The fintech world is rapidly moving, and the pace of innovation is only accelerating more every day. With capital markets becoming increasingly competitive, and traders within and across different markets looking for solutions that will provide advantages and facilitate access to new liquidity, its no surprise that the demand for intuitive and effective fintech solutions is sharply on the rise as well.
The importance of the capital markets to economies around the world means there are many different stakeholders with vested interests in how fintech solutions are developed and deployed. Startups, banks, governments/regulators and infrastructure providers all play distinct, vital roles in how the future of fintech is being shaped – and, ultimately, its their working together that will yield the most fruitful solutions.
The Banks
Fintech – and, for that matter, any game-changing technology – cant get anywhere without a good community of adopters. Thats where banks come in. Many of these firms, including American Express, Goldman Sachs and JPMorgan Chase, have either invested directly in fintech providers, or acquired these providers and integrated them into their own operations as an in-house ideas lab. Naturally, these arent completely selfless ventures – fintech solutions, like money transfer applications and FX applications, provide promising new ways for banks to refresh how they do the things they already do.
Whether banks invest in fintech startups or buy them for their own use, what theyre looking for remains the same: new business models that offer opportunities and provide an edge over the competition. Before they can do that, though, banks have to take their cues from the government and regulators.
The Government Regulators
Politicians and regulators play a key role in encouraging fintech. For one, they set the rules by which fintech solutions are allowed to grow and be applied to capital markets. Consider the White Houses A Framework on Fintech, for example, or the U.K. Financial Conduct Authoritys guidance on cloud use. They take a wide, stability-focused view of capital markets and the stakeholders involved – from governments, to regulators, to central banks – to define the legal and regulatory framework around fintech.
In other words, the government and regulators define the environment that new fintech ideas will grow in. And, as the fintech space continues to expand and become integral to how capital markets function, politicians and regulators will continue to be vital in shaping this growth.
The Startups
But, of course, fintech starts with the startups: the entrepreneurs and companies that dream up these ideas and seek out the capital and support to make them reality. And, right now, were seeing a wealth of innovation from the fintech scene, targeting a wide range of use cases across capital markets: From retail applications, like money transfers and FX transactions; to institutional applications, like securities trading and post trading; to market operators, such as exchanges, all of whom are increasingly looking at how fintech impacts their business.
In addition to targeting their ideas across capital markets users, fintech providers are active across the entire trade lifecycle. Were seeing this in both fintech solutions that are developed for the front office (e.g. big data analysis for trading purposes) and the middle and back office (e.g. better ways of capturing and registering transactions, or better ways to handle information management).
Tying All Three Together: The Infrastructure
However, the complexity of these solutions means that they rely on multiple parts to work. Whereas fintechs provide great innovation (generally through software capabilities), any valid end-to-end system still needs to integrate multiple moving parts to deliver a real solution. Thats an important part of the equation, because adding value for the end user doesnt just depend on how good the idea is, but also on how well or efficiently its implemented.
Most fintech solutions require some form of infrastructure for their implementation, whether deployed locally, such as in a third-party data center, or in a virtual, cloud environment. On top of that, users need to be able to interface with these applications; hence, efficient access is critical. Market knowledge (e.g. market data) is also needed to get many of these fintech solutions working. To that end, while startups may provide the ideas, those ideas cant pick up any steam without the proper infrastructure in place. For example, trends seen by infrastructure providers revolve around an on-demand experience in the cloud and on the network, as well as an efficient extranet ecosystem to reach these new ideas.
The Missing Piece of the Puzzle
In the fintech development cycle, banks, regulators and startups live together in a very linear relationship: governments and regulators define the framework for banks; banks seek to abide by these regulations at an efficient cost; and startups provide another way to enable efficient solutions, which banks may invest in or buy up themselves.
The missing piece of the puzzle remains the infrastructure needed to enable end-to-end solutions to come together to service end users – like market data and connectivity. As the fintech space continues to evolve at a rapid clip, flexible infrastructure like on-demand capabilities, an extranet approach to connectivity and cloud deployment models need to become a bigger part of the fintech conversation in order to provide banks and capital markets stakeholders with more efficient workflows and applications.
As fintechs, banks and governments create the next era of capital markets, infrastructure providers will have an important role in enabling such innovation to become real and ensure an efficient end-to-end user experience.
Ralph Achkar is Director of Strategic Alliances, Capital Markets, Colt Technology Services
