The Bank of New York Mellon Corporation (BNY) Earnings Call Transcript & Summary

And I hope you all were able to enjoy that quick break with us. And I want to go right into our next session. We have a very timely keynote discussion. We're going to hear a little bit about the digital transformation effort at BNY Mellon. And digital transformation is something that we're of course seeing in so many industries, but we haven't really talked about it in-depth at FIMA before. So really excited to bring this session to you. Enjoy. Joining me today is Roman Regelman, CEO of Asset Servicing and Head of Digital for BNY Mellon. Roman is here today to discuss BNY Mellon's digitization journey, and we're so excited to have him here today. Thanks so much for joining us today. Roman, over to you.

Yes, of course. Thank you for hosting me, and thank you for the opportunity to speak to you today. For everyone who is viewing this session, I think that the future of our organizations really depends on getting digital right. So I was asked to share BNY Mellon's approach to digital because we've taken a different path than many enterprises. And certainly, my approach reflects my experiences in digitizing a number of large organizations globally. I learned a lot along the way. First of all, it's helping us to make fast and sustainable progress in an organization that is large, complex and 236 years old. As you can imagine, I'm the first Chief Digital Officer. Alexander Hamilton did not have one. And hopefully, you'll learn from this speech, and you can think about your own journey this way. Let me explain what BNY Mellon is. We're not a traditional bank. Think of us as a bank of banks. We are different because of the type of work we do and, obviously, the responsibility we have. We perform critical work for the world's top banks and asset managers, providing core infrastructure for the world's financial markets. Needless to say, we are very regulated. But we also have a very rich culture, and we embraced change over the years, having played a pivotal role in forming and evolving the U.S. banking system and those around the world and, frankly, driving the growth and advancement everywhere of all the banking systems, of course. We also have a culture of innovation. This culture of innovation took root well before the word digital ever came to known. But this day and age, innovation in digital. We also have many challenges. This is similar to what other organizations are facing. But we believe that we have a brand, market position and a client base to create the digital enterprise. This enterprise will operate in a different speed, be forward-thinking and lead our clients through this period of intense change. So let me tell you how we're digitizing BNY Mellon. Working around the world, I observed that most institutions follow 1 of the 2 models. The first, I call it the Silicon Valley model. What do we do in Silicon Valley? We create great outcomes, we drive innovation and we digitize the business. We hire people [ like -- just like ] fintechs. It's a cool space. I mean these days, maybe it's not so much space, but it's just a different environment. And that environment is different from the traditional organizations, from traditional banks. I called it in press releases flying -- drones are flying, lots of buzz, but it never changes the core of an institution. That particular place is working well, but the organization is not changing. People realized that, and they -- in the world of banking, they create a different model. They call it -- I would call it the parallel digital bank. Basically, you say, hey, my current bank is [ very ] old. The processes are old. The technology is legacy. Maybe the people are not like I want in a fintech. So what do you? What if I bring all of this to my bank but I build it to the side? I have this new and exciting bank to the side. I have a digital process, different onboarding, technology. I have millennials. And then what? You basically have a great execution and you have something small to the side. I've seen it usually gets to maybe 0.5%, 1% or 2% of revenue max, and then it stalls. And this whole idea that you can reverse integrate, never really happened. So I talked about these 2 approaches that I've observed. So in BNY Mellon, we've taken a third approach. And frankly, I think it's a harder one, but it's the only one that truly works, the only one that delivers truly sustainable results. We're not building something separate. We're digitizing everything the firm does. We call it digitizing this very bank. It means changing every process, every client interaction and every product. Every employee has to have a digital mindset. It's not just about doing something better than yesterday. It's about being in line with client expectations, client expectations about delivery, throughput, timeliness. It's learning from the world-class examples, whether that's somebody as big and global as Amazon or maybe somebody local and cutting edge like, let's say, Gojek in Indonesia. But to do these things, you need to organize yourself differently. So to accelerate building and becoming a digital enterprise, we're engaging our full employee population in every office and virtual offices these days to transform the world -- to transform the world's processes