Exploring “Real World Fintech” at the Temenos Community Forum (“TCF”) 2017

I had the honor of attending this year’s Temenos Community Forum (“TCF”) where the theme was “Real World Fintech”.  Throughout the event, we “explored real-world examples of the latest advancements in Fintech, including blockchain, artificial intelligence, virtual reality and advanced data and analytics”.  The conference was meticulously organised and executed across three days for over 1,200 attendees.

My experience most notably consisted of attending the main conference sections in the mornings and the wealth management breakout streams (most applicable to my research were “Leveraging Technology to Navigate through Regulatory Change” and “The Future of Digital Advice in Wealth Management”) in the afternoons. I had the pleasure to meet some of Temenos’ senior management (ranging from the Heads of North America and APAC, and cloud infrastructure) through the “Senior Management Speed Dating” rotation and had the unique opportunity to attend a press/analyst lunch with Temenos’ CEO, David Arnott, as well as Ben Robinson, Chief Strategy Officer, and Mark Gunning, Global Business Solutions Director where they discussed the evolution of the Temenos solution and the components of their forward-looking strategy. One of my favourite segments of the conference was the Temenos “Innovation Jam”, where 5 finalists from across the world showcase their fintech start-up with the hope to win the final at TCF. The winner of this year’s competition was “Paykey”, the world's first payment keyboard. “PayKey uses patent-pending payment technology that works with popular messenger apps. Users just tap the "$" key to unlock payment mode directly within the app to transfer funds”. The theme across each of the finalists was: financial planning (particularly for younger investors), customer segmentation, front office efficiency (for advisors and clients), and data management and privacy. 

Of particular interest to my research (Serving NextGen Investors: Innovative Technologies and Platforms ) was the wealth management stream “The Future of Digital Advice in Wealth Management” as Temenos explained how they are shaping their platform to meet the needs of digital clients:

  • A channel agnostic environment (single-source, omni-channel, multi-user role);
  • Automated support is welcomed (Temenos’ robo-advisor, self-service in real-time on multiple devices);
  • Personalization at each stage of life (goal-based planning, younger investors, accumulating wealth for customized purpose);
  • Data as a new AuM capability;
  • The GAFA model (Digital engagement, contextual relevance to the user);
  • Digital signing and document management;
  • Chatbot / Digital assistants;
  • Digital communications (collaborations, screen, video and document-sharing);
  • Integrated market data;
  • Risk analysis and compliance.

Overall, I found the action-packed event a highly valuable learning and networking experience and I very much look forward to attending next year’s TCF. 

The Surging Appetite for Cloud-Based Services

I recently wrote an article for Capital Markets CIO Outlook that incorporates my thinking on the transition from one architecture to another in capital markets. I have the benefit of some of the great thinking of our analyst team on cloud, emerging technologies, and DLT.

While the end-state is unclear, directionally more and more capital markets firms are moving to cloud-based infrastructure, BPO, and IT outsourcing.

CIOs take note: I encourage you to, as much as possible, look outside your own four walls for inspiration.

See here.

Celent’s Innovation and Insight Day: Wealth and Asset Management Stream

We are only weeks away from Celent's 2017 Innovation and Insight Day where we will explore how players in the financial services market are leveraging technology in innovative ways in order to differentiate themselves in an increasingly competitive and challenging marketplace. We will be featuring a number of case studies, discussions, and deep-dives into topic areas surrounding innovation and focusing on themes, such as:

  • Customer Experience
  • Products
  • Emerging Innovation
  • Operation and Risk
  • Legacy Transformation

This is the first year we will have a Wealth and Asset Management (WAM) breakout session where we will cover a range of topics around innovative solutions and trends in WAM.  The agenda can be found here: Wealth and Asset Management (WAM) Program and will be presented by analysts from the Celent Securities & Investments and Wealth & Asset Management teams:

  • David Easthope, Senior Vice President, Securities & Investments
  • Brad Bailey, Research Director, Securities & Investments
  • Kelley Byrnes, Analyst, Wealth & Asset Management
  • John Dwyer, Senior Analyst, Securities & Investments
  • Ashley Globerman, Analyst, Wealth & Asset Management
  • Arin Ray, Analyst, Securities & Investments
  • William Trout, Senior Analyst, Wealth Management
  • James Wolstenholme, Senior Analyst, Wealth & Asset Management

I particularly look forward to sharing research around the evolving wealth management landscape as the core client base shifts from baby boomers to millennials. While much ground has been covered from the perspective of wealth managers to meet the digital needs of nextgen clients, wealth managers continue to be behind the curve in their digital offerings.

How are wealth managers and vendors responding to the paradigm shift in the development and execution of services and products to meet millennials’ distinct expectations?

