24 February 2018
Girish Patil

Trading and Trade Reporting

Girish Patil - Mindtree Ltd

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How Fintech Companies are disrupting the Capital Markets Space

21 November 2017  |  13304 views  |  0

The investment Banking Industry is in the state flux. Digital revolution, increased regulation, and seismic shifts, the industry is now aware of the threat that they have been trying to stay ahead. Everyone knows the era of transformation has been underway for over a decade now. Technology now serves as Value proposition in Capital Markets Industry.

What is the digital disruption that is affecting banking and other financial services? It is the growth of Fintech companies around the world. However, what does Fintech mean? An organization that uses technology to make financial systems more efficient.

Fintech entrants are raising more money from the investors than ever before. Year 2016 saw a record of 216 deals worth $1.89 Billion. With private funding in hand, companies are using automation, digitization and simplification to reduce costs, increase efficiencies, build client relationships and facilitate regulatory compliance. The solutions are helping all – Front, Middle and Back Office Operations. They use technologies like AI, Robotics Process Automation, Cloud, Blockchain, amongst others to bring Innovation.

Artificial Intelligence: AI seems to be one of the catchy technology Fintech companies are focusing on. With the help of AI, they can scan & analyze the data from multiple sources, make the trading strategies & sell it to the banks & other financial institutions. Apart from this, AI can be used in fraud analytics, check on the regulatory compliance and to cross-sell & up-sell clients based on the transaction history.

Process Automation:  Process automation can help the capital market firms to replace manual legacy systems, maintain the audit trail, make the system compliant with AML, KYC & other regulations, reconciliation of the various reports & also integrate middle & back office processes. Robotic process automation will bring efficiency in terms of time & money, simplify the processes & can redefine the business models.

Blockchain: Blockchain (distributed ledgers) offers wide range of benefits to the inefficiencies afflicting capital markets industry. Blockchain can create the smart contracts enabled with the encryption for transactions, create distributed records. This will help in using real-time transparent data & create efficient settlement & transaction processing.
Though the applications of this technology are on large scale, the implementation & regulatory compliance will be a tough task.  Many Fintech companies are focusing on the research & developing blockchain modules for Capital Markets processes.

Opportunities for Fintech: Capital Markets have not been able to overcome these challenges, which may prove to be advantageous to the newbies. 

  • Reducing structural Costs: Investments Banks IT estates is known to be the most difficult cost to address. Improved cost performance will deliver growth.
  • Redistribution of Resources: Thousands of jobs will be created for financial industry’s new requirements and demands. On the other hand, AI will reduce employees in Capital Markets.
  • Regulatory changes to be delivered at acceptable costs.
  • Identifying sources of future growth in terms of changes in client needs.

Downside of Fintech:

  • Security Risks: As the technologies advance, so do cybercrimes. Fintech an open virtual door to criminal activities which may hamper the growth  
  • Regulatory Attention: Regulatory agencies are keeping a close watch in terms of legal jurisdiction, customer data and taxation. This affect banks’ agility and ability to compete.
  • Technical Knowhow: The resources need to be technically educated to match the high-speed chase of Fintech growth market.

While incumbents have survived over the years, the fast changing industry pose greater threat. What could be the possible solution?

Collaboration. Fintech requires established capital market organizations and new ventures to join hands. This would reduce costs for the incumbents and pave way for disruptors into industry. This would revive the old businesses and create new ones in the market.

R K Rangan, President & CEO, Nomura Services India, said, “New technology, supported by an innovation-driven ecosystem, has resulted in an environment of increasing collaboration between new and traditional market players. Building on this momentum, Voyager is a program for startups to engage with Nomura to drive innovation through its global network.”

 

TagsArtificial IntelligenceInnovation

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Girish is currently working with BFS Center of Excellence & responsible for research, blogs & client deliverable. His interests are derivatives trading, trade reporting, asset servicing & risk managem...

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