that we have, to transform every client interaction, every product in this way I described. But to lead them, we built the team of digital experts who lead the thinking, that provide expertise. They champion new capabilities, and they drive initiatives. But ultimately, it's done by the whole population of people. So this group is organized into 3 horizons. We think about the 3 horizons of initiatives and 6 capabilities. Let me explain to you what I mean by that. So what's horizon 1? It's core digitization. It's about streamlining, automating and digitizing processes that we have today, products that have today. It's getting rid of paper. It's getting rid of manual work, getting rid of faxes. Believe it or not, the clients still send us faxes. Have you ever faxed anything to Amazon? But the banks still do that. So that's horizon 1: core digitization. Horizon 2 is about reimagining end-to-end client journeys. Clients don't want to buy products and services. Clients want to buy outcomes. The whole point of horizon 2 is the [ face for ] the clients' eyes. Think of retail financial services. You're applying for a mortgage. The bank gives you this beautiful app. It's great. But then if I get to do your credit check or your appraisal and you don't get a mortgage, do you come home and say, wow, what a great bank, beautiful app? No, the outcome is terrible. Fundamental point of horizon 2 is to really reimagine end-to-end client journey from clients' eyes. Which brings us to horizon 3. It's about new business development. For 236 years, we've been known for innovation in our space. Obviously, given our size and scale and our role in the industry, imagine all the data that we have. Imagine all the partnerships we do have and we can reach globally. We just need to be innovative with products and services, and we need to become a true integral part of our clients' ecosystems and using our data, using their data, using available insights around the world, and actually unlocking the power of innovation. In this day and age, no single company can do it all themselves. So when we combine our innovation with somebody else's innovation, you really create different businesses and a different experience for the clients. So that's horizon 3. It's really creating the new digital businesses. We've been in this journey for several years now. And actually, our digital capabilities are becoming even more critical in the current environment. Clearly, it was true even pre pandemic, but post pandemic or during now, accelerating digital transformation through this open system -- open ecosystem that we have that connects with our clients, with partners and stakeholders becoming extremely critical. But I think the difference is the urgency has increased. Obviously, the move to remote working elevated appetites of our clients for the digital way of working. It's really hard to send a fax to somebody who works at home. It's hard for them to send a fax to you. It's really hard to talk water cooler. All these capabilities need to come to bear. So that's kind the 6 core capabilities that we build. So they support the work in these 3 horizons, but they're also foundational. Let me talk to them briefly. The first capability is client experience. Client experience is not just about delighting the client. It's embedding the client mindset in everything we do. It's engaging and collaborating with clients to put them in the center of the ecosystem. It's about proactively addressing client issues and addressing unmet needs. I'll give you an example. Let's say onboarding. In an institutional business like ours, the process is complicated. Multiple systems, multiple legal entities, lots of people are involved. We often onboard existing clients in a new business. So this a client we have today, but the business is new. So what we're doing is redesigning the end-to-end onboarding to make it faster, to make it more client-friendly. We're really deploying this client journey approach. We gathered insights from major clients around experience, and we have uncovered many opportunities that go beyond simply reducing the number of touchpoints on paper. We have an enterprise team, roughly 100 to maybe 120 people across the company, that's really looking at this problem from different angles. Somebody looks from risk. Somebody looks from compliance, from the business, technology. And that group together really uncovered many compelling concepts. And these concepts leverage machine learning. They leverage common data source. And frankly, they leverage the client experience itself to make this journey much better. So the team is actually implementing a very ambitious operating model to really deliver this future-state experience. And this is -- and this team is not just a design team. It's really an execution team. The people who own the design, they actually own the results. The second capability is data. Look, data is everything. Everyone knows that. It's becoming the basis of competition. And it's also something that regulators are looking at and asking questions about. So we're looking at how to unlock the power of data across our enterprise and really establish that as a differentiator. There are as many pieces of digital information as the stars in the universe. Think of that: 50 billion trillion information