In-Memory will – IMHO – disrupt the Financial Services Industry

Let’s talk about In-Memory technology and how – in my humble opinion – it will disrupt the Financial  Services Industry.

There are several In-memory options on the market. It will be another post to make a case for one of those technologies and its provider. For now you might read between the lines that SAP HANA is my preferred option. But for the sake of fairness let's Larry Ellison set the scene:

Over the last few years I have developed a passion for innovative technology. And my focus in the past months laid on In-Memory. With its unprecedented speed and integration capabilities it already enables many major players in various industries to disrupt the market and the competition. In-Memory has the capability to not only impact but shape and change the FSI in the upcoming years.

Here I want to focus on 4 areas which pose constant challenge to Financial Institutions and are sectors of ongoing change.

The majority of banks and insurances have – over the years – built up a highly complex system landscape. So complex that it has become troublesome to adapt to changes in business processes. Even normal daily operations such as nightly batches, backup and restore or monitoring have become very expensive activities. Because of this complexity the institutes seem to be locked-in in their investments. This means also that innovative technology is almost impossible to adopt
and integrate as it often runs into budget constraints and technical inability.

Not only had the financial industry to cope with a regulatory tsunami in the past years (e.g. EMIR, Dodd-Frank, Basel III, AIFMID); new ones are coming up on a regular basis and the existing ones are amended constantly. The industry had to struggle to implement the necessary tools and mechanisms; often in a challenging timeframe – driven by the regulatory authorities. A setup which did not leave enough room to design the best solution. Often a suboptimal fix or an additional layer had to be implemented.

Finance has become a more and more challenging business. Declining interest rates and fees have tremendous impact on business models and revenue streams. Restrictions in proprietary trading added to the crunch. And if this would not be severe enough new disruptive players have entered the
market. The traditional institutions have a hard time to match their innovative operating models and service offerings.

In addition the general information landscape is changing staggeringly. Big data, Internet of Things, and sentiment analytics are only a part of the revolution coming upon the traditional industries. With it the consumer of tomorrow today has different expectations on products and services offered. Today’s customer wants not only products or service, he or she wants experience. And this experience needs to be now, real-time.

So if everything changes around one it seems to be the time to change one-self too. In-Memory technology is the right answer to many of the questions connected to today’s and tomorrow’s challenges.

• Speed
  It is fast. Very, very fast. The speed alone would already justify the investment because, let‘s be honest, with speed you can win everything. And speed is the single most important thing in information processing to eventually be real-time.

• Enterprise ready
  It is not a fantasy; it is no longer a technical concept. It is enterprise ready! Many companies are already utilizing its power and capabilities. The FSI has adopted only in a slow pace. In my humble opinion, not fast enough to really make a difference. The reasoning and the excuses look and feel wrong; So called issues on security, maturity, reliability, compliance conformity do not have substance.

• Easy adaption
  There is no need of extensive restructuring before you start your pilot project. It easily fits in and the integration in existing landscapes is mostly a no-brainer. The underlying technology is industry standard and the concepts are easily handled by the existing staff. Training effort is minimal.

• Quick wins along the way
  The speed with which the first wins are scored should not be surprising as many success stories from other industries are already telling the tale.

Based on the incredible speed, it‘s enterprise readiness, that it is easy to put in place and will show quick if not immediate results; it is easy to imagine the effect it will have on the FSI.

Legacy

The most striking effect will be on the reduction in complexity. Eventually there is no need for data warehouses anymore. Many, many interfaces will not be necessary anymore. The operations department will be able to redirect resources from running-the-show to improving-the-business. The Chief Information Officer can become the Chief Innovation Officer. And the overall ability of the ICT division to support the core business will be enhanced, if not restored.

This is one of the reasons why In-memory as an add-on is – I think – unsuitable and a bad option.

Regulation

Audits can be real-time! Controlling and reporting will use all the time and every time the underlying up-to-date unique transactional data. In-Memory means one single source of truth. No need for duplicate data; resulting in a massive reduction of internal reconsolidation needs.

And just to name one: Internal control can observe investment limits on the spot; pre-trade instead of post-trade!

Competition

The financial institutions are enabled to respond to the challengers. They are regaining the ability to compete with the same weapons. Rapid development of new business ideas – and let it only be for trying out a new product – will become the new norm. Traditional financial companies will have a powerful tool to become a market disruptor and again lead the pack.

Innovation

The financial institutions are well equipped to connect the innovative potential of Big Data, IoT, Sentiments etc. with their core competencies. In-Memory gives them not only the tools on hand to master the all new data environments but also makes them much more flexible and agile in developing those solutions. They have the customer base and they have the resources. In addition they have data on consumer behaviour to support the design of new services and products. And In-Memory technology enables a seamless adaption of this knowledge on the customer to make the customer interaction a true experience.

Every financial institution differs. Individual approaches are needed. But on a generic view possibly it could look like this:

Analysing the current situation and landscape, identifying pain-points and improvement opportunities, aligning with current and planned change programs. This will allow to develop the most advantageous strategy.

Strategy

Although it is a suitable approach to do a pilot project and evaluate the capabilities. But it is also advisable to have very good idea where the journey shall lead to. Otherwise you might experience – as SAP puts it – the HANA Effect. The results of small pilot projects very regularly created insatiable appetite for more; producing a dynamic of its own.

Roadmap

Creating a roadmap to introduce In-Memory can be challenging. There is a technical side which should not bring up to many issues. But to see In-Memory merely to be a new technology and not change the business processes accordingly is not doing any good. To really make the best use of it the roadmap has to cater for a dynamic development as soon as the first benefits for the business evolves. Many of the real benefits might not imaginable at first.

Pilot projects

Because the technology is not much of a challenge for a mature ICT division, small scale first steps can be easily organized. But to select the best one, being manageable in size, addressing a real pain-point and being able to show comparable results will be crucial.

Change

This will be the most important exercise. A pilot project will show you a sneak preview of how colossal the change for the line of business can be.

Drive

Consequently it is an ongoing process; continuous improvement in its pure format. A completely new paradigm! Suddenly the line of business is empowered to drive change and is able to rely on a supportive and responsive ICT organisation. An operating model which will be new to almost everyone; an operating model which to setup trusted advisors and knowledgeable experts are necessary. Advice and knowledge not coming from the IT perspective alone. Even more valuable will be change and business Know-how.

Do you follow my reasoning? Do you have similar or different experience? Why don't you leave a comment below. I'm looking forward to the discussion.