Discussing the state of capital markets tech
In the unusual world we find ourselves, catching up with industry peers via Zoom or Teams seems to be the only way to compare notes these days. It was great then that Toby Babb pulled a group of us together on Fintech Focus TV for an in-depth discussion on the state of capital markets technology. The two of us were joined by Steve Grob, Mark Montgomery, Reena Raichura, and Jon Butler – all colleagues with deep industry experience and insightful thoughts on this topic.
From market connectivity and trading platform software to desktop, data and analytics, our firms represent a broad spectrum of capital markets tech. More importantly though, they also represent a new breed of financial technology companies who believe that a flexible, modular, and open approach is key to innovation and creating sustainable agility for financial firms.
Everyone in our industry faces a common challenge – how to succeed in a highly competitive marketplace, with declining margins and demanding new regulations, while trying to run the business on aging technology that, in many cases, is no longer fit for purpose? These issues are further compounded by the operational complexity and real-time, global nature of financial markets, so it’s easy to understand why firms are risk-adverse and change is slow.
The problem is that slow firms simply won’t survive.
If you have time to watch the whole show you can click on this link, but I’d also like to share with you the points which resonated with me the most:
1. Increasing efficiency, achieving new levels of agility, and extracting more value from data are three non-negotiables for firms to succeed
Efficiency means reducing the cost of what you are doing, not doing less. We’ve seen the sell-side consolidate their activities over recent years, cutting costs but also shrinking revenue. They must find a way to make businesses profitable and re-think how they leverage both technology and data.
2. Incremental is good! Change the mindset towards technology projects and innovation
Large scale, monolithic projects just don’t work. Firm’s don’t want to tie up the capital, and multi-year projects are often beyond the horizon of senior executives. How many such projects have any of us seen that actually delivered what they promised? Even when they do, they often swamp the ability to implement other important projects, resulting in huge opportunity costs. Using agile, modular technology to incrementally augment and evolve legacy capabilities and infrastructure is far more likely to succeed than ‘rip and replace’.
3. Create a culture of continuous innovation
By leveraging modular, open technology that can augment and transform, as well as replace creates an environment where incremental and manageable projects can deliver demonstrable value quickly. This approach increases the pace of change at an organisation, creating a culture of continuous innovation, ultimately making firms far more agile.
4. Integrating best of breed components creates winning solutions
The growing complexity of financial markets often means that the historical approach to large projects of either building in-house or sourcing entirely from a single vendor is increasingly outdated. Working with modern technology that is designed to be interoperable is the way forward and has the advantage of assembling best of breed components from firms who are really good at what they do. The end solution is tailored to the requirements of the business and leverages existing infrastructure investment, without the pain, uncertainty and cost of self-build.
5. Embrace a different future
Our world has changed dramatically over the last 9 months or so, and many firms in our industry have coped well with adjusting to remote working and distributed teams. However, how much of that is really down to experienced teams who were already in place continuing to manage the status quo? What will happen when firms need to onboard new staff or kick off new projects?
On the assumption that we don’t fully return to old ways of working (and banks like the idea of improving ROE by offloading expensive real-estate assets), then firms will face two challenges. Firstly, the need to adopt technology that supports a distributed organisation – such as the modular, interoperable tech discussed above, but also increasingly cloud, which finally seems to be gaining genuine traction in capital markets (ironically, the incremental, additive approach to tech projects we described will help accelerate adoption). And secondly, the need to create a new ‘learning culture’ within organisations that will no longer be able to rely on day-to-day interaction in the workplace to build the knowledge, experience, and personal networks of new or junior staff. And, incidentally, the new Gen X hires will have a completely different expectation of how they expect technology to support them in their jobs.
One thing we all agree on is that it will take a change in attitude and approach to address the technology challenge. Both from the viewpoint of customers and whether they can evolve their organisations to become more agile and focus on continuous incremental change that drives sustainable innovation. But also, whether technology firms can genuinely embrace openness and interoperability – not just through a set of technical specs, but from a business philosophy that proactively sets out to achieve successful collaboration and partnerships.
As a final word, thanks to Toby and Harrington Starr for their great work in driving meaningful dialogue in our industry, and also to my peers on the call who made a November afternoon working from home more interesting than it might have been!