Using fintech innovation as a transformation catalyst in capital markets

Four core frontier technologies – data and analytics, cloud computing, Artificial Intelligence (AI) and Machine Learning (ML), and Distributed Ledger Technology (DLT) – have been identified as having the potential to transform financial institutions and the financial services industry.

Each plays a crucial role in powering the transition to a digital economy and to the digital capital markets of the future. Individually, they’re strong, but their true transformative strength comes when they’re used together.

Powerful individual technologies…

Cloud computing introduces unprecedented levels of scalability, agility and cost efficiency. AI and ML open up opportunities for analytics, automation and augmentation. DLT is the enabler of digital asset markets and the digitisation of traditional securities and derivatives. And data sits across all of them, sustaining this brave, new digital world.

…that are stronger together

Their benefits are synergistic - used together, they’re more powerful than on their own. Apply the power of AI and ML techniques to big data on cloud infrastructure, for example, a firm can unlock knowledge and analytics on a scale they couldn’t have dreamt of before. However, the very same benefits of these technologies – their transformative potential, and the multiplier effects of using them in combination – also make them incredibly difficult to adopt within financial institutions. This means that, without an alternative route to adoption, large financial institutions risk missing out on the opportunities of frontier technologies. Established operators are also at risk from more agile challenger firms that are born into a digital-native environment, able to build their foundations on cloud infrastructure and DLT. 

Unlocking these benefits is a significant undertaking

Migrating an entire bank’s technology infrastructure to the cloud is a multi-year, phased process. It’s not a simple lift and shift. It takes re-engineering applications at a fundamental level to operate in the cloud and to access all of the cloud’s capabilities. This re-engineering also tends to be essential if you’re going to use AI and ML at scale on large data sets (and it’s not technically feasible or cost-effective otherwise).

Harnessing DLT for initial issuance of new assets, or for streamlining and automating post-trade processes is also a significant undertaking, requiring transformation across the full trade life cycle and its associated systems and processes. These are expensive and time-consuming exercises.

Against this backdrop, how can financial institutions embrace new developments and remain competitive?

Using fintechs to support development and protect competitiveness

Fortunately, a growing fintech sector caters for this need. Fintechs provide access to innovation through the products and services that they create. They also enable traditional institutions to access all the benefits of the cloud and other technologies without having to fully adopt them first.

Fintechs now offer cloud-based market data-as-a-service, DLT-based automated issuance and trade lifecycle management solutions, AI and ML powered chatbots and natural language processing tools, and a host of other solutions, to traditional market participants.

Their solutions are also designed to be used in a modular fashion, with interfaces that only need minimal adaptation when plugged into legacy systems, unlocking benefits at specific and targeted points in front-to-back processes. Success for them, after all, is highly dependent on interoperability between the fintech’s product, their clients’ applications and, potentially, those of their competitors and peers in the market.

Harness the power of collaboration 

In this environment, collaboration is key. Fintechs operate within an ecosystem that includes the infrastructure providers they rely on, as well as the financial institutions that are their clients.

In our recent paper on digital innovation in capital markets, we spoke with Antoine Loth, Co-Founder of VALK, an issuance platform for unlisted assets, and a digital transaction tool for private markets. Loth cites a key driver of the company’s success: the company’s ability to rely on its ecosystem of infrastructure providers - R3 and its Corda DLT infrastructure, and BT Radianz’s cloud infrastructure – for connectivity to a broad base of potential clients, and the ability to rapidly integrate with them in a production environment.

At BT Radianz, we believe that fintechs have a vital role to play in driving both the adoption of new technologies, and the evolution of financial markets. They’re keen to use emerging technologies to disrupt the status quo – both as service providers to existing market participants, and competitors in their own right. Used carefully, their products and services can help established financial operators navigate the changing landscape, offering them faster access to leading-edge technology solutions at relatively low levels of investment compared to traditional builds.

Download our whitepaper, Digital Innovation in Capital Markets, to find out more about the transformative powers of fintechs. If you’d like to know more please reach out to your account manager.