signals, 50 billion trillion information signals. And we need to know how to leverage that. So clearly, our company is sitting on vast amounts of data, and we can turn that into operational leverage and competitive advantage for our clients. Earlier this year, we launched Data Vault. The Data Vault is a cloud-based data analytics platform that supports onboarding of data and provides greater flexibility, and it also accelerates client innovation and discovery. This solution leverages machine learning so users can move quicker and easily interact with data to gain actionable insights. As you can imagine, it's very hard to be a data scientist if you really don't have the data at your fingertips. What -- this is what Data Vault solves. But additionally, our data and solution -- data and analytics solution team is collaborating with Microsoft to launch multiple cloud-based offerings and to launch applications that allow investment managers to better manage their data and improve access to information. An example of that would be customization of investment portfolios to support ESG. Basically, there is a lot of ESG on the market. But this particular application really helps investment professionals to customize their portfolios. Fundamentally, we believe that data analytics is going to power the next level of transformation. I think everyone knows that. But to harvest the insights and become a data-driven company is the core capability we're building. So the capability #3 is event solutions, which is basically AI and machine learning. It's the combination of artificial and human intelligence. We call it AI + HI. It really helps to support our clients and our employees. And we're not experimenting. We're not just experimenting. We're deploying this technology at scale. We are really equipping our employees with artificial intelligence and machine learning tools to modernize our services, to harness the insights and to develop new products. Let me give you a couple of examples. Predictive analytics is something that we use to forecast and predict outcomes. We build the risk control to detect unusual patterns and anomalies. The automation is helping us to classify and categorize data and content, emails, let's say. And then we have data comprehension, which helps us to understand and process data and documents. Everyone has the same issue. You have a lot of data, a lot of documents. So we're really deploying AI combined with HI to help us to do that. So we're leveraging our AI + HI model to [ reimagine the onboarding ] experience I discussed and streamline the information gathering for things like account setup. We're using this model to apply predictive analytics for capital management, for balance sheet forecasting, automating processing of client instructions, multiple other areas. We launched artificial intelligence-based reconciliation and data control solution that will help faster resolution of reconciliation breaks. Every bank is dealing with reconciliation breaks. We're using AI to help us deal with that. These improvements are real. But I also think about employees. Employees receive lots of client instructions. They usually receive them via e-mail. They deal with multiple, multiple e-mails. So we built a solution that helps us to automatically classify, extract and validate the relevant data. Let's say it's account number, it's ABA number, it's amount. This system is 80% accurate, which means it improves client experience by reducing the process time and effort by at least 80%. So the people are really focused on our most complex transactions. And I think these abilities, whether that's e-mails or ability to predict future cash and liquidity, particularly during this unprecedented volatility time, really help us to reduce the risk for our clients and, obviously, manage the cost profile. So the capability 4 that I want to talk about is innovation. I mean innovation [ in the industry ] but innovation [ as a ] specific capability. We need to be client obsessed and focused on outcomes versus process, outcomes versus process in everything we do, which includes working agile and prototyping quicker than before to meet current and future needs of our clients, these unmet needs. We really created this culture of innovation at BNY Mellon by blending our institutional knowledge with new ideas, and that includes bringing in people with a different kind of thinking. So we blend the diverse teams, the experiences into really this digital innovation capability and reimagining how we deliver [ stuff ] to the clients. And that's where the diversity comes in. We're really harvesting the power of diversity. Diversity leads to innovation and innovation leads to the diversity. The capability #5 we're really focused on is partnerships. In this day and age, nobody, nobody can do everything by themselves. There is so much happening in the world. So no matter how big you are, how much of a budget you got, you cannot do it yourself. People are inventing things today around the world, and that's why we launched BNY Mellon OMNI. OMNI is a platform that brings together leading solutions and tools across the investment process, whether that's from small fintechs, from large technology companies or partners in the industry. OMNI stands for open modular network and integration. It includes