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FinTech

Seven ways an open FinTech ecosystem will change financial services

Albert Lojko  

Albert Lojko  

Today’s financial trading environment looks remarkably like the world of mobile phones in 2005 or 2006. The hardware is sophisticated enough, but the systems are, on the whole, closed and proprietary. The result? Manual intervention, redundant cost, wasted time, gaps in data (particularly where proprietary or niche data sets are involved) and greater risk of human error.

Examples of this have made their way into mainstream media. The recent $6 billion accidental payment by a large European bank’s employee to a customer was widely attributed to human error as a result of disconnected systems. A few weeks later, the CEO lamented his firm’s aging and overly complicated IT, promising to rip out much of its existing tech infrastructure.

The situation in many banks today is analogous to the mobile world roughly a decade ago – a state of affairs known as the “walled garden.” Around 2007, smartphone makers shifted the paradigm entirely – creating touchscreen canvases – opening them up to an ecosystem
of thousands of independent developers for them to produce and publish their own apps. We know how the rest of the story goes – the average smartphone user today uses dozens of apps, compared with just a handful in the days of the walled garden. A single distribution platform enabled unparalleled levels of innovation.

It’s time for financial systems to follow suit. But how will open platforms drive effective innovation in financial services?

1. Bottom-up innovation

Openness encourages new ways of thinking and empowers users or customers to drive the innovation process from the “bottom up.” Like the smartphone analogy, retail banking has been transformed by digital and mobile apps presenting information the way customers want it. This can also be the case in wholesale markets, giving traders, asset managers and other financial professionals the tools they need to work efficiently.

2. Empowered ecosystems

True bottom-up innovation requires all players within the ecosystem to create apps, not just raw data providers. Tech firms from Amazon® to Apple® know this is how their markets work, and the financial services industry is no different. Data providers may continue to give the familiar platform with which end users see and interact, but within lies a whole range of app providers who create choice on the platform. That’s how “killer apps” come about.

3. Trust me

Providing an open platform on which innovation can thrive is only half of the solution; having a trusted distribution channel is the other. Apple’s App Store imposes tight restrictions on developers, and the benefit to end users is total trustworthiness. The same goes for the new ecosystem of apps for financial institutions – but here, compliance will be the critical factor. Compliance can only be assured if it is baked into the supporting platform. Big existing players in this sector have a crucial role to play by bringing trusted expertise and the ability to meet regulatory requirements. Know Your Customer (KYC) is an essential part of compliance and represents one of the fastest growing segments in the market.

4. Flexibility

Decisions on which technology platforms a workforce uses can no longer be mandated from above. In the 1980s and ‘90s, as technology entered the office, it was the IT that determined how people worked. Today, with the range of high-pow- ered personal devices available to us, it is the workforce which increasingly demands how it will use technology at work. Today’s end users expect. As millennials enter management positions and Gen Z enters the workforce, the need for flexibility will only increase with their demand for greater choice, mobility and autonomy. But while users want choice, firms want control – and therein lies the critical need for a platform to handle essential activities such as administration, compliance, authentication and other key services. First-mover advantage will provide disproportionate economic benefit.

5. Standards

We have all become accustomed to standards in the consumer world. Some of these are visible and some are more opaque but have just as profound an impact. Standards level the playing field and spur innovation at a rapid pace. Web standards (HTML5), open-source technology and open-data models are a few examples of “enablers” that have transformed many aspects of our lives. Without standards we would never have witnessed the explosion
of apps that allow us to have “instant gratification.” The next evolution is a movement toward the enterprise as a platform allowing the same level of innovation in the corporate world. The financial market is no exception as firms look to transform their businesses and leverage standards and technology that allow them to focus on the core businesses and not have the burden of costly technology investment. PermID is a perfect example of creating an open industry standard which allows people to connect what would otherwise be disparate data and most importantly, reduce risk.

6. Zero touch

Platforms can only flourish when there is a “frictionless experience.” Self-service and common taxonomies make all of this come to life. These tools empower consumers and producers on the platform to innovate as rapidly as they want and to experiment with different commercial opportunities without relying on intermediaries. Consistent taxonomies and powerful search allow all participants unparalleled access to “answers and discoverability” – truly democratizing the experience.

7. Ubiquity matters

While few institutions would countenance trading on the move, there are plenty of ways to take advantage of a whole range of devices, particularly tablets, to work smarter and add greater value to client and counterparty interactions. In most industries, mobility is increasingly important for businesses; however, the ability to use smartphones and tablets to access genuinely useful information (such as the latest share price news), and to communicate with colleagues and counterparties, relies on the availability of adequate applications to deliver information, chat and other data, often in real time.

While we as consumers are blown away every day with the latest problem-solving app to hit the palm of our hands, considering the complexities and opportunities in financial services, it is now an eventuality that we will see the same levels of innovation across the industry. The question is, who will go first to create the platform that allows exponential innovation?

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