LONDON’S FINTECH LEADERS TALK INVESTORS, START-UPS,
COMMUNITIES & NEW FINTECH, TRADING TECHNOLOGY,
ETRM/CTRM, BIG DATA AND OUTSOURCING VS INSOURCING
INCLUDING FEATURES FROM TOBY BABB, NADIA EDWARDS-DASHTI,
ANTONIO CIARLEGLIO, TOM KEMP, ANDREW THOMAS AND ALEX ODWELL
GLOBAL LEADERS IN FINANCIAL SERVICES AND COMMODITIES TECHNOLOGY RECRUITMENT
EVEN MORE of the Most Innovative Names In FinTech Speak Out!
| Xignite | The Real Asset Co | The Financial Services Club |
| Innovate Finance | Pharos Global | FixSpec | Panaseer | Lakestar | Bankable |
| Wragge Lawrence Graham & Co | Caplin Systems | Nanospeed | eCo |
| Digiterre | Artaois Ltd | Factum Ltd | Planlogic | CTRM Force |
| Commodity Technology Advisory LLC | OpenLink | DataGenic | Corvil |
| Man Investments | Global Reach Partners | ClusterSeven |
| ETF Securities (UK) Ltd | Teknometry | Citisoft Plc | X Open Hub |
E ARE DELIGHTED TO HAVE SHOWCASED OVER
a hundred of the leading, most disruptive
and exciting brands in UK FinTech in these
pages over the last twelve months, all of
whom have shared their knowledge and
insight in some exceptional articles. It has
been a privilege to have helped give an audience to these
inspiring thought leaders and we look forward to hearing
more from them and many others in the New Year.
Our vision on starting The FinTech Capital Magazine was to
share with the community exactly why the UK was leading the
global FinTech race. We wanted to create a platform to share
with our community some of the outstanding thinking from
companies and individuals in the growing FinTech scene.
Over the last twelve months we are thrilled to have seen so
many of the companies that we have featured stretch on to
even bigger and better things. LMAX, for example won the
prestigious Techtrack 100, Algomi capped an exceptional
year winning the “Most Innovative Trading Product/Service”
at the Financial News Awards in Trading and Technology,
and Fidessa won the “Best Sell-Side Trading System of
the Year” at the FOW Awards for Asia. There are too many
other winners to name in a single paragraph! Indeed it has
seemed that almost all those featured have thrived in 2014
with reports of growth both in profit and headcount, and
numerous business wins both home and abroad.
appetite for UK FinTech and we predict an even stronger
Welcome to the
FOURTH EDITION OF
FINTECH CAPITALand the final issue of 2014
surge in businesses situated in the space. The Tier 1 banks are circling and
there have been mandates for senior executives to investigate how they can
follow in the footsteps of Barclays excellent Techstars programme.
One of the big questions that remains is “are Financial Services companies
ready for the FinTech revolution?” Indeed one could also ask whether some of
the FinTech start-ups are being too innovative and really thinking about how
to pitch and gain traction for their product or services. 2014 has seen many
companies with outstanding products with clear cost reducing or efficiency
gains yet to take off because they are failing to gain the necessary credibility
from the banks themselves. Are they really answering a necessary problem?
Have they got a clear and efficient pitch? On the other side, are banks still
being too conservative? Will that cost them dear as the age of cloud, payments,
P2P, crowd funding, social and mobile threatens to eat their dinner?
2015 will need to see an “entente cordiale” between the disruptors and the
banks for the whole FinTech movement in the UK to really reach another
level. As mentioned in FTC3, the UK has been set up with a genuine trading
advantage for FinTech with strong
government support, geographical
advantage and access to talent,
so innovative and entrepreneurial
thinking is required. For both parties
to fully capitalise on the opportunity,
the banks, under ever increasing
pressure not to be innovative with
mounting pressure around regulation
and cost reduction, need to set up
opportunities to invest and trust
either the products themselves that
can make a difference or back the
companies who are looking to chance
the face of finance with investment.
Encouraging moves are starting to
happen in this space with C level staff
being mandated across the industry
The results could and should see a genuine boom for both the SME
and start-ups in the space but again, the brilliant technologists who are
pushing the boundaries will need to be more commercial in their thinking.