This is just one example of the many topics that we will discuss at I&I day – we hope to see you there!

 

FinTechStage Luxembourg

This week I attended the conference, FinTechStage Luxembourg, which brings together FinTech start-ups, investors, financial institutions, technology partners, and regulators to discuss the evolving financial market ecosystem. Some of the key takeaways from the day-long discussion among industry experts included:

  • Luxembourg is aiming to attract UK FinTechs post-Brexit by becoming a hub to access the EU
  • Artificial intelligence
  • Digital identities
  • Banking the underbanked in developed countries
  • RegTech
  • Data protection

For the purpose of this blog post, I will focus on the RegTech component of the conference as that subject stood out to me as one of the more thought-provoking topics as the financial services industry transitions into a technology industry and the effect this has on the entire value chain across all industry players. Lázaro Campos, co-founder of FinTechStage, introduced RegTech (and RiskTech) as "recent risk-centric regulations require firms to be more coordinated and streamlined in terms of information production and delivery for trading, risk, compliance, and financial reporting".  One of the major points within this theme was that the application of new technologies will aid in making processes more efficient, and importantly, democratise opportunities by opening the market to previously unprofitable and underbanked client segments. 

While "incumbents and technology vendors have invested in regulatory solutions for years, the theme of RegTech is an interesting investment theme that has emerged over the past year and has since become mainstream" (Matteo Rizzi, co-founder of FinTechStage). It was made clear that regulators are as encumbered with the increase in regulations as are financial market players. 

Nadia Manzari, Head of Innovation, Payments, Markets Infrastructure and Governance for the Commission de Surveillance du Secteur Financier, commented that regulators need to be innovative in order to foster a healthy FinTech ecosystem. The subject of FinTech sandboxes was at the heart of much of the discussion – does each regulator need to offer such an environment? Regulators from the UK, Singapore, Hong Kong, Malaysia, Indonesia, Australia, and Thailand have been coming forth with plans to establish FinTech sandboxes, which enable financial institutions and start-ups to experiment with financial technology solutions that may not yet comply with new regulations. The benefits of sandboxes (versus piloting, for example) emerged as a debatable topic, but it is evident that regulators' evolving perspective on FinTech is indicative of a larger theme that is occurring in the regulatory space: the centralised banking system with which we are familiar will change in the near future.

New Year New Tech New Research

In your new year resolutions, did you pledge to understand more the technology that scares you? Or at least the one that some people (aka analysts like me) claim will replace you? If the answer is “No” and you are working in the field of Investment Research, whether producing, consuming or distributing it, then you may want to read our latest report Start Coding Investment Research: How to Implement MiFID II with Robots and AI.

I get paid to write research on fintech so theoretically I am not the tech scared type though I am the first one to control screen time at home. I know we have more and more competition from free research you can all find at your fingertips on the internet, and from cheaper research that leverages outsourced resources crunching a lot of data, but so far we are keeping up probably because our clients think we provide insight that those competitors do not provide yet.

I know however that we have competitors that have technological platforms that distribute their technology in a more user-friendly way with podcasts and fancy databases, that write their research in a more automated way and that you can consume easily because you pull the information with selective search technology that knows what you want and how much you can pay for it.

So before the holiday season, to make sure we were all going to start this new year with the right information in hand, I did look into what artificial intelligence and robotic process automation tools will be doing to research; not exactly my kind of markets fintech research, but more specifically to Investment Research, those written recommendations about equity or bonds or macroeconomic environments to help the buy side make investments.

The result is very honestly scary and exciting at the same time. These new  technologies are maturing at a time of big regulatory change in Europe, MiFID2 is finally kicking in and that means the unbundling of investment research cost from the execution costs the brokers and banks charge their buy side clients. Some buy side will keep using them and be happy to pay that fee, some clearly will start looking at other solutions that will have to propose a different business model provided by banks or by new market players, based on technology.

In our recent report we do look exactly at that: new business models and live case studies that have already been implemented in investment research production, distribution and consumption. Enjoy.

Straddling the Old and the New – Fintech in the Capital Markets

We are sitting at an extraordinary inflection point in the capital markets. The competitive landscape is in flux as competitors find their way through a maze of constraints. The constraints are well known-increasing regulation, rapidly changing market structure, liquidity challenges, and difficult macroeconomic conditions. There is also a feedback loop with the broader economy; many of the same forces that are constraining the capital markets are creating an unusual political landscape. We have seen this playout with Brexit, and the world awaits the outcome of the US presidential election. These then feedback into the capital market as uncertainty around managing volatility, risk and whether regulation will proceed as expected will be delayed or, radically altered.

