Joe Seidel: To begin with, we’ve seen the pandemic accelerate trends among the industry. Can you share with us your experiences at Broadridge, what you’re hearing, seeing from clients in terms of the path forward?

Michael Tae: Absolutely. So, there are a few trends that we’ve seen as a result of the pandemic and our lens as a technology provider to financial services firms. It’s a trend that’s been occurring long before the pandemic. But the way that I think about it is across three different dimensions. The first is customer engagement and communications, the second is the digitization of processes and workflows, and the third is the digitization of assets.

And this phenomenon includes technology and process changes such as modernizing IT infrastructure, but that’s not just it. Being digital is also about using data to make better and faster decisions, developing decision-making for smaller teams, and developing much more iterative and rapid ways of doing things.

So, just to give you a stat. According to IC, global spending on digital transformation technologies and services grew 10.4 percent in 2020, so that’s $1.3 trillion. And looking ahead, it’s predicted to continue on this upward trend as businesses continue to invest in this area. And between 2020 and 2023, it’s expected to total $8.6 trillion. And a big chunk of these types of companies will have launched a digital strategy by the end of this year according to Forbes. So, that’s the first trend.

The second trend is the democratization of investing. And we’re seeing this in the financial markets. Some parts of this are enabled by the digitization that we just talked about, specifically as it relates to the technology that enables greater retail accessibility and participation. This has occurred for a couple of reasons, but one of them is the rise of new security trading platforms, the growth of digital brokerages like Robinhood, zero commission trading, which has really revitalized retail investing.

But not only has the stock buying experience been cheaper or free, but gamification has also made it engaging and fun. If you combine social media and what happened with GameStop earlier this year, we really can see the power that retail investors can have to move markets.

To give you one more stat on this, which is since the start of the pandemic, over 10 million new investors entered the market, and about 15 percent of all current retail investors entered in 2020. This is a phenomenon that’s not just happening in the U.S., but it’s also extending throughout the globe.

The last one, finally, is mutualization. In order to address some of these trends around digitization and democratization, mutualization, I define it as where participants, share in the benefits of an industry solution that’s provided by a reliable, trusted, and independent third party. Rather than one firm creating a single solution for its own use, in a mutualized model, what you get is you have a solution that’s created for many, and that vendor distributes the benefits to all involved.

As a result of the pandemic, what we’re seeing is financial services firms, they’re modernizing their non-differentiated middle and back-office operations. What mutualization does is it truly enables some of these leading firms to focus on what they’re good at and evolve to the next level after the pandemic.

Joe Seidel: Wow, that’s a lot. Maybe drilling down a little bit in digitization. Could share some more detailed thoughts in terms of how it’s transforming the markets and financial services, and maybe some examples, too.

Michael Tae: Definitely. So, I talked about digital transformation. It’s really using a combination of experience, technology, and information to create something that’s better than what was done before. There are three dimensions. So, why don’t I talk about those three dimensions again?

The first is engagement and communications. Effective digitized engagement and communications are more than just moving from paper to digital. Customers expect a seamless digital experience and engagement across devices. It’s got to be interactive, it has to be personalized, and it has to be scalable for each individual’s needs.

I think the example, which everybody has experienced as a result of the pandemic and working from home, is just the dramatic increase in the way in which we’ve utilized digital tools. Obviously, we’re doing this right now. But it’s not just about work. It’s also about everyday tasks like shopping. I now am an avid Amazon user, which I wasn’t in the past. The way that I consume entertainment. We all do. Right? Netflix and that sort of thing. And so, those are really examples.

I think if you think about how human behavior has changed as a result of the pandemic, this obviously applies to financial services. It changes the way that we bank. It changes the way we manage our wealth. So, that’s one, which is the engagement model.

The second is around processes and workflows and the digitization of how they work. So, firms have focused on front-to-back office process improvement and automation for many years. Right? There are many inefficient paper-based processes that still offer the potential for digitization, especially as new technologies like cloud computing make that process easier.

