Technology is now a ubiquitous part of our daily lives – we shop online, stream movies, and interact digitally with our banks and other financial institutions.
However, compared to many other industries, even those in financial services, the corporate services, trust and fund administration market is lagging way behind.
For a long time, the traditional business model of time and materials billing meant there was less pressure on firms to digitalise, with profitability still able to remain buoyant despite inefficient, manual and labour-intensive working practices.
But this is now rapidly changing. As the industry consolidates and polarises, the pressure to move away from time and materials charging to fixed pricing models has never been greater, driving the need for increased efficiencies, automated processes and reduced costs.
In tandem with this, the intergenerational transfer of wealth has meant that it is now increasingly in the hands of ‘digital native’ generations, who have much higher expectations of the digital user experience they receive from firms.
How digitalised is the industry currently?
The short answer is not very. In the TrustQuay Future Focus Report last November, we found that firms only scored themselves 5 out of 10 in terms of how far they had progressed on their digitalisation pathway. A quarter of firms scored under four.
Many firms are simply running fast just to stand still
What’s even worse is that this lack of digitalisation is holding back growth – many firms are simply running fast just to stand still, bogged down by the constant need to manage inefficiencies, cope with regulation and deal with poor data quality.
But at the same time, competition is increasing and so are the demands from clients to provide the levels of service, information and customer experience they are receiving elsewhere, and which they now expect from corporate services, trust and fund administrators.
What will we see in 2021?
9 out of 10 firms said they need to digitalise their business models to remain competitive
Firms are increasingly realising that the current position is not sustainable and, in the coming months, we expect to see mounting pressure on firms to digitalise. In our report, 9 out of 10 firms said they need to digitalise their business models to remain competitive, with 94% of respondents saying that technological innovation needs to accelerate.
In 2021, we expect to see the move away from time and materials billing to fixed pricing models to gather pace and, as a result, the need to streamline and automate operational processes and controls will move much higher up the agenda.
While there is always much talk in technology about ‘the next big thing’ – such as artificial intelligence – for the corporate services, trust and fund administration sector the big change in the coming year will come from more fundamental and existing technologies.
The top three areas of innovation identified in our report were automating workflows, moving to the cloud and implementing client portals. All of these are existing technologies which, if adopted, will revolutionise the efficiency and competitiveness of firms.
We expect this year for more and more firms to move to cloud-based technologies. One lesson from the Covid-19 pandemic has been the power and flexibility the cloud has demonstrated over on-premise deployment and this will spur on firms to make the jump.
In terms of client portals, the corporate services, trust and fund administration market is also way behind other areas of financial services, and this too will become increasingly unsustainable in 2021. Digital access by clients to their own information has now moved from a nice-to-have to a must-have, and we expect to see a rapid increase in the roll-out of interactive client portals this year and beyond.
Given all these drivers, will 2021 really be the year of digitalisation for corporate services, trust and fund administrators? It certainly will be for those firms who have now recognised the increasing demands from clients and regulators – these firms have woken up to the fact that unless they digitalise now, they may not have a viable and competitive business model five years from now.
Written by Adrian Ackers, Global Head of Strategy and Innovation, TrustQuay.