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Alongside tactical innovation projects aimed at meeting current needs, Avaloq invests a lot of effort to explore emerging trends and test new ideas in our innovation labs, in collaboration with our partners and clients. At the moment, we are focusing on three themes:
Although blockchain is still maturing, distributed ledger technology is here to stay. By its nature, it is geared towards openness and transparency, fits into today’s world of disintermediation and is about adding trust in an untrusted environment. So, while we don’t yet know what its long-term effects will be, tracking and understanding blockchain’s evolution is a vital competitive imperative.
Today, there are two main aspects to our work on blockchain:
1) Integration with current platforms
We are working in collaboration with one of our clients to integrate cryptocurrencies into our core banking solution. The goal is to support the convergence between crypto assets and conventional financial assets in a single tool that will offer customers a unified holistic view.
One key issue when working with cryptocurrencies is the management and secure storage of private keys. To address this, Avaloq has acquired a stake in Metaco, a specialist fintech that stores private keys in secure military-grade vaults.
We will complete a prototype in October 2018, which will feature manual fiat currency/bitcoin settlement and integrate the Metaco solution. In a second phase, planned for Q1 2019, we will release the first full version of this crypto product, offering automated processes to manage fiat currency/bitcoin and Ether settlement.
In the course of 2019, we will extend the product to support tokens (ERC20 tokens on Ethereum, e.g. companies and contracts) and other major cryptocurrencies. We are also investigating the possibility of integration with blockchain-based services (e.g. for correspondent banking and FX settlement) for our back office service centres, which would offer our clients greatly improved efficiency in post-trade operations.
2) Creation of new business cases
For the last two years, we have focused on investigating the potential of distributed ledger technology, sharing our own views and facilitating community discussions about DLT with clients via a series of webinars, white papers, conferences and informal gatherings. In July 2018, we applied to become a member of the Enterprise Ethereum Alliance.
We are specifically interested in the potential of “tokenization”. This is the process of converting rights to an asset into a digital token on a blockchain, thus gaining the advantages of DLT, including speed and ease of transfer, and reducing settlement costs. Tokenization is now being popularized by Ethereum through ICOs (initial coin offerings). Non-regulated funds – such as alternative funds, which have up to now required intense work – represent an interesting greenfield application of tokenization, potentially providing investors with faster transactions and asset managers with streamlined processes. We are starting to see the first applications of this in our industry, such as BNP Paribas Asset Management’s successful test of a blockchain-based system for fund distribution.
Our next step towards tokenization will be to work with banks that are interested in developing suitable use case prototypes in this area.
As PSD2 starts to give new entrants access to clients’ banking data, banks will face a growing risk of losing their historic monopoly as the providers of banking services.
They will need to seize the opportunities offered by these disruptive changes, and we see three main areas where we can support our clients and help them maintain their competitive advantages:
Our approach will be to work closely with you to identify those services that are essential priorities for competitive banking. We see an aggregator function, for example, as one of these essentials and we’ve already developed a prototype for this. Future projects will largely depend on what other key services banks would like us to focus on to help them compete in this new open banking market.
Many financial institutions are now seeking to get more out of their data to help them make better informed decisions and reinforce client relationships.
The data science market is evolving rapidly and is now offering data science as a service, leveraging de facto standards such as Hadoop, Cassandra and Spark. We are looking at enabling our client banks to develop behavioural models and identify patterns using machine learning techniques by offering them an integrated data science platform. Its business potential is considerable, as it will also help Avaloq clients explore specific business use cases, find new revenue streams, lower risks and optimize efficiency. Benefits are likely to include:
As data science platforms become mainstream, we are planning to exploit the new potential they offer, using the ETL and data management tools they provide to ingest core banking data, web clicks and information from social media, alongside demographic, economic and geographic data. Our consistent Enterprise-Wide Object Model is the key to ensuring data consistency across all the elements involved.
In the future, we will integrate a set of core partner technologies within the infrastructure, including voice recognition, natural language processing and sentiment analysis. This will provide a unique, standardized foundation for the development of different vertical use cases, such as client insight (profiling, attrition, next-best-action), fraud detection and process optimization (error detection and error prevention). This approach will bring with it the cost advantages of a community development and sharing approach (through shared consulting and development work and pooling of data, which can be an advantage for smaller banks).
As well as using the new data science platform to empower our clients to create new revenue-generating services, we are investigating how we can leverage this technology ourselves. We believe it has the potential to improve the quality of our own banking operations, by spotting errors and suggesting corrections to the back office operations team.
The Avaloq data science platform
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Even more insights into our architecture roadmap.
Making the most of third party technologies.
Our detailed Avaloq Core Platform release plan until 2020.