For many capital market incumbents: the investment banks, broker-dealers, asset managers, and infrastructure firms are also saddled with extremely complicated legacy systems that are highly siloed, very expensive to run and even more expensive to change. While many are rationalizing systems, in certain areas it is just not possible. In many cases, ancient systems are running broad swaths of the back office, and sit under decades of add-ons, fit-ins, force-ins, and integrate with countless systems internal and external. Capital market firms are often in the habit of creating an abstraction layer above systems to tie more and more data and systems together. This creates a kludgy infrastructure, but it can, and does work.

Given that there are so many challenges, and hence opportunities, we have seen a slew of fintechs increasingly offering capital market solutions. There are those that come from the capital markets and speak the language of the markets. They have grown up in the space and see an opportunity to solve a particular pain point in investment process, trading or operations. There are other fintechs that have entered the vertical from another and are leveraging their data processing, analytical, machine learning, and hardware acceleration prowess in the capital markets.

We have seen fintech disruption in banking, but in the capital markets, so far, it has been much more collaboration than disruption. Fintech firms are bringing unique data, analytic, technology solutions into a highly regulated business. Fintechs that partner with existing firms are offered scale, legitimacy, and clients in a highly risk averse and regulation heavy business. For the brave incumbent firms who are providing capital and nuanced expertise to these innovators, there are rewards: new ways of looking at their business, but more importantly, ready built solutions that they can scale. Overcoming the fear of engaging these firms effectively is a path to finding better and more cost-effective solutions.

In my report, From Financial Technology to Fintech: Trends in Capital Markets, I look at the areas in which the rate of change is greatest, the nature of fintech partnerships in the capital markets and how they are evolving. I look at the pain points in KYC, liquidity, trading, liquidity, collateral and operations. I investigate the growing acceptance of cloud, the importance of leveraging data correctly and analytics and tie these to specific providers with solutions in InvestmentTech, MarketTech, RegTech and AltData. I also look at emerging technologies such as distributed ledger technology, AI, and business models that are looking to remap the capital markets at its core.

Yes, we are at an inflection point and some of the systems out there are kludgy, but in the short term, solving specific business pain points is the key to solving some of the industry’s thorniest problems.

Improving Operational Efficiency in KYC-AML Using AI solutions

Regulatory scrutiny and growing cost pressures are severely impacting Know Your Customer (KYC) and Anti-Money Laundering (AML) operations of financial institutions. Discussions with several banks have revealed they are finding it hard to keep track of constantly evolving regulations, interpret and implement global regulatory changes at a local operational level, collect and refresh information from numerous sources and systems across different businesses and jurisdictions, manage and analyze growing volumes of structured and unstructured data to identify patterns, networks, and beneficial owners, while containing costs amidst a difficult economic environment.

Banks so far have looked to address the challenges by hiring more staff, as traditional rule-based KYC-AML technology necessitates significant dependence on manual efforts. But too much reliance on manual efforts can make the process costly, error prone, and inefficient. Banks therefore need to think out of the box and consider new and innovative solutions to alleviate operational and cost pressures.

Adoption of Artificial Intelligence-enabled solutions could be one way to mitigate current challenges, increase efficiency, and reduce costs, as they can not only automate significant parts of operations but also offer superior insights through advanced capabilities for analyzing structured and unstructured data. In a new report, Celent discusses several challenges plaguing financial institutions’ Know Your Customer (KYC) and Anti-Money Laundering (AML) operations, and proposes how Artificial Intelligence (AI) enabled solutions can help in addressing them. This report was commissioned by NextAngles, an Mphasis Fintech venture, while Celent kept full editorial control. The report is available for download here.

A New Architecture for a New Age: Digital Transformation of IT Infrastructure in Investment Banking

Digital Transformation of IT Infrastructure

I recently wrote an article for CIOReview. A full copy of the article can be found here. In the article, I state that investment banks are transitioning their IT infrastructure to a new architecture based on a new vision: digital. The goal of digital transformation is clearly to simplify IT and operations, reduce cost, and thus improve ROE. Digital is driving demand for cloud-based infrastructure, BPO, and IT outsourcing with banks moving many applications to cloud.

But to create  A New Architecture for a New Age, the new architecture is about more than movement from analogue to digital. Emerging technologies like machine intelligence can not only drive efficiency, but also offer advanced analytics and insights leading to investing and trade ideas, superior compliance practices, improved customer engagement, additional revenue opportunities, and more.

Moving from Known to Unknown: Blockchange

To create this aggressive form of digital transformation, a new financial technology stack is coalescing around Internet of Things (IoT) and blockchain, powered by cloud. The blockchain design pattern allows for cryptographically secured environments upon which to conduct wholesale and investment banking functions.

