IN ASSOCIATION WITH SMARTSTREAM
In a few short weeks of lockdown, businesses of all kinds have learned a great deal about their strengths and shortcomings. Weaknesses in physical supply chains have been thrown into sharp relief, the importance of workers once considered low-skilled is seen in a new light. And, in financial services, banks are seeing where past investments in technology have either hampered or enabled their ability to serve their customers.
Banks are bombarded with sales pitches for new technologies all the time, and often only realise an innovation’s true value long after implementation – if at all. But extreme circumstances often provide the necessary clarity to direct future IT strategy. Judging by their recent behaviour, financial institutions are being driven by Covid-19 to consider how they approach cloud-based managed services and software as a service (SaaS).
“The pipeline for managed services has not slowed at all, and we are still getting new contracts coming in,” says Nick Smith, global head of managed services at SmartStream.
“Clients like our software, and SaaS gets it up and running quicker. To do it on premises they would need a host of experts. With SaaS, they don’t.
“Our biggest deals are coming in now. Some clients want to do whole business process outsourcing with us. Three years ago, we cut one client’s costs by 40% compared with the incumbent provider, made huge progress on its KPIs [an organisation performance indicator] and cut its backlogs, so we know what we are doing.”
Speaking from lockdown in New Jersey, Smith understands the pressures that banks are facing, not least because SmartStream is facing the same challenges. Like its clients, it had to fall back on its business continuity plan (BCP).
“We moved to our BCP in a staged way but we knew that it would work because we test it every six months,” he remarks. “Banks in the UK and across the world have had many BCP incidents over the years, so I know about setting them up, and we were well prepared for it. Compared with in-house teams at banks, we have the specialist knowledge to get results.
“Working from home is not ideal because people are not together in teams, but we are getting great feedback from our clients and we are smashing our SLAs [service-level agreements]. People are working hard, with commitment and professionalism. Some banks, however, are struggling with the management of remote workers. It is a new challenge for many of them, with new logistics and infrastructure to put in place.”
Managed roll-out
The company’s first managed services client has been engaged for the past 11 years, though SmartStream has only marketed its managed services openly for the past four years.
“In that short time, we have quadrupled our managed services business, and every year is a record year,” says Smith. “That is because there is a change of culture across the financial services sector. Once, it was worried about hosting services in the cloud, partly due to concerns over security, but now banks don’t want to run data centres. Instead they want to use Amazon Web Services, Microsoft Azure or Google Cloud.”
Why, then, are banks turning to cloud-based managed services and SaaS when those products have previously been seen as risky? The answer to that lies partly in their need to adapt to the new post-pandemic normal. It is also partly due to the fact that cloud services have matured fast. With its managed services offering, SmartStream acts as a third-party utility, providing not only the operational IT platform, but also the prospect of working alongside the teams that deliver reconciliation, corporate actions, cash management and reference data to clients.
In effect, SmartStream lifts out all these operations and undertakes them on a client’s behalf. Part of its offering is a solution called TLM Transaction Fees Invoice Management, which provides an automated function that eliminates the manually intensive, paper-based processes typically associated with many common procedures, such as the matching of transactions, reconciling against invoices payable or producing invoices receivable. Managed services represent an opportunity to significantly reduce costs. There are no IT overheads and no additional labour costs.
At the same time, SLAs and KPI measurements ensure the required levels of performance and that data reporting is simplified.
“Covid-19 is having awful consequences for many people around the world, but there are some silver linings,” says Smith. “People in banks are under stress but they can pass on that stress to us. What we offer is not just about adding lots of low-cost labour, which is what some BPO [business process outsourcing] providers do. It is about leveraging our technology and the advantages of cloud-based systems.
“We have seen financial services institutions that have traditionally been very conservative in their approach that are now changing their attitude dramatically. The transition needs specialist cloud skills and we provide a one-stop shop for that.”
In the past, concerns about security have slowed the industry’s adoption of cloud-based managed services, but SmartStream consistently upgrades its security. Its head of infrastructure is constantly evaluating new threats as they arise, as well as the familiar distributed denial-of-service (DDoS) attacks and intrusion detection mechanisms.
Security is of such importance to the business model of cloud infrastructure and services that the providers of hosting services or SaaS solutions are constantly vigilant, engaged and proactive.
“Covid-19 fuels interest in managed services because clients want to both do things for less cost and keep control of their processes,” observes Smith. “We have a great cloud-hosted platform and the costs of the infrastructure are shared across all clients that use it. Nevertheless, every client has dedicated, ringfenced software and tenancy on the platform; so security is better, while the price comes down if I can reduce the operating costs.
“AI and the work of [SmartStream’s] Innovation Lab have really helped there. There are many use cases for AI in managed services, and we have the clients who are willing to pilot it. For one, we rolled out AI to reduce the human element in its processes, and we managed to cut manual matching processes in foreign exchange processes by 50% overnight.”
Adjustable for market volatility
Among large banks, some interest in managed services is coming from the need to onboard more services to the cloud due to the high volume of trading caused by market volatility. In March, trading volumes rose by more than 120% on the previous month, but for SmartStream clients, this did not make the pipes creak. Its cloud-based services are highly scalable and flexible enough to account for sudden changes in activity.
“Our clients have not seen so much as a blip because our software is cloud-based and we are taking the strain for them,” says Smith. “Covid-19 is forcing banks to look more closely at cloud-based services, while addressing questions of security and control, to understand not only the cost benefits, but also the service quality and resilience they provide.”
While Smith does not pretend to know exactly how the world will change over the next few months, he is in no doubt that the technologies and services that SmartStream offers will be crucial to helping the financial services industry adapt.
“I am not a rocket scientist, but I am in the right place at the right time,” he states. “I do know that some banks are introducing their own AI, moving away from data centres to host more products in the cloud, and changing their working practices to work smarter and reduce costs. That is how the industry is changing.
“The cash economy is changing, too. People are using cash a lot less and SmartStream has recently introduced its new Digital Payments Control solution, which gives real-time control and greater visibility into payments processing, as well as facilitating the rapid detection and investigation of exceptions.”
Though no one can be sure of what changes in financial services will look like, banks will prioritise flexibility, scalability and agility alongside their traditional priorities of cost reduction, service quality and compliance. It seems managed services are the perfect enabler of their strategy to deliver on all goals.
SmartStream Breathes New Life into AIR
In September 2019, SmartStream Technologies unveiled SmartStream AIR, an all-new, cloud-native reconciliations platform that it had been working on for the best part of 18 months in its Innovation Lab in Vienna. SmartStream AIR is designed specifically to allow capital markets firms to manage their reconciliations functions on an ad hoc basis.
This research paper charts the progress of the platform, from its inception to its launch, and focuses on the new ground it breaks in what is historically a complex, expensive and invariably laborious process within large numbers of capital markets firms. The paper is based on a series of interviews with four of SmartStream’s key personnel: Haytham Kaddoura, CEO; Andreas Burner, chief innovation officer for blockchain and artificial intelligence; Mark Roth, chief marketing officer; and Robin Hasson, product manager for TLM Reconciliations Premium.
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