our base of world's largest and leading products but also combines with solutions from other companies. It really integrates investing and trading solutions, front, middle, back distribution solutions and others to really bring the real solutions to our clients. So fundamental point here, we are open the world. We're engaging with VCs, with fintechs, with [ big techs ], with incubators, university clients, even with our competitors to really build this innovation network so we can work together and [ orchestrate ] real value. And we also made strategic investments if needed to support our partnerships, to support the partnerships in this particular agenda. So I'm particularly excited about our accelerator program. We developed this program to help emerging tech companies accelerate their product road maps and deliver solutions that address specific business needs. This program offers participants executive sponsorship, mentoring, client introductions and access to our innovation team resources. So I talked about these 5 capabilities. I want to focus on the sixth one, which is last. It's simplest to describe and hardest to do. It's called delivery. It's about bringing new talent. It's harnessing existing talent. It's removing roadblocks. It's empowering cross-functional teams to change the way we work and getting things done rapidly, quicker. Everyone talks about this thing. It's very easy, as I said, to describe. It's hard to do. Why? Banks have a tendency to operate in a very siloed way. I mean many institutions do, right? Everyone has their own budget. Everyone has their own people. So we're really ensuring that we don't work in silos, we work horizontally. People need to think horizontally, from the client's eyes, sharing and connecting. And that's changing the way we work and changing how we plan to work and how we secure things. It's really becoming fundamental in everything we do. But the other aspect of delivery is transparency. It's transparency of information. It's really escalating things in a way that is consistent and is not done in silos. So as an example of that, the updates that we sent to the CEO of progress on these big initiatives are also available to every employee. Think every employee knows what the CEO knows, how the initiatives are actually taking hold. This kind of transparency accelerates how the teams work together, accelerates the decision-making time and, most importantly, creates a shared sense of purpose. We're changing the way we do the budget process. These annual investment cycles, they don't really spur innovation. So we're working together to prioritizing our investments in a much more rapid way and in small, small increments. So I talked through the 3 horizon of initiatives and the 6 capabilities. Collectively, they really equal change for BNY Mellon, and I really believe it equals change for the whole industry. So let me briefly talk about our team. I formed Digital Council on my second day at BNY Mellon. The council includes the leadership team, but it's also the digital leaders across every business, every geography, in every function. Technology, operations, risk, compliance, everyone needs to participate in the digital journey. And then each business, each business has a digital business leader. That person needs to think about digital agenda in their own business but also allow the export of their ideas. Collectively, Digital Council drives execution of the digital agenda for the bank. It's across the enterprise. It's in every single business, collectively prioritizes digital investments. It allows people to unlock the collective intelligence of our people. [ To connect ] things is really important. I would say the best indication of success that we combined our -- we combined our larger business, Asset Servicing, with our digital organization, and now I'm leading the combined group. Think of this: our business is digital, and digital is our business. It's really helping us to accelerate transformation of Asset Servicing into more a data and analytics-led business. So think about the future of financial services. Digital is not an afterthought. Digital is fundamental, is the business. So I know you have a big day ahead of you. As you go through today at this virtual conference, think that digital is not just [ tinkering with ] this technology. It's not just [ trading and outcomes ]. It's allowing new thinking and new ways of working that can fully digitize the business. It's about client experience, full stop. It's really not how we set up behind the scenes or how we organize. It's about the client. And it's benchmarking yourself to true, true leaders around the world, whether it's Apple for client experience, Amazon for the ease of doing business or it's Google for its ubiquity. But it could be a small start-up doing something innovative, something specific, the start-up that you don't know about today but is going to change some industry. So with that, open yourself to the world, open to the power of collective intelligence, which is frankly in my mind the only way to really deliver transformative roles to the enterprise. Thank you, and enjoy the conference.

Thanks so much, Roman, for that insightful talk, and we look forward to hearing more from you about BNY Mellon's journey -- digital journey in the future.