Recent technology innovation has given us multiple new ways to share ideas, collaborate, and access services. In this open source and hyper-connected world, increasingly complex tasks are being carried out more easily, quickly, cheaply, efficiently, accurately and safely. For almost any need, ‘There’s an app for that’.
For almost any need, ‘There’s an app for that’.
At the heart of this transformation is data. Because we are exponentially better at capturing, exchanging and analysing data, we can automate intelligently and integrate efficiently, allowing firms to improve workflows, reduce costs and risks, and drive new insights, revenues and business models.
For this reason, data mobility is the third of the technology trends highlighted in this blog series as collectively forcing banks and financial institutions to build greater flexibility and openness into their operating infrastructures.
Across the industry, firms are exploring these data-fuelled opportunities in diverse ways, becoming leaner and more agile through cloud-based collaboration and aggregation, and delivering greater client value by offering highly bespoke services and meeting emerging needs. This streamlining benefits both bank and client, with APIs being leveraged for cost-effective, on-demand sourcing of ‘as-a-service’ capabilities, and flexible, timely delivery of self-service solutions.
We stand at the dawn of a new data-driven era.
Increasingly, it is possible to reconcile customised, responsive service with scalable and repeatable processes. While the world has been waiting for blockchain, APIs and cloud have been supported digitisation by stealth, simultaneously embedding concepts of openness and interoperability.
In fields such as payments, APIs are seen as the tool of regulators to enforce open banking, but they are also critical building blocks of new micro-services. APIs are increasingly the conduit for service aggregation in the highly competitive retail brokerage and wealth management markets. They’re also widely used to send data faster and more flexibly than format-constrained, batch-driven end-of-day services. Using APIs, asset managers are accessing data from custodians on a self-service basis, aggregating it with other sources and using third-party analytics, both drawn down from the cloud, to derive new insights.
The finance sector has been slow to embrace the public cloud, but the cost-efficiencies of ‘as-a-service’ offerings and proven robustness of service providers means most firms are adopting a hybrid approach. Gartner has predicted that public cloud spending by financial institutions will rise to US$55 billion next year. A new Aite Group report says top-tier firms currently host less than 10% of their technology stack in a public cloud environment, citing cost savings, scalability, data storage, and time-to-market as factors encouraging greater use.
With the enhanced mobility of data, there is a temptation to pool resources.
These changes are transformative partly because they shift the basis for competition. Historically, banks could rely on competitive advantage lasting for at least a decade (often more), but revenues are now being cannibalised at pace. This drives further openness, agility and collaboration. But long-term success still depends on a clear and proprietary sense of one’s value proposition to clients. Although today’s institutions must interact efficiently and flexibly with a wide range of clients, suppliers and counter-parties, they still need to protect their own unique combination of assets: services, network, relationships and capital.
Particularly with the enhanced mobility of data, there is a temptation to pool resources. Utilities have assumed greater importance in the post-crisis era and third-party service providers – BigTechs, data vendors, bank consortia etc – are increasingly offering platform-based services over the cloud to meet the needs of mid-tier banks.
Data must be shared, but not given away.
Data must be shared, but not given away. Whether tech vendors or exchange operators, data aggregators have often reaped monopoly revenues from data sourced from clients and stakeholders. The finance sector may take a step backward rather than forward if we share data without exercising control, no matter how streamlined and secure the enabling technologies.
This tension can also be seen in the digital economy. Netflix was the poster child for public cloud-based business models through its relationship with Amazon, including its AWS cloud services, until the latter launched Amazon Prime Video. Bank data is hardly at risk in AWS data centres, and regulatory barriers continue to limit BigTech ambitions in the finance sector, but the principle remains: in a dynamic, fluid environment, protecting your assets remains paramount.
It is possible to square this circle, partly by standing on the shoulders of sunk investment. Decades of collaborative efforts on data standards in the finance sector are bearing rich fruit. From the migration of market infrastructures to ISO 20022 and the FIX Trading Community’s front-office standardisation initiatives to the finance sector’s growing role in the FinTech Open Source Foundation or Linux’s HyperLedger initiative, collective investments continue to be critical to data mobility and flexibility. Data integrity and quality remains an ongoing challenge. Intelligent automation depends on clean data.
The finance sector may take a step backward rather than forward if we share data without exercising control.
We stand at the dawn of a new data-driven era. Our expanding ability to share data allows more efficient and value-added interaction along the supply chain, enabling banks to pull in resources and communicate with counter-parties and customers at the point of need. This means using APIs to access and aggregate best-of-breed capabilities from partners that help to make your bank’s services uniquely valuable to clients. The openness of the digital age levels the playing field to the benefit of all – competition breeds efficiency and excellence. A commitment to open standards ensures we can retain control of our data, rather than repeating the mistakes of the past.
Share this Post