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The Trading Mesh

FinTech innovation and the power of keeping it simple

Tue, 11 Sep 2018 23:08:00 GMT           

By James Maxfield & Ali Rutherford, Ascendant Strategy

Since it was coined by the US Navy over half a century ago, the ‘keep it simple’ mantra has been adopted by many other industries, including the capital markets FinTech sector.


However, when financial firms and institutions embark on a programme to introduce innovation to their existing legacy infrastructure, some firms instead opt to embark on a radical overhaul of their entire technology stack in one huge, complex programme. This invariably leads firms to seek FinTech solutions which can be customised to match their unique systems and processes, without the need to make any meaningful changes to how they operate.


While this approach may sound ideal, in practice it creates unnecessary complexity and expense - if the project is not abandoned completely. Instead, the firms which have successfully implemented a culture of innovation are those that took a measured, pragmatic approach to change.


To do this, firms must begin by acknowledging the size of their existing infrastructure and how their internal systems and processes compare to the rest of the market. Mandatory clearing, increased regulatory demands and the development of industry standards such as the ISDA Master Agreements have led to greater standardisation across the board.


Yet while FinTechs have developed technology solutions to meet these changes, many firms still continue to use non-standardised processes in their business. Institutions may prefer to get a customised solution which is tailor-made to work with their existing systems, but the reality is that this is rarely a successful approach.


FinTechs are also commercial enterprises and need to charge for the additional time and complexity which such changes require, particularly as they will be unable to re-sell the customised solution once developed.


Reducing the risk of failure


It is therefore vital that institutions begin to understand that FinTech solutions are developed with market standards in mind and resist the temptation to request customisations, no matter how minor. A far more effective approach is for the firm to explore how it can apply market standardisation to its internal processes instead.


However, most processes are interconnected and exist for a reason. Making a change in one area is likely to have an impact on other functions, which is another reason to tackle technology transformation gradually.


This does not need to be overwhelming and can be implemented in stages, for example by using bi-directional APIs. Again, aiming to keep the functional coverage of these APIs small is the key to success. If not, the number of APIs can swiftly get out of hand and become too complex to manage.


To be effective, this will require cross-function support at all senior levels, with one individual given a broader remit of working closely with various business functions in order to understand the architecture as a whole and what the potential impact of any changes would be.


Such individuals are key to unlocking the culture of innovation within a firm and enabling it to start adding new technology in, without the risk of creating unintended consequences elsewhere in the business.


Adopting a new approach


Firms should also take a cue from the FinTech sector and begin thinking of their business ‘as a service’, covering the full technology stack of middle and back-office functions.


The challenges that technology can solve are often problems shared by a number of businesses functions and that require a more unified approach to be successful. This cannot happen organically and does need senior-level people to be given a clear mandate to make it work.


In turn, this enables the organisation to engage with its workforce directly in a way which resonates with them and gets them excited about innovation, with benefits which go above and beyond cost saving and ROI considerations.


Even seemingly radical technology transformations have been successful when institutions adopted this simpler, more pragmatic approach to putting innovation back at the heart of its business.


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