“Innovation has been in the centre of the financial industry. The first ATM in 1967 at Barclays [Bank], the launch of the Nasdaq and Swift in 1970 and then of the first digital bank in 1995, four to five years after the launch of internet,” said , head of innovation at Société Générale Securities Services in Luxembourg.

Surprisingly, Marochini thinks that innovation in the financial sector has experienced a “strong slowdown” since 2008 on the back of more regulation, he said at the Nexus2050 technology conference on 26 June 2024. On the other hand, he noted that innovation had a lot to do with “dealing with regulations.”

“It is not easy to be the first”

“A project is a kind of a stool with three legs. One is communication, one is governance and the last one is momentum,” said Raphael Machet, head of regulatory projects and digital assets practice, BNP Paribas Luxembourg. He suggested that talking about a project (communication) or finding a sponsor, sometimes a client (governance), is not challenging. “Momentum means: are you really ready to make the change?”

Machet explained that he got strong internal pushback three years ago when some clients wanted to launch digital bonds. Compliance was opposed as it was perceived at BNP Paribas as “too complicated and risky.” His uphill battle started by explaining the product, educating colleagues in different departments and having many of them attend training sessions. Leaders in each of the departments emerged and became points of contact to ease the introduction of new products and technologies.

The ball seems to be rolling for Société Générale Forge, a subsidiary in the Société Générale group in charge of tokenising certificate products and bonds such as for an EIB bond, according to Marochini. Besides, he noted that the bank issued, one year ago, the first tokenised bond listed on the Luxembourg Stock Exchange.

Use cases on AI

Marochini explained that his bank has been working on artificial intelligence for the last 10 years, developing more than 340 use cases. “We have an objective value of €500m by 2026,” he said. In one case, a machine learning system enables the bank to automatically read a prospectus and extract five to 10 key elements in a few seconds, instead of hours when looking at a document manually.

Innovation dilemma

Large and long-standing banks tend not to take advantage of potentially disruptive technologies compared to newer and upcoming firms. A key issue for banks’ management, observed Marochini, “is the risk of not being able to measure the return on investment.”

Marochini sighs at IT budgets which tend to be unbalanced: “between 80% and 90% on running the bank… and 10% is to change the bank.” He suggested that the running-the-bank budget or higher expenses are generally about improving systems and interoperability with legacy systems, not innovation.

Unsurprisingly, Marochini needs to organise “a lot of awareness sessions.” He explained that he must work on several executive committees “because if it is not in the strategy, we cannot move forward.”

From the payment business to the fast onboarding of funds

Marcus Yarbug, head of sales Benelux at Banking Circle, commented that his firm is a B2B bank that started in the payment business. We are “a payment hub for banks and payment companies.”

Yarbug explained that his bank expanded in 3Q2023 by building new processes to onboard funds. “We went from almost four to six months of onboarding time to two to three days, in six months.” He added that speed is important but just as much as scalability while ensuring “that you can ramp up with clients” and comply with regulatory requirements.

Over the coming months, Yarbug plans to launch a portal that will “structurise uploading documentation,” which will be followed by automatic checking and instant feedback to clients. Quick onboarding is a competitive advantage, he admitted, but “documentation needs to be correct.”

How will your bank look like in 25 years?

Marochini does not expect to work on T+2 transactions by then but rather more with instantaneous transactions, a central bank digital currency (digieuro), on private assets, while new asset classes will be tokenised. “Banks will still exist,” affirmed Marochini. Machet thinks that tokenisation will become the norm and move toward .

Updated 19 September 2024 at 8:30am, editor’s note: Following the conference, Raphaël Machet told Paperjam that only certain compliance managers had thought digital bonds were “too complicated and risky” three years ago, not the entire department. While tokenisation will become the norm, Machet added, in an emailed statement, that he believes “there will be a coexistence between ‘traditional’ securities and ‘tokenised’ securities”.