We believe financial institutions will deploy blockchain networks with distributed ledgers in increasing numbers. Smart contracts, which are agreements whose execution is both automatable and enforceable (according to Barclay’s CTO Lee Braine) will be powered by the networks and backed by digital assets, legal templates, and standards. IT and open source organizations will provide the fabric for blockchain networks, including cloud, while a number of technology firms will deploy and manage these networks to support applications atop this fabric.

Smart contracts will be enabled by confidentiality, security, and digital identity. The underlying technology will incorporate cryptography, programmable digital assets, distributed ledger technology (DLT), and interledger protocols. Yes, getting to smart contracts requires a lot of organizational change. Fortunately, blockchain creates some first mover advantages. So it’s not just cost reduction, but actual revenue opportunities that will encourage change.

Moving Ahead

Slow to move incumbents will be uncomfortably exposed to an unforgiving environment. Some will seek partnerships with fintech firms, a kind of hedging against the future (not a bad strategy, but an incomplete one), only to become hamstrung by the next quarter's results.

A better strategy is to decide what the future industry architecture will look like and then work toward becoming a leader by offering a new model for the future. Getting to the new architecture will take a minimum of three years, but most likely closer to 4 or 5. ‘Run the bank’ still overshadows ‘change the bank’ massively. To get from a known architecture to an unknown one requires courage.

Human and Machine-Rise of the Cyborg: The Cycle of Voice Trading

Celent has explored voice trading in Human & Machine-Rise of the Cyborg: The Cycle of Voice Trading, published yesterday. In this piece, we look at the power of voice trading as well as the business drivers, challenges and forces that are driving change in voice communication, collaboration and voice market engagement.

Celent believes that voice is a key channel that will remain relevant and will work more seamlessly with electronic and data channels in the coming years. A move toward unified communication approach and advances in technologies, combined with a challenging business environment, are reshaping the modern trading desk. Cost cutting, front office effectiveness, gleaning better insight into customer behaviour combined with digital automation are pushing this frontier forward. Voice trading remains the major channel for transferring risk, across asset classes, yet remains a challenge due to the difficulties in leveraging this unstructured data set.

Advances in both preparing and leveraging data for advanced analytics are creating a demand for business insights-the demand for better data is ever growing. Firms are beginning to leverage advanced data tools for not only risk mitigation and regulatory requirements, but are creating front office opportunities for better counterparty engagement and communication.

Fintech continues to advance in the capital markets and the implications are profound for incumbent players. Firms that effectively leverage the full spectrum of innovation available are becoming more streamlined and more effective. The overarching need for business model evolution and the importance of technology in the markets continues to ramp up. As one example,last week alternative dealer Citadel Securities hired Microsoft COO to be the new CEO of it electronic market making business.

We are surrounded by advances in voice technology for interacting with machines in our life in general. We are getting comfortable with Apple’s Siri on mobile, and Amazon's Echo in our homes. Similar technologies have advanced in areas outside the capital markets, but leading firms are trying to leverage voice data for better insight, engagement, and automation. While we are nowhere near Robotic Stingray Powered by Heart Cells from Rats published in last week’s WSJ, in merging machine and biological elements we are heading more into an era of the cyborg-where capital market participants will increase their direct engagement with machines via voice interaction.

French effort to use Blockchain for SMEs could have relevance for emerging markets

The recent news that a French consortium is beginning work on building post-trade infrastructure for trading of SME stocks in Europe will be of great interest to market participants across the world. The consortium comprises of BNP Paribas Securities Services, Euronext, Société Générale, Caisse des Dépôts, Euroclear, S2iEM and Paris Europlace.

There have been several notable developments with regard to experiments and adoption of Blockchain and distributed ledger technology in the leading capital markets globally. However, the signficance of this particular announcement lies in the fact that it tries to address the needs of the a sector that usually struggles to obtain easy access to the capital markets. If successful, such a project could drastically reduce the time taken for post-trade operations, slash costs and generally make it easier for SMEs to raise funds.

In a recent Celent report, we had found that most of the leading global post-trade providers believed that it was still a little early to expect major changes due to Blockchain technology. While this may be true, the current development would be of a lot of interest to the emerging markets around the world. In several such countries, the cost of accessing capital markets is comparatively high and the technology is also often found lagging, as in the case of European SMEs. If the French effort becomes successful, it could pave the way for application of Blockchain technology to specific tasks in emerging markets, not just to enable SMEs to raise capital better, but to help the overall market to leapfrog in terms of modernizing the market infrastructure.

Regulators and market participants in emerging markets should now see Blockchain and distributed ledger technology as a relevant means for streamlining their trading infrastructure. To that end, it is also important that they encourage firms within their jurisdiction to experiment and adopt such technology for specific local applications and requirements, and not just wait to see how it evolves in mature markets in the next few years.