A technological revolution is disrupting capital markets and banking. The scale and pace of change in financial transactions and emerging technologies are leading to new business models such as embedded finance. In addition, the convergence of cloud, artificial intelligence (AI) and data are reshaping the future of the financial world.

Which trends do you need to pay attention to, and how should you prioritize them?

Regulatory risk

Somesh Chablani, SVP, Sales Support division executive, FIS:

In today's global economic environment, business leaders say their organizations are exposed to more risk, such as cybercrime, increasing regulations and unstable financial markets. Our Global Innovation Report reveals that regulatory risk is one of the top concerns for the capital markets and financial services sector. What are you hearing?

Tony Warren, global head of Enterprise Strategy, Capital Markets, FIS:

Regulations are always changing within the capital markets business and across financial services in general. But one thing is sure: The rate of regulatory change is accelerating again, especially in risk management. A lot of this is perhaps due to the events in the U.S. banking market in 2023.

Capital markets clients often express concerns about navigating these complex regulatory environments and changes in regulations. The overall spending that firms dedicate to compliance is significant. Optimizing that investment remains a critical question from the boardroom down and across the organization.

We see particularly that around Dodd-Frank and the Basel directives, which can have quite a significant impact on operations where they must create compliance investments. This can impact profitability.

According to our Global Innovation Report, 49% of executives say they're facing more risk. Yet almost all – 93% – are confident they'll be able to manage and overcome their challenges. I believe that’s largely due to advances in technology support.

That includes financial management and risk assessment solutions – especially balance sheet management and stress testing. The software-as-a-service model is easy to plug in and agile, making it easier to react quickly when regulations change.

Financial and strategic risk

Somesh:

Rising inflation and interest rates, bank regulations and macroeconomic factors all propel financial and strategic risk. The Global Innovation Report found that 63% of respondents are concerned about financial risk. More than half – 54% – are worried about strategic risk. Peter, what are you hearing from the banks on their approach to financial and strategic risk?

Peter Boyer, global head of Enterprise Strategy, Banking, FIS:

It's important to step back and think about the breadth of risk the banks are managing right now.

First, you have the rate environment. The federal funds rate in the U.S. hasn't been this high since 2001. In some ways, that offers a strategic opportunity to create interest rate products that attract new customers and deposits. On the other side, it creates financial risk because it ultimately can compress margins.

Meanwhile, consumers like you and I are getting used to more seamless real-time experiences. Those are now table stakes for a lot of banks to keep and grow their customer base.

In addition, regulatory expectations continue to evolve and put pressure on the system. Finally, there’s increased competition between banks for deposits to create a long-term balance sheet that works for them. Fintechs are also competing for the same deposits and accounts.

Of course, each bank has its own strategy. But as our report found, generally banks are putting their energy into growing but also protecting their franchises. Most are focused on those deposits, which creates strategic opportunity but also risks. Their strategies are enabled by technology because consumers have become used to real-time seamless experiences.

Innovation

Somesh:

Innovation can be used not only to mitigate risk, but also to gain a competitive advantage. Jason, can you share some of the key areas where firms can be at the forefront of innovation?

Jason Baldesare, head of Solutions Strategy, Capital Markets, FIS:

Let's think about risk from two dimensions: regulatory risk and operational risk.

In terms of regulatory risk, Europe is leading the way around capital adequacy and interest rate risk in the banking book.

Another area to watch is in the insurance space and actuarial risk modeling. IFRS 17 was a big driver outside of the U.S., specifically in Asia, several years ago, while in the U.S. you have LDTI.

One last area related to regulatory risk is environmental, social and governance, and specifically, climate risk, where there are some impending regulations coming.

Operational risk doesn't get all the headlines that regulatory risk does, but it's just as important – if not more important. Our clients can’t afford to make mistakes.

Automation, exception management and integration within the middle and back office helps reduce operational risk. The more time you have highly skilled people in the middle and back office looking at data and making decisions – and not spending so much time addressing exceptions – the more you can reduce operational risk.

Early adoption

Somesh:

Annie, based off your industry and FIS® experience, how can early adopters of technology protect the businesses from risk?

Annie Distefano, head of Partnerships and Ecosystem Banking, FIS:

The threat landscape is increasing rapidly. There are a lot of different risks you need to solve across the value chain, and risk needs to be a cornerstone of your product and business planning. This includes putting absolute dollars into investing in those capabilities as part of the business planning process.

But you also must ask some questions. From a product strategy standpoint, how do you mitigate risk across your experience, whether that's distributed in an ecosystem or you’re building it yourself? And what tools or parties might you use to mitigate that risk, especially when you're bringing new and emerging technologies into your client experience?

It comes down to having all your partners at the table to build out that ecosystem, solve problems and plan product strategy together.

Digital technology, AI and cloud computing

Somesh:

In The Global Innovation Report, 56% of executives agree that there are far more opportunities than risks for both cloud computing and new digital technologies. So, John, how do companies take advantage of these opportunities by using the cloud, AI and data?

John Pizzi, head of Innovation and Strategic Partnerships, Capital Markets, FIS:

The one thing that's abundantly clear in all our discussions is that the pace of change is faster than it's ever been before. And more importantly, it's not slowing down. When I read The Global Innovation Report, it was clear to me that that decision-makers get this trend.

The most telling statistic was that nearly 87% of firms are going to spend as much or more on digital technology, AI and cloud computing in this next period as they did previously. So, they get it; they're going to put their money into those areas because they understand the importance of them.

If you’re at the beginning of that journey, the first step is to move into the cloud so that you can be more efficient and nimbler, and set up that foundation for innovation.

Others are further along. They've already invested in that cloud foundation and can now harness the power of their data, take advantage of advanced analytics and start to build new, modern digital experiences, both in their operations and customer experiences.

And then, of course, some firms are even more advanced in their journey. They're in a unique position: They can take advantage of the power of AI and generative AI and start to look at more transformational opportunities around risk management, business operations and broader innovation.

The cloud

Somesh:

When I reflect five years ago, cloud adoption was all about cost. The new CIO mantra is not just about the old adage to do more with less: It's all about scale more with less. What’s your advice to financial entities and firms that are looking to still make a decision on cloud adoption?

John:

My advice is simple but hard-hitting: Let's get to work.

When you look at the cloud partners and where they're spending their money, their focus is still around the economics of the cloud. And the cloud experience is driving a very efficient situation for those customers.

If you're not operating your business in the cloud now, then you're not going to fall behind; you are behind.

Get the full Global Innovation Report to learn more about where executives are investing.