In the post-trade space, a process that started with the paperwork crisis of the 1960s where the sheer mass of stock certificates overwhelmed back offices across Wall Street. What we’ve seen is you have manual processes. The first step is they get routinized, and then the second is they go digital. The third is once you go digital, then you can start utilizing technologies like robotic process automation, or RPA, and so you get that progression.

I’ll just really quickly touch upon RPA, which is that firms use it to streamline consuming manual tasks. It’s not just trade processing. There’s customer research. There’s account opening. There’s inquiry processing, anti-money laundering.

What you’re seeing is you’re seeing this technology, you’re combining RPA with artificial intelligence where you can actually get intelligent automation, you can get deeper levels of cognitive processing, and you find greater business efficiencies. My stat for this is that the RPA services market, it’s expected to grow to $12 billion by 2023. It’s a pretty big number, and there’s a lot of opportunity around RPA.

The last one is digital assets. In recent years we’ve seen the electronification of assets, of securities trading. Cryptocurrencies are in the news quite a bit. We’ve certainly seen that, and the rise of distributed ledger and blockchain technology. But what we’re seeing, though, is the digitization and tokenization of assets, which does provide enormous benefits, and it does allow the creation of networks that deliver levels of transparency and efficiency.

What we’re seeing from an operational perspective is we’re combining TLT platforms, which creates a single source of truth for participants. It can streamline processes and offer the potential for even greater levels of automation. And that’s really the digital assets component.

As you think about these three elements of digital, they really have placed a greater emphasis on the need for technological sophistication. They’re really driving the adoption of some of these innovative technologies like AI, like blockchain. I say this all the time, but I really think that the implementation of these types of technologies, not only do they drive strategic revenue growth for clients, but they also execute on cost efficiencies, all while a lot of financial services firms are trying to modernize their technology stack.

Joe Seidel: Michael, talk about some examples of digitization, particularly in the wake of the pandemic.

Michael Tae: Perfect. So, why don’t I highlight a few examples across the dimensions I just discussed? [Unintelligible] communications and experience. And one example of what we have seen as a result of the pandemic is really an increase in Broadridge’s virtual shareholder meetings.

And what that is, through digitizing an annual general meeting experience, it benefits shareholders because it’s making these general meetings more accessible and it’s making shareholder participation easier. It’s a benefit to the companies because it reduces meeting costs, travel costs, security costs, all while enabling management to better engage with their shareholders.

And so, from what we’ve seen is that in fiscal year 2021, we conducted almost 2,400 VSMs, which is up from over 1,500 a year ago. Our investments in technology and systems capacity have facilitated over 95,000 shareholders and guests to attend meetings in the first half of calendar year 2021. That’s one element.

The other example I give is really a combination of both digitized assets, which actually creates a digitization of processes and workflows. It’s those two dimensions combined. And the example I wanted to give was the digitization of repo contracts. And that’s something that Broadridge has developed where we’ve utilized blockchain technology to create a platform that essentially tracks and executes both sides of a repo transaction. And what it does is it captures terms, it captures trade, asset substitutions, and return of collateral.

We’re seeing a couple of benefits that are real. The first one is around operational efficiencies. What that does is reduce operational costs and risks because you have a common data model and you have a digitized, mutualized workflow for all forms of repos that use that same shared ledger and smart contract. That’s one example of how we’re really driving efficiencies within a workflow.

The second is around risk reduction and the elimination of reconciliations and fails, and really the impact of their reduction of systemic risk because of this real-time availability of counterparty risk. There’s a regulatory reporting angle, which is that you have real-time reporting of collateral availability and location and tracking of credit exposure.

The last one, which banks really like, is that you have increased liquidity. Because you have that increased liquidity and capital mobility, then you result in an optimized allocation and use of capital with reductions in settlement costs.

We’re seeing these trends around digital assets, digital workflows, and we think that there is an opportunity to extend this type of solution to different asset classes. From what we’ve seen, the pandemic has only accelerated the potential for this digital ledger repo platform.

Joe Seidel: Moving on to democratization then, more and more investors are engaging in the markets, as you mentioned. Talk about what’s driving this democratization in your mind and the impact it’s having on financial services firms.

