Okan Pekin, Global Head of Citi Securities Services, discusses how the future of securities services is becoming clearer, but strategies around new and evolving trends are crucial to support clients.
What do you believe will be the biggest changes to the securities services industry in the next five years?
The biggest changes to our industry in the near future will be around the rapid and accelerated adoption of new technologies; an increased significance of data; cloud adoption and finally, micro services.
Data has emerged as a true competitive advantage and an asset class in its own right. If you have data efficiently organised around your fingertips, then your organisation is better placed to deal with clients and deliver a myriad of services, and if you don’t, it becomes a liability to your competitiveness.
Let me pick up on your first point on data. How are data strategies being applied across securities services?
First and foremost, it’s got to be cloud-enabled. It also has to be platform-agnostic and delivered with very low latency. We recently entered into a partnership with Snowflake to look at how we further take friction out of the ecosystem, starting with transaction processing. If you think about how many parties touch a transaction and the multiple reconciliations, we are working to make this process easier and decrease our clients’ operational overheads and costs.
We are also seeing a preference for APIs as opposed to user interfaces where clients can configure a dashboard to suit their needs. In an ideal world, data should be able to be delivered to any platform in the world almost instantaneously with low latency. This data can then be used for portfolio analytics, ESG choices, and efficiency measurements – the latter regarding how many processes you have and how costly they are. The better data you have, the more you can go into your infrastructure and break it down into components of costs. So cost measurement becomes a lot easier.
How do micro services fit into the trends you foresee?
The idea of micro services is not new in business, in fact it’s a relatively old and well understood process, but the concept of micro services in securities services is more recent and fairly limited to date.
The concept overall is to introduce a modular individual task-oriented application as opposed to a giant all-encompassing application. Each module can be kept nimble and future-proof far easier than the legacy technology that most banks are still running on. Some of these legacy technologies are probably still on mainframes, so breaking them down into microservices allows you to connect a legacy infrastructure to today’s technology much more easily.
How significant will the role of the cloud be in the industry of the future?
I believe that at some point in the future, everything will be on the cloud. The cloud removes the need for point-to-point connectivity between institutions. In the cloud, you can aggregate data from all the required sources and security protocols can be deployed around it. It basically integrates your data ecosystem a lot more effectively.
The cloud also opens up opportunities for optimisation as well as better insights around your data, and allows your data to be much more accessible to parties in a democratic way. Everybody can access the data at any time, from anywhere.
From a technology perspective, what else would you say your clients are looking for from their custodians?
Outsourcing remains a huge trend as it’s a very competitive industry. Increasingly, clients are looking to focus on their core strengths and while distribution remains a core activity for most, we are seeing an increase in outsourcing of middle-office and accounting activities.
For outsourcing to work however, the activities have to be scalable and the provider has to be able to aggregate business from more than just one player to get those scale benefits.
What other themes have you seen accelerate since the pandemic?
The pandemic has forced us to question some of the most untouchable assumptions. Take going to the office for example, it was hard to imagine a world before the pandemic where being in the office wasn’t essential. But technology has uprooted the most sacred of beliefs about life. We are seeing an increasing intolerance of inefficient activities because we have realised that there are better ways of doing things, both faster and more cost effective with the use of technology.
In order to respond to this trend however, your organisation needs to have the right talent to grow alongside technological advances.
I see talent as a two-step process: first, you encourage growth of talent from within the organisation to cover any subject matter expertise, but you need to also adopt outside talent so you can introduce a new generation and new technologies. One without the other is ineffective, because people who are experts in the asset servicing business are not always exposed to new technologies, and people who are digital natives may not necessarily be familiar with asset servicing.
Finally, some people question the role of securities services providers in the future. Can you share with us how Citi is thinking of digital transformation in order to meet the changes you have highlighted?
The quick answer is that digital transformation will shape our existence in the future in a fundamental way, there’s no doubt about it. That can only happen with a gradual approach, but I believe transformation from one step to another has to be deeply fundamental and structured. This won’t happen overnight because the infrastructure that services the securities flows of the world has been built over decades. I would label this as ‘destructural’ change, but gradually executed to enable the body of work to be done in a risk mitigated way.
Another reality is that our industry operates six days a week around the clock so you hardly get anything longer than a day to make infrastructural change. To use an analogy, if a car is running continuously on the track, so you can’t just take it off for maintenance purposes for two weeks, it simply can’t happen. The amount of downtime you have to go from one upgrade to another is nothing more than 36 or 38 hours. You don’t get much time to change tires let alone an entire engine, so you have to think about mitigating risk.