s organizational efforts align with proclaimed ESG values as well as their level of transparency in data reporting to back it up. Fortunately, there are a number of great places to look: ESG rating companies like MCSI and Sustainalytics, investment firms that provide third-party assessments and score companies’ ESG performance and related risk, and many ESG-focused companies include relevant ESG reporting on their fact sheets, annual reports, and websites. Any difficulty finding data to support ESG-related claims is a definite red flag.

A deeper dive in the AlphaSense tool yielded more than 158,000 documents related to ESG reporting. Some examples:

  1. Third-party ESG reports from Morgan Stanley and Deutsche Bank tracking ESG trends and growth
  2. Self-reported data such as annual reports that contain specific sections for social responsibility, equality, the environment, and governance
  3. ESG scorecards that assess organizations based on specific criteria for environmental, social, and governance efforts

Transparency and visibility of ESG data reporting should only see an increase in coming years as consumer and investor demand for the information grows and consistent standardized requirements are put in place by regulatory entities to hold companies accountable. AXA Investment Managers put it succinctly in describing one goal of the new EU Taxonomy (Europe’s classification system for assessing sustainability-related activities) as to “protect private investors from so-called ‘greenwashing’ — where sustainability ambitions and language are not matched by action and outcomes.” (EU Taxonomy: a pathway to superior corporate sustainability, AXA Investment Managers, April 2021)

The Trend: Increase in Transparency Around ESG Strategy
Your Strategy: Aligning ESG Investments with Your Values

Human beings, investors included, are likely to better know and understand information that interests us and aligns with our core values and beliefs. If you’re an ESG novice, a good place to start is with companies you know and believe in. Given the movement of society as a whole toward ESG responsibility, it’s likely you’ll find high-potential ESG investment opportunities in areas you already know well. 

With corporate ESG transparency on the rise, a quick browse of company websites should make it clear which companies are most worth a deeper look. A good example is Oasis Petroleum’s detailed ESG report; the report links throughout to their more customer-friendly sustainability webpage, which provides a detailed overview of the company’s sustainability commitment.

The Trend: ESG Industries Continue to Diversify
Your Strategy: Know Your Industry

It’s safe to say that ESG is climbing on the priority list for companies in just about every industry  — but no two industries are completely alike. The good news? There’s a potential for a diversified ESG portfolio. The challenge? You’ll need to do your research.

Part of making smart ESG investments is understanding which issues are most prevalent and important to consumers and companies in a particular industry. Drilling down and getting specific in your research will make you better equipped to invest. 

A look at the top twenty (of 78 total) industries represented in AlphaSense search results for “ESG” exemplifies the industry diversity in this area. Of note, all twenty are mentioned in more than 10,000 documents in the database.  ESG issues shouldn’t be treated similarly across the board — do your research and know your industry before making a decision.

Industries represented in “ESG” search results on AlphaSense

The Trend: The “S” Grows in Importance
The Strategy: Focus on Emerging Social Issues

While focus on social issues has been surging for several years, the COVID-19 crisis and the death of George Floyd have simultaneously exposed deep systemic social problems embedded in all corners of our society from healthcare to economics to law enforcement. This critical emphasis on social issues has resulted in a more politically vocal corporate culture, one where companies are not afraid to put a clear voice and financial support behind causes important to their business and customers — in 2020, Bank of America committed $1B to causes supporting social and racial equality efforts in and just last month U.S. Bank promised $60,000 in support to 

Asian American and Asian Pacific Islander (AAPI) groups working to eliminate violent acts.

As an ESG investor, watching the evening news and tracking hashtag trends can be just as important as reading your go-to publications. Knowing what the most pressing issues are, which issues are emerging in public discourse, and which are being exposed by the crisis of the moment is important for identifying where to place your ESG investment now and in the future.

The Trend: Healthcare on the Forefront
Your Strategy: Look for Solution Creators

Inequality in healthcare affordability and access has been one of the issues most clearly highlighted by the pandemic over the past year. These are important issues to keep an eye on as the healthcare industry addresses them on the tail end (we hope) of the COVID crisis and plans to translate those strategies into the long term. 

But health concerns won’t end with the return to the office or easing of public safety guidelines.

Continued efforts will need to be made in every industry to address employee mental health post-pandemic, vaccine availability and requirements, and flexibility policies in the case of COVID exposure or contraction. ESG investors should keep an eye on companies already addressing these issues and doing so in innovative ways. 

A study led by Aon provides solid evidence for this likely trend. Mental health ranked #1 on issues mentioned by employees (ranked in the top 5 by 72% of respondents). Aon urges employers to consider health plan options that address this need and adapt to changing consumer behavior (the study also found that virtual doctor visits increased by 400% during the pandemic), suggesting a virtually-based plan with an “online primary platform that directs all care.” 

Conclusion

ESG investing continues to grow and will only continue to do so in the coming years. As it does, companies will be held increasingly accountable for backing up their ESG commitments with data-driven results. Investors can contribute to that process by doing their own research on the authenticity of a company’s ESG promises prior to investing. At the same time, ESG investors should pay close attention to the public discourse on social issues as the ESG “S” climbs in importance, and monitor companies providing innovative, long-term healthcare solutions as we approach the post-pandemic era.

To use AlphaSense’s AI-powered financial intelligence to inform your ESG investing strategy, request a free two-week trial here.