1938813 Ready for the Global Transfer Agency Revolution

Data mining. Full digitization. Shareholder self-service and distributor support. Transfer agencies of the future will look nothing like today’s model – so how should you prepare?

READY FOR THE GLOBAL TRANSFER AGENCY REVOLUTION?

WHITE PAPER

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Transfer agencies today

Shifting priorities

Digital Client Experience

Transfer Agencies Today

Digital Output

Cost pressures and funding priorities

Digital client experience

5.31 billion unique mobile phone users

A fully digitized transfer agency is not a pipe dream. Driven by demographic changes, technology innovations and the convergence of regulators, jurisdictions and global markets, the future TA will look very different than today’s models. What’s more, it will play a more critical role in the entire fund industry value chain. In addition, a fully digital TA will transform client onboarding and self-servicing into highly customizable and personalized experiences. Get ready for a future TA which has a seat in the front and middle offices, with data mining and investment guidance at the heart of its services to the asset management industry.

Fund orders have long been automated via straight-through processing and we are currently witnessing a surge in the digitization of client onboarding and self-servicing of certain investor-related transactions: namely basic buy/sell/exchanges and account maintenance. Nevertheless, the core transfer agency functions continue to be high-touch and labor-intensive. While the use of DLT and blockchain continues to grow, we have yet to see any disruptor attempt to fully automate the core transfer agency functions. These efforts have focused on fund orders and the associated elimination of clearing and settlement organizations, intermediaries and even banking through the use of cryptocurrencies.

core functions

digital output

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Digital investor experience

In today’s world, a lot of output – such as statements, prospectuses and confirmations – has already moved online and is available in paperless format. But there’s a considerable opportunity to go further with the rise of digital output and more effective data mining. Shareholders need to be able to access the data they need quickly and easily at any time without having to request it from the transfer agency. Further, how the data is delivered and in what format should follow the hyper-personalization model, satisfying individual shareholder preferences.

Core Functions

ARE YOU READY FOR WHAT COMES NEXT?

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Source: https://alternativeinvestment.guide/53-of-british-investors-use-their-mobile-to-buy-shares/

Central bank digital currencies

Simple, mobile, intuitive access

5.31

Source: FIS Readiness Report 2021

Real-time cash reporting allows you to access your account statements and balances in real time via APIs – so you can use that information faster and incorporate it into different business processes. For example, you might quickly identify that the balance on a particular account is zero, and that funds need to be transferred over before a particular payment can be released.

Real-time cash reporting

The transfer agency of the future will have a fraction of the workforce needed by transfer agencies today, as the core functions will be fully addressed by artificial intelligence, machine learning and robotics. The high degree of smart digital entry points will mean that no transactions reach the core TA in a not-in-good-order (NIGO) status, eliminating exception processing and adjustments. And it’s only a matter of time before new disruptors emerge in this space, forcing regulators to amend some of the complex transaction processing rules. The result: A future state of TA that will revolutionize the asset management industry, bringing in players who have never previously considered engaging in transfer agencies. A fully digitized and automated end-to-end transfer agency will significantly reduce the workforce and associated costs, while introducing never-before-experienced efficiencies and processing speeds.

Future changes

Source, Millennials prefer investing via digital platforms: Survey - The Economic Times, May 17, 2022 https://economictimes.indiatimes.com/industry/banking/finance/millennials-prefer-investing-via-digital-platforms-survey/articleshow/91614381.cms

Central bank digital currencies

Digital investment market is set to be worth US$14.3 billion by 2025 from US$6.4 billion in 2021 at a five-year CAGR of 22.4% because they find it more convenient to use (72%) and offer a wider range of choices (55%) and lower brokerage fees (47%).

Real-time payments

A fully digitized and automated end-to-end transfer agency will significantly reduce the workforce and associated costs.

35%

Improved liquidity management

Real-time view of cash position

32%

Access to transaction data

30%

Reduce costs

39%

93% digital investors fall into the millennial category

93%

81% of digital investors started their investment journey in the last three years

81%

Taking action

Central bank digital currencies have the potential to offer more efficiency and replace the handling of cash and associated costs.

