The playing field on which financial services firms are contending is changing. Past competitive playing fields, such as alpha generation or trading strategies, are becoming less important ways for firms to generate revenue – and instead, in their bread-and-butter businesses, firms are focused on either reducing or optimising costs. And technology is playing a major role in this trend.
“There’s a lot of money for digital transformation,” says Matthew Cheung, CEO of ipushpull, a cloud-based real-time data sharing and workflow automation platform. “The big banks are spending lots and there’s a lot of small banks that are trying to play catch up, so they’re also spending lots. Technology is the way to compete these days.”
This trend towards digital transformation is particularly evident within firms’ back offices for their trading operations, where new technological approaches are desperately needed to improve efficiencies and reduce costs which are proving to be “sticky.”
“The post-trade world is, in most organizations, a really painful place, of museums of old systems, cobbled together using all sorts of different things and patchworks of this, that and the other, and highly fragmented,” says Alastair Rutherford, managing director at Ascendant Strategy. “As a result of the investment in the last 10+ years all being in regulatory programs, the ability to progress change in the core infrastructure has been virtually zero. And even before that, the answer of people in those areas to limitations in system capability, has been to do something in a spreadsheet just to maintain sanity.”
Rutherford says the use of spreadsheets and email by the trading desk back office – what he calls “humans as APIs” – results in significant operational risk because of the lack of true data governance, as well as traditional errors like keying in the wrong information. As well, today messaging platforms such as Symphony are also used and contain important data for the business. While these platforms can make communication more efficient, they can also produce the same kinds of data governance and op risk issues as email and spreadsheets.
Picking the tools for the job
Ascendant Strategy, a capital markets consultancy that specialises in post trade transformation, and ipushpull announced a new partnership in late July which is designed to tackle these issues. ipushpull’s API first platform handles static, live and streaming data with APIs, integrations, and connectors into data platforms and services.
So, say Cheung and Rutherford, they are sometimes called upon to provide tactical fixes to specific operational challenges within firms. However, “after we’ve been used for a while, we start connecting into other applications as well,” says Cheung. “Then we become more of a strategic platform because when the right people see the ability to connect data from any source or any application, we then become the centralized source of data with a layer of access control, auditing, usage tracking, all of that good stuff. All the governance, which banks are very hot on. We provide all of that if data’s coming through us.”
Rethinking a digital big bang
Using the kind of tools that ipushpull offers can help financial services firms take a more gradual approach to their digital transformation, particularly in the back office. Rutherford says that in Ascendant Strategy’s transformational approach, “we try to advise organizations not to go down the big bang route. It was fashionable 10 or 15 years ago for people to say, “Right, we’re going to get off all this mishmash and we’re going to a front-to-back integrated solution vendor. A lot of those projects are still running and are not finished – and people are not necessarily happy with the single platform solution anyway.”
Another approach – mutualisation of back office processes – has also produced sub-optimal outcomes for firms, says Rutherford. Often firms discover that the processes baked into a mutualized platform – often dictated by the first client – do not suit the needs of additional members as well, and that promised cost reductions do not materialize.
Rutherford says he recommends that clients adopt “a more compartmentalized and componentized type of architecture and attack it a bit at a time.” The ipushpull platform can enable firms to “manage the transition in a more controlled fashion,” says Rutherford. “We see that as very powerful in managing the transition from old legacy infrastructure to a more componentized future state.”