BNY Mellon Masters the Art of Digital

This article first appeared in the 4 January 2016 issue of The Banker.

Over the past three years, BNY Mellon has assembled the building blocks for the digital transformation of its business. Today, it is putting this work into practice and aims to be a change engine within the financial industry.

BNY Mellon sees itself as “a technology company in the charter of a bank”, according to CEO Gerald Hassell. “Everything we do is about technology and improving the effectiveness of the financial markets,” he explains. In London for the opening of the bank’s Europe, Middle East and Africa (EMEA) innovation centre on November 11, Mr Hassell outlines the bank’s overarching strategy: “Our goal is to solve the pain points within our own company and also those of our customers to make the investment process more efficient and productive across the industry.” 

BNY Mellon, one of the largest global custody banks with $28,500bn in assets under custody and/or administration as of September 30, 2015, provides investment strategies and technology solutions for investment managers to help them improve investment returns, reduce risks and drive performance for the betterment of their clients. Its position – sitting in the middle of the who’s who in the financial industry – gives BNY Mellon unique insights into the way the markets work and institutional client requirements.

Mr Hassell is joined by chief information officer Suresh Kumar, the chief architect of BNY Mellon’s digitisation journey. Mr Kumar believes that every institution must chart a path to digital in order to survive and thrive in the new business environment. “Digitisation from a business perspective is about agility in addition to client experience,” says Mr Kumar. “In the day of Uber et al, it is no longer acceptable for customers to wait a long time for their pain points to be solved.”

However, most financial institutions were not constructed to be agile. They were built on big- box, mainframe computers, which performed overnight batch processing and next-day reconciliation. “We are in an environment where real-time information is absolutely required,” says Mr Hassell. He believes that the bank’s institutional clients should have the ability to transact and receive information on a real-time basis, similar to what they as individuals experience on their tablets, iPhones or other devices.

“The question everyone is grappling with is how to re-engineer the past in order to be ready for the future,” he says.

Reinventing the Bank

In the past year, BNY Mellon has rolled out three main components as part of the journey to overhaul its technological infrastructure and speed up IT processes and software development.

Through Nexen, its new open-source, cloud-based technology platform, the bank is developing microservices in application performance interface (API) formats. The platform will also allow internal and external developers to rapidly enhance, fix or change apps, all the while adhering to common standards. In addition, the bank’s app store allows financial technology (fintech) firms to integrate and offer their services to BNY Mellon clients.

The platform was built in order to fundamentally change the way clients operate and help them be more flexible and responsive to client's needs. A number of apps are currently in production and the first clients are live on the Nexen ecosystem.

Next year, BNY Mellon is looking to migrate more of its legacy platform onto Nexen, and then, from a process maturity and cultural change point of view, encourage employees to use design thinking and agile development. Currently about 18% of the bank’s projects are in an agile development process, according to Mr Kumar, and the businesses and technologists are working together to significantly increase that percentage.

On the Pulse

The bank has also continued to invest in its secure private cloud, BNY Mellon Extreme Platform (BXP), to cut down on development time, simplify infrastructure and provide capacity on demand at a lower cost. Mr Kumar indicates that in the future it will be converted into a hybrid cloud – part private and part public – so the bank can choose between hosting apps within its data centres or in a secure public cloud. “Our objective is to create cloud-native application architecture, so that our services have much longer lifespans than otherwise,” he says.

The main issue with a public cloud is not security, Mr Kumar argues, but rather a lack of standardisation. “Currently there is no standard among public cloud service providers, so those writing to a public cloud need to understand that it’s not going to be easy for them to move applications from one cloud to the next,” he says. “The challenge for the industry is to find a way to expose services as APIs but in a way that is secure. How do you encourage developers to build cloud-native apps? That is harder than deciding whether to do it in a public or private cloud.”

BNY Mellon built BXP to ensure that its 13,000 technicians are building apps to a common standard. It is also a member of the Cloud Foundry, which provides multi-cloud deployment options and includes platforms such as IBM Bluemix and HP Helion.

The third major technological development is the bank’s big data platform, Digital Pulse. BNY Mellon plans to capture every event that takes place within the bank irrespective of business, process or client – and is currently capturing more than 1 billion events per month. “Digital Pulse tracks activities, processes and transactions within our company, resulting in predictive analytics that enable businesses to work smarter and drive improvements,” says Mr Kumar.

“With data we are able to use machine learning, predictive analytics and artificial intelligence to provide a service exceeding client expectations,” he continues. “That is an aspect of digitisation. Having visibility into everything that happens gives us the ability to look at improvement opportunities, customer pain points and provide insights that clients can use for their own business.”

Blockchain Reaction

In addition to internal development, BNY Mellon is working with other industry players on specific projects that have the potential to solve collective problems. For example, it has teamed up with 13 other financial institutions to launch Symphony, an open-source, cloud-based instant messaging system that uses standards and end-to-end encryption, effectively a challenger to Bloomberg.

It also recently joined the R3-led consortium, known as the Distributed Ledger Group, to develop use cases for blockchain technology. Mr Kumar says that the technology has “the potential to solve problems that collectively as an industry we could benefit from”.

He points to industry pain points such as transaction settlement, reconciliation and corporate actions – all which take a long time and much manual input. “For example, blockchain could be used as a single source of corporate actions so that everyone has the same view,” he says.