Central bank digital currencies

In the future transfer agency model, asset managers and third-party providers should focus on data mining as the new and more powerful shareholder data delivery offering. In this scenario, we are looking at data that can be readily accessed through open-ended questions and queries that shareholders enter online. Powered by artificial intelligence, platforms will be able to anticipate future questions based on historical queries, transactional behaviors and market changes (geopolitical, environmental and financial), and offer to deliver the relevant data accordingly.

Data mining and prediction

Real-time payments are typically associated with a lower cost than more traditional Real Time Gross Settlement (RTGS) payment methods. They can also drive process efficiencies that may lead to further cost savings.

Real-time cash reporting

SWIFT gpi once again has benefits to offer where costs are concerned as the service provides greater transparency over costs and charges.

SWIFT gpi

Source: FIS Readiness Report 2021

indicate they are taking advantage of real-time payments

Powered by artificial intelligence, platforms will be able to anticipate future questions based on historical queries, transactional behaviors and market changes, and offer to deliver the relevant data accordingly.

Global Convergence

Since the early stages of transfer agencies in the 1980s, asset managers and third-party providers have focused their efforts and investments on goals such as straight-through processing of fund orders, internal operational efficiencies, cost reductions and shareholder servicing. Transfer agencies needed to have a massive workforce in order to meet the needs of shareholders, who were primarily from the Baby Boomer generation and accustomed to communicating over the phone and making/receiving check or ACH payments. Large numbers of people were needed to respond to calls, address exceptions, make adjustments, scan checks, process payments and generate paper confirms and statements.

Younger generations who have grown up in the age of mobile access and fast information aren’t interested in the old transfer agency models. As such, these are the shareholders that will drive the revolution of the transfer agency model. Increasingly, shareholders will demand a digital medium for interfacing with transfer agencies, together with faster processing speeds, immediate results and having information available at their fingertips on their mobile platforms on demand and with very little, if any, human interaction. In addition – and unlike the traditional transfer agency shareholders – these new generations display very little loyalty and are ready to move to what they perceive as the most convenient option for them. Moreover, they are more apt to share their negative experience, potentially broadly through social media. Understanding this change is key for today’s asset managers and third-party providers. Those that ignore these trends will likely see their shareholder base shrink over a very short period.

This demographic shift means that transfer agencies need to act fast on a number of fronts:

Transfer agencies have ignored digital trends for far too long. More recently, the digital experience has become a serious focus of new technology investments for asset managers – but even so, transfer agencies still only seem to be paying lip service to the digital experience. This cannot continue. The world is forecast to spend 12.5 trillion hours online in 2022. Over 67% of the global population uses a mobile phone (5.31 billion unique users) and there are 4.62 billion active social media users. Transfer agencies must take note and adapt quickly now.

As a traditional cost center for asset managers, transfer agencies have long been under continuous pressure to lower costs – and yet their funding has mostly been a lower priority compared to the funds directed towards sales, marketing, distribution and research. In addition, transfer agencies have not seen the traditional model threatened by disruptors. When e-commerce came into being and started on a fast growth trajectory, many thought that these entities could become the future competitors for asset managers. For a variety of reasons – including the heavily regulated nature of the industry – these e-commerce companies have stayed away from financial services. As a result, asset managers have continued to de-prioritize any changes to their transfer agencies, given the lower threat levels from new disruptors.

The future state of the digital experience needs to be holistic and all encompassing, including:

FIS is a leading provider of technology solutions for merchants, banks and capital markets firms globally. Our more than 55,000 people are dedicated to advancing the way the world pays, banks and invests by applying our scale, deep expertise and data-driven insights. We help our clients use technology in innovative ways to solve business-critical challenges and deliver superior experiences for their customers. Headquartered in Jacksonville, Florida, FIS is a Fortune 500® company and is a member of Standard & Poor’s 500® Index.

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Plan for and initiate significant investments in digital technology, leveraging blockchain, distributed ledger technology (DLT), artificial intelligence, machine learning and robotics.

Modernize technology

Continued investment in cybersecurity and align with the right partner to ensure the highest standards are in place.

Stay secure

Ensure that the workforce is re-skilled towards the digital space, while addressing the impact of a workforce reduction during the transitional phase between today’s model and the future state.