Michael Tae: Absolutely. The first driver is macro related, which is that overall there’s the mass market segment, which is basically defined as households of less than $100,000 in assets. That in and of itself represents a growing share of asset ownership over the last couple of years, but specifically Millennials. We all like to [hate on] Millennials, but that represents the fastest-growing segment of the market. They’ve experienced an increase in their share of total investors. It’s 9 percent of 2017, it’s 14 percent of 2020, and undoubtedly has grown through the pandemic. That is one thing.

The second is that what we’ve seen is that these new investors, they’re aggregating savings just because there’s Covid quarantine, there are stimulus checks. The savings have grown. There is wealth transfer, which will happen from the Baby Boomers, which is expected to transfer $30 trillion in wealth over the next couple of decades. You have this big potential spending power amongst a cohort that really will engage in the market. That’s one macro theme.

The second, and I talked about this before, which is around technology, which is there’s zero commission trading, new security trading platforms that really have revitalized the accessibility for everyday investors. For example, Robinhood had tremendous growth with 2.1 app downloads in February alone, which is a 55 percent increase from the previous year.

There’s no commission trading. Besides the no commission trading, there are also new products that expand the investor universe. There are fractional shares, there are robo advisor solutions, which also bring new investors into the market with low touch, low cost investing cash management services. We’re seeing a whole series of technology providers that really are changing the landscape and increasing this trend.

The last one is ESG. As a result of the pandemic, the social justice movements over the past year, really have motivated investor groups to push banks, social media giants, others to support shareholder resolutions seeking. For example, proof of progress on racial equity audits, pay gap information, and other types of information. Retail investors, now have a stronger belief that it’s not just about values-based investing, but there’s more of a focus on sustainable investing.

86 percent of investors in 2019, believe that ESG practices, lead to better profits, but they may also lead to better long-term investments. That really is driving another segment into the market, which is the retail shareholders.

Joe Seidel: Can we turn and talk a little bit about mutualization. I have been hearing the leadership at Broadridge talking about mutualization for several years now. What’s the opportunity now and the future for financial services around the mutualization concept?

Michael Tae: As we talked about before, there’s digitization and there’s a democratization of investing. These are really two major drivers which are spurring firms to work together with service providers in order to modernize their operations and optimize their front, middle, and back-office functions. One of the key enablers for financial services firms to succeed in this post-pandemic era is through mutualization, and really to focus their strategic time and energy away from the non-[differential] functions.

What is the opportunity? There are really a couple of key benefits that firms will get as a result of mutualization. I think the first one is cost savings. Really being able to utilize a mutualized provider, you share the upfront cost of new technology development among peers, and you get that economy of scale, and you allow modernization of both legacy and innovative functions to occur at a low price.

The second one is around differentiation functions. I just talked about this, which is in an era of rapid change, firms are realizing that by leveraging industry solutions, they can share the burden of transformation of many parts of their business so they can focus on the few strategic areas that really make them unique. What mutualization does is it frees up management’s time, attention, resources to really drive value through the business’s other core functions.

There is a compliance angle, which is when regulations change, a utility or mutualized provider can really work with industry stakeholders to discuss execution, development to expedite compliance and minimize regulatory penalties. Then there’s productivity from an operational standpoint and resiliency.

Not only does it drive operational productivity through standardized processes and best practices, but there’s also this expertise that you develop around shared infrastructure, which creates more resilient systems. We certainly saw that from Broadridge’s perspective during the pandemic.

The last one is just innovation. I talked about RPA before, but it really does create opportunities for new innovative technology solutions at scale through a collaborative ecosystem. When you are being able to share all those resources and the burdens around innovation, it spreads the risk across multiple firms, and you get that network effect that allows the acceleration of some of these next-gen technologies.

Joe Seidel: Something we talk a lot about at SIFMA is what we see the value of back-office mutualization projects in many that are equal, or greater sometimes, to front office efforts in the revenue-producing side, and that trying to put numbers, trying to monetize that and demonstrate the value of it. It sounds like you guys have a pretty good handle on that.

Michael Tae: Definitely.