Agreeing that the technology is at an early stage, Mr Hassell believes that the successful adoption of blockchain will only occur when both sides of the equation show up simultaneously and en masse. “To have a ‘single public ledger’ you need trust in that ledger and for both buyers and sellers to come together to exchange that value,” he says.

However, once an early-use case becomes reality, Mr Hassell predicts that adoption will happen fairly quickly. “Once you get the early adopters and the concept is proven, then the level of participation will grow exponentially. But you have to find the good use cases where it is dramatically changing a process or fixing a problem,” he adds.

London Calling

London is the fifth innovation centre BNY Mellon has opened in the past three years, almost one year to the day after its Silicon Valley centre launched. The other centres are in Jersey City, New Jersey; and Pune and Chennai in India.

“The concept of the innovation centres is to have teams of people thinking about ‘the art of the possible’,” says Mr Hassell. “Our innovation centres are windows into how we solve problems around our company and the world.” To date, BNY Mellon has 2000 people in the centres, a number expected to increase to 3000 by the end of 2016.

The bank has also announced plans to open a sixth innovation centre in Pittsburgh in the first half of 2016; Mr Kumar hints that both Syracuse and Singapore may be in the running for future locations.

Each centre location is picked for different reasons. For example, Silicon Valley was chosen in order to give the bank access to talent experienced in agile development, lean start-up and design thinking. As one of the top global financial centres, London offers access to the growing fintech start-up ecosystem, as well as BNY Mellon’s client base.

Mr Hassell says: “We have an enormous embedded client base in London that is not just UK- based but represents companies managing money all around the world. The intellect in London is extraordinary, so we want to tap our clients and their experiences to help us develop products, services and capabilities to take friction out of the financial system.”

The smell of freshly laid carpets and painted walls convey the newness of the EMEA centre, as well as its design. Like the other innovation centres, there are no offices. Everyone sits in an open-plan space with sufficient room for people to interact and learn from each other. The centres host a number of activities, such as hackathons, as well as presentations from internal experts and external consultants.

“If it was up to me, every one of our technology and business people who create services would be in these innovation centres because it isn’t just about a physical location,” says Mr Kumar. “We can see a tremendous change in the way people work together when you remove the walls.”

Mr Hassell adds: “The modern development of applications is a different methodology than building applications for mainframe computers. Today, technologists want to be given a problem; they don’t want to be told how to engineer something. It is about adopting the mentality of how to engineer for the future, not just the innovation centre as a physical location.”

Cultural Transformation

Building the technological basis for transformation is one thing, but encouraging employees to start to use, embrace and develop new technology – while doing the same day-to-day job that they have been doing for years – is quite another.

“We asked ourselves how we can win the hearts and minds of our entire staff of 50,000,” says  Mr Hassell. “It is a big communications and cultural challenge to encourage people to think and act differently while at the same time running the company on many legacy platforms.”

He stresses that it is an exciting journey, but adds that it can also be “daunting” for many people in a company. “We continually reinforce the idea that every employee is still valuable to the company, but try to engage them in developing a way they can do their job faster and smarter in the future,” says Mr Hassell.

In addition, the bank decided to insource its IT staff – until recently almost 30% were external consultants – and began campus recruitment drives to attract new talent. The innovation centres play a key role in catching the attention of ‘millennials’, which BNY Mellon believes will help foster a creative environment. “Millennials bring in a perspective that we need in the organisation,” says Mr Kumar, adding that the head of the Jersey City innovation centre is a millennial.

For Mr Hassell, a ‘lifer’ with four decades under his belt at BNY Mellon, millennials are directly impacting the culture of the 231-year-old institution. “They challenge us to think about our processes and bureaucracy, questioning why we do things the way we do. They aren’t afraid to speak up in a productive and thoughtful way,” he says. Indeed, Mr Hassell has a ‘reverse mentor’, whom he meets with regularly and has been “extraordinarily helpful, energetic and enthusiastic”.

“Millennials want to see excellence in everything that they do. They want to feel that they are making an impact, a difference or changing something fundamental,” he adds. “If we can harness that energy and have the rest of the company feel the same passion, we are going to be much better off.”

A Measure of Success

Digitalisation is not something that is done on the sidelines of the bank, according to the ethos of Mr Hassell and Mr Kumar. Essentially, their aim is to get the non-technologists in the company – 37,000 employees – to adopt practices, procedures and processes in a new and different way, which is faster, better and smarter than the way the bank has been doing it in the past.

Mr Hassell says: “Over the next year, I would like to see real live business cases being adopted, fundamentally changing our operations and solving the critical pain points that our clients experience, either by themselves or with us.”

He is convinced that the bank is on a path that will dramatically change those experiences. “Our employees will have to touch it, experience it and see how it can be different for them as individuals and better for their clients,” says Mr Hassell.

Source: Joy Macknight, 2016, BNY Mellon masters the art of digital, Financial Times / FT.com, 04/01. Used under licence from the Financial Times.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally. This material does not constitute a recommendation by BNY Mellon of any kind. The information herein is not intended to provide tax, legal, investment, accounting, financial or other professional advice on any matter, and should not be used or relied upon as such. The views expressed within this material are those of the contributors and not necessarily those of BNY Mellon. BNY Mellon has not independently verified the information contained in this material and makes no representation as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this material. BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material.