Financial technology is established as the lifeblood of capital markets. And tech-focused firms are increasingly the standard-bearer providers, displacing the big banks that historically held this role.
What does the future hold for fintech?
More of the same, according to market participants and tech executives.
“Financial technology is the core of the brokerage industry,” said Frank Troise, chief executive officer at broker and technology provider ITG. “It is a vital tool which helps deliver what institutional traders care about most — better investment returns and increased operational efficiency. We believe advances in data capture, access, storage, retrieval and processing will drive more innovations in securities brokerage, empowering traders to improve performance and streamline their trading process.”
Technological advances pertaining to liquidity provisioning, market connectivity and trading speed have raised the profile of fintech, as even the most qualitative, longest-term investment firms have capabilities that were unheard of 20 years ago.
But aside from what’s under the hood, another factor driving fintech’s rise is the generally tepid business environment over the past half-decade, which has placed a premium on operating efficiency. Participants and operators can’t control the direction of markets or the volume of trading, but they can manage their own costs, and a primary way to do so is via technology.
“Industry continues to automate everything,” said Frank Piasecki, president and co-founder of data provider Activ Financial Systems. The future will hold “more technology, not less,” he said.
“Data capture and ‘big data’ management will create new classes of content to guide the investment process, manage risk, and otherwise do the job of the professional fiduciary and custodian of assets,” Piasecki told Markets Media.
Technology providers will be well-served to pick their spots with more focus on adding value selectively and strategically, Piasecki added, rather than pursue a one-stop-shop model. “Partnering and vendor-management excellence will be the skill of the future.”
Things change in financial markets, and ‘bulge bracket’ banks may one day rise again to lead Wall Street’s technological charge. But based on current conditions on the ground, the forecast for the foreseeable future is for a continued tailwind for smaller and mid-sized providers.
“Historically, the buy side has looked to the sell side — they expected brokers to provide the services they needed,” said Streets Consulting Founder and CEO Julia Streets. “I want the algorithms, I want the (Direct Market Access), I want the market data and processing, etc. But now the sell side’s cost of doing business to meet the demands of an ever more engaged buy side, who also fall under the regulatory gaze, means they have to look elsewhere in order to find more effective and efficient ways of providing these services.”
“The sell side is looking for the incremental changes that can deliver incremental cost and performance improvements, and often these can be found in the fintech community,” Streets continued. “We have definitely seen a shift in mentality…Banks realize they’re not going to be able to address these challenges and innovate entirely by themselves, so they look outside to find new models, new technologies, and new practices.”
Tony Huck, president and chief operating officer at Lime Brokerage, a Wedbush company, said: “The market is moving in the direction of fintech companies for the cutting edge technology products and services they covet and need to remain competitive.”
“Bulge-bracket broker-dealers and large banks are shifting their focus away from this aspect of the business, and concentrating more on where their strengths lie,” Huck continued. “Influencing this movement, fintech companies are better technologists as they are more focused and agile in delivering these products efficiently, effectively, and profitably.”
For original version, please click here.