New wave of FinTechs helping change the industry dynamic

I recently attended an in-person industry conference for the first time in two years. I must admit it felt sightly weird (not quite a morning after ‘Day of the Triffids’, but…!). At the same time, I enjoyed the opportunity to escape from my desk and catch up with some old and new faces. The focus of the event was largely around cloud (I can’t believe this is still seen as a hot topic in 2022, but the reality is that adoption has been slow in capital markets), digital assets (looking beyond crypto and how institutional players can access this emerging asset class), and as-a-service / managed services. Some of the panels were pretty good, although it was interesting to note the overriding theme of the drastic need to rip cost out of the industry for it to survive let alone prosper. One key-note speaker painted a particularly bleak picture, highlighting how declining return on equity and increasing regulatory and compliance costs threatened the sustainability of banks and sell-side brokers. Widespread adoption of cloud technology and a wholesale shift to SaaS and managed service was put forward as a key part of the solution, turning infrastructure into a utility and lowering the unit cost to build, operate, and support it. In other words, combining the power of economies of scale and elastic compute to break free from the tractor beam of legacy cost structures. To be fair, this wasn’t the only point, and the case was made that both cloud and as-a-service models can inject greater speed into a business. There is no doubt that using such models to spin-up additional servers for application development or additional capacity in the face of rising data or transaction volumes is infinitely faster than purchasing and deploying hardware via the average bank procurement team. So, the answer to the meaning of life, the universe and everything (or at least capital markets cost structures) is not actually 42, but apparently reduced cost and increased agility. It is hard to argue with that in principle, and Rapid Addition has long advocated the need to reduce the unnecessary friction and associated costs in capital markets. We also see huge opportunity to leverage cloud, not just in market data but also for certain parts of the trading workflow (which is why we make our software platform ‘deployment environment’ agnostic). However, I couldn’t help thinking that the discussion was overly fixated on the cost side of the equation and there was a key element missing from the debate. While all banks and brokers want to drive down costs, we have increasingly seen the dialogue shift to one of revenue growth at many of our customers. In particular, innovative growth strategies that differentiate firms from their competitors, leveraging modern, more flexible technology. And while the need for efficiencies hasn’t gone away, we see our customers innovating in areas such client acquisition acceleration, expanding business with existing clients (for example, simplifying trading across multiple asset classes and products), or through the creation of completely new revenue streams. When I look at many of the projects we are involved in, this feels somewhat of a sea change – a shift from a regulatory dominated and cost-centric mindset to one of innovation and growth. What these firms are realising is that they are being held back by their current technology, much of which, while great at the time, has become increasingly legacy. A landscape of ‘closed’ products and proprietary technology no longer supports where business need to go. Economics and urgency also mean that building solutions fully in-house often makes little sense. However, we are seeing a new breed of flexible, Open API, fully interoperable and scalable technology help capital markets firms to realise their business strategies and plans. So, while the democratisation of common infrastructure is important, somewhere in the tech stack there needs to be a component that enables customers to bring their unique IP to the market and leverage their strengths. This is what will help them create value rather than merely manage costs. It’s fantastic, therefore, to see so many innovative and game-changing companies recognised by Harrington Starr in this year’s edition of the “The Most Influential Fintech Firms 2022”. These are the companies that will help change the dynamic of the industry and empower those organisations looking to regain the initiative through innovation and growth.