The 18th century essayist Dr Johnson once said, “Your manuscript is both good and original; but the part that is good is not original, and the part that is original is not good“. It was not only a witty comment, but one of great wisdom. We could easily replace the word manuscript with the word innovation. We tend to conflate innovation with doing something original and unobvious, but this is a mistake.
Many good innovations are not original. Equally, novel and original things can fail to make an impact. For example, 3D printing and blockchain are yet to be the game changers expected of them, whereas surgeons washing hands did revolutionise hospital care even though it is hardly inventive.
Cheap real-time data processing still falls short today
In superannuation we are still waiting for things that once seemed inevitable given the march of technology. The vast increase in computing power since the 1990s should surely mean processing in 2019 would be straight-through, incredibly cheap, and in real time. A case now needs to be answered as to why we still fall short of that. After all, the law forces Australians to underpin the growth and stability of the industry and they can reasonably expect an efficiency dividend in return.
Instead of efficiency, costs have increased. Thirty years ago, the industry fund benchmark was $1.00 per week admin fees, today the largest fund with the best economies of scale charges $2.25. It makes a poor comparison to many other industries. Today’s consumer might buy a TV for a tenth of what it then cost, and it is a better product to boot!
Aside from costs, there are other areas of surprisingly slow progress. In a world of increasingly real time and highly personalised services, batch processing remains the norm in superannuation. Self-service and meaningful member engagement is on the horizon – but it always is!
A buzz word of the decade has been big data to drive predictive and artificial intelligence. Again, these are yet to make an impact in superannuation.
These observations touch upon the three technology domains: Systems of Records; Systems of Engagement; and Systems of Observation. Thirty years ago—in the infancy of modern superannuation—they weren’t clearly defined, and this is a major legacy we continue to bear. A recent contributor to Superfunds correctly pointed out that the architecture of three disconnected environments of front, middle and back offices must give way to a ‘Digital-to-the-Core’ precept of a single platform that delivers member engagement via digital connectivity to intelligent operations.
This was not the thinking of thirty years ago and in 2019 it remains the case that technology revolves around building a Registry, to which Processes are attached.
‘Registry + Process’ remains the dominant paradigm, and almost unavoidable if your registry is of a 1990s or earlier architecture. Rewriting code in a new language or moving the data centre to the cloud doesn’t change this. The underlying 20th century paradigm of ‘Registry + Process’ remains a hurdle to achieving a 21st century ‘Digital-to-the-Core’ paradigm.
Looking outside super for inspiration
A 21st century ‘Digital-to-the-Core’ solution will exploit what is happening outside superannuation. Change will be driven from the outside. For example, the banking industry has launched a New Payments Platform (NPP). How might this effect superannuation generally? And if your architecture predated the NPP, can it benefit from NPP?
The even bigger picture is the emerging Application Programming Interface (API) Economy. Consider Australia’s proposed Consumer Data Rights legislation and the even more advanced European Union’s Payment Services Directive 2 (PSD2). The gist of these is that service providers and software vendors do not own the customer data – it is legally owned by the customer. The motivation behind this to fuel new competition in customer engagement, but it also challenges a deep-seated presumption of 20th century registry vendors that they are data gatekeepers because they own the proprietary data model the data sits in, which is their unique IP. The question that will start to arise is, ‘How valuable is it to have a proprietary data model if by regulatory decree the data needs to be given in a non-proprietary fashion to whomever the customer wants?’. In the superannuation industry this is particularly fitting, because it is now a compliance requirement that every fund present transactional data in a single prescribed way to the ATO.
In the adjacent industry of banking, Open Banking is emerging as a force propelled by the likes of PSD2 in Europe and social dissatisfaction with the industry incumbents. PSD2 makes it a legal requirement for a bank to open an API to brand new organisations enabling them to piggyback on the established players, thus avoiding the cost and complexity of building many services themselves. This is a world away from Henry Ford’s vertical control of all means of production (from the sand mines that make the glass, upward).
The power of regulation
The similarities to superannuation are striking, and indeed we can argue superannuation is even further advanced due to—of all things!—regulation. Regulation can be a costly compliance burden, but it might also be a force for innovation hiding in plain sight (to the delight of Dr Johnson).
While Open Banking is a work in progress, Open Superannuation is largely here by virtue of gateways such as Superstream and SBR reporting. It is now the case that, from the outsider’s perspective, every fund has many of the same entry and exit points. There is no longer anything special about a particular fund’s processing capability, it is merely a machine that is injected with the same information and then returns the same outputs as every other machine. Thus, regulation has delivered the most important foundation stone in order to lower costs and increase speed – standardisation.
As mentioned earlier, cheap real time processing remains outstanding, but this level of industry standardisation could finally make it a reality – which would please Dr Johnson no end. If in addition, we achieved sharing of data for intelligent mining then ‘Digital-to-the-Core’ may be realised.
Returning to the three technology domains we can rethink their technological anchor points, and the migration from the competitive battlefield from the Systems of Record to the Systems of Observation:
|System of Record
|Registry is the 1st order artefact
|Gateways are 1st order artefact
|Vertical oriented around the registry vendor
|Horizontal oriented around member
|Is the competitive battlefield, seen as the value add
|No longer the competitive battlefield, seen as a commodity-like utility
|System of Engagement
|Member data only within fund
|Ecosystem data both within and external to fund
|Customer journey view
|Often bespoke, or enmeshed with registry
|Process managed services
|System of Observation
|AI/Predictive analyticsThe new competitive battlefield
In a nod to Dr Johnson, it may be that the most important innovations are under our nose in the form of regulatory standardisation that allows the uniform management of data. Using that to achieve low-cost real-time processing—as well as data integrity and single sources of truth—will set the conditions to exploit technical innovation such as blockchain and artificial intelligence in the future.