Address workforce challenges

of U.S. mutual fund-owning households have internet access

of British investors use their phones to buy shares

Source, Millennials prefer investing via digital platforms: Survey - The Economic Times, May 17, 2022 https://m.economictimes.com/industry/banking/finance/millennials-prefer-investing-via-digital-platforms-survey/articleshow/91614381.cms

The focus today should extend beyond providing an investor or distributor portal with selective self-servicing functions. Furthermore, tomorrow’s digital experience needs to go beyond the current limited development for satisfying KYC onboarding and refresh rules.

Moving forward

Full hyper-personalization

Transparent, fast and easily available data (both personal and fund/industry)

24/7, global and cross-jurisdictional capabilities

Nimble and adaptable to future changes and growth

Today’s technology needs to be fully leveraged in creating this fully digitized transfer agency model, with increased use of artificial intelligence, data mining tools, robotics and machine learning, with a limited workforce for oversight only. With the predictable convergences we see in our mid- to long-term future, as discussed later in this white paper, the use of distributed ledger technology (DLT) and blockchain will see a significant role in the future transfer agency model. The industry will initially transition to private blockchain networks, soon to be replaced by open public and global blockchain networks.

Harnessing technology

4.62 billion active social media users

4.62

Source: FIS Readiness Report 2021

indicate they are taking advantage of real-time payments

The technology and regulatory convergences above have helped to move the industry forward in a positive way, but they have certainly not been transformational. The industry continues to be challenged by local jurisdictional and regulatory compliance rules. Likewise, transfer agencies are still bogged down in manual processes and continue to employ a large workforce. The ultimate convergence that we are approaching is one that is influenced by demographic changes as well as advances in technology, regulation and markets. Any organization that ignores the pending wave of changes risks becoming obsolete and irrelevant. The new generation of younger, digitally savvy investors is going to force future transfer agencies to be fully digitized, and to leverage all the new digital technology that is already well developed. Regulators are already pushing for the digital world which will provide a common medium across all jurisdictions, as well as a more complete convergence of regulators all over the globe. Finally, these transformational changes will eventually break down the jurisdictional barriers and drive the creation of a single, digital, global market. That, in essence, is the transfer agency revolution that is upon us.

Next-level convergence

Central bank digital currencies have the potential to offer more efficiency and replace the handling of cash and associated costs.

Central bank digital currencies

Real-time cash reporting

SWIFT gpi once again has benefits to offer where costs are concerned as the service provides greater transparency over costs and charges.

SWIFT gpi

Historically, transfer agencies focused on supporting their local markets and local funds, addressing their own jurisdictions and answering to their local regulators. These restrictions prevented the rise of a global transfer agency capable of supporting all relevant jurisdictions where funds are distributed. During the past 20 years, the industry has witnessed the rise of the global transfer agency model – however, for most, that has still meant multiple systems organized underneath a common portal where feasible. That was one form of convergence through technology. At the same time, and especially after 9/11 and the rise of global terrorism and increased money fraud, regulators started working together to define anti money laundering (AML) rules, KYC and trade controls. For transfer agencies, this convergence of regulators has allowed for a more uniform compliance monitoring process across multiple jurisdictions.

global coverage

Any organization that ignores the pending wave of changes risks becoming obsolete and irrelevant.

Engage in the development and implementation of a personalized process. This should cover the front-end onboarding process, the transaction self-service lifecycle and readily accessible data on the back end.

Invest in robotics, artificial intelligence and machine learning tools to fully automate the core functionality. Eliminate the need for exception processing, adjustments or any manual intervention.

Digital-core TA

Engage with regulators, trade associations, industry conferences and all relevant media to promote a single global market with unified compliance rules. Make all distributed funds available to all investors – wherever they reside.

Global convergence

Simple, mobile, intuitive access

The future state of the digital experience needs to be holistic and all encompassing, including:

5.31 billion unique mobile phone users

5.31

A fully digitized and automated end-to-end transfer agency will significantly reduce the workforce and associated costs.

Ghassan Hakim, Senior Advisor, Global Transfer Agency Operations & Technology Mike Melles, Product Manager, Global Transfer Agency Services, FIS