Often we see great ideas scuppered owing to a technology mind-set failing
to translate appropriately to a business one. Technologists have a natural
tendency to over complicate and clarity is essential in pitching. Those
who are able to marry clear business benefit alongside deep technical
credibility (the aforementioned Algomi is a prime example of how well this
can work) will undoubtedly be the ones that thrive. The make-up of the
founding team therefore becomes so important. This is THE key factor that
investors, angels and VCs look at when making their choices on who to back
and potential buyers will be thinking precisely the same way. Great product
or not, the commercial strength of the team itself will be the best predictor
for future success.
The UK is ready for a FinTech revolution. If the banks continue to recognise
the opportunity by becoming slightly less conservative in their thinking and
the providers tweak their go to market strategy, we could be about to witness
something truly game changing.
With this in mind, we are delighted to be involved in the launch of a new
com, The Realization Group, Adaptive Consulting, The Test People and Cake
Solutions to launch “The FinTech Influencers.” This will be an exclusive, free,
invitation only group who will meet quarterly to debate the key areas to drive
and support FinTech change. More details will follow but the goal will be to
drive UK Innovation and Growth by connecting the most influential players
in start-ups, disruptors, providers and end users, and creating a manifesto
for positive change in the industry. Keep an eye on @FTInfluencers on Twitter
for further details in the coming weeks.
With this level of change afoot, the incredible infrastructure of communities,
incubators and accelerators will play a bigger and bigger part. There is
government backed Innovate Finance feature in the pages that follow, we
have featured both Eddie George’s LondonNewFinance Group and the
exceptional work that Erik Van der Kleij and the team are doing with L39
in Canary Wharf in our sister publication “The Trading Technologist”, not to
mention the aforementioned Techstars, Tech City et al. These movements are
helping connect, educate and promote the brightest and best in the industry
and that creates an exceptional grounding for success.
An exciting time for UK FinTech. Thanks to all of those who have contributed
this year and we are delighted to have seen this publication grow so well
throughout the year. We hope that you enjoy the read.
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HE SCENE OCCURS AT A SAN FRANCISCO HIPSTER BAR IN LATE
2014. She asks “And what do you do during the day?” He
calmly says while tucking his plaid shirt in and rubbing his
fully-grown beard “I work in a fintech startup”. “Me too“,
she replies giggling. “Are you in payments or digital wealth
The story draws a smile. Of course two years ago, few millennials in San
Francisco knew what Fintech (e.g. financial technology) was. And now they all
see it as their ticket to fame and fortune-via-IPO. Move over social networks
and micro-blogging, the next innovation frontier lies at the crossroad of Wall
Street and Silicon Valley*.
Just in the month of October 2014, Fintech companies in the US have raised
more than $1B, including the $75M IPO of valley-veteran Yodlee, the $64M
raised by digital wealth management FinTech poster-child Wealthfront or the
$150M raised by payment darling Square. The capital flows and the hefty
valuations don’t lie: Fintech is on fire. And that fire is not only burning in the
US as fintech ecosystems are flaring up in Singapore, London, Frankfurt and
Paris and many other technology centers in the world.
It was not always like this. If you tried to raise money in fintech during the
years that followed the fall of Lehman Brothers, most Venture Capital and
Private Equity firms would have gently pushed you out the curb with a polite
“We are not investing in fintech right now”. Now money is gushing out of their
funds faster than their fledgling startups can spend it and they are briskly
updating their web sites to make you believe they were in fintech all along.
So what has changed since the doom-days of finance?
The first change is economical: The markets are back in the saddle. As a proof,
the Dow Industrial has broken its all-time record high 79 times in 2013 and
2014 alone and it closed on October 13, 2014 at its highest value in history.
As a rising tide lifts all boats, the bubbling markets have boosted financial
services and yanked financial technology in their trail. One thing that stands
out in the growth of the markets is the meteoric growth of Exchange Traded
Funds (ETFs)—which has exceeded every other asset class since their
inception 20 years ago. Assets in ETFs now exceed three trillion dollars. Their
inherent ease of use (as they provide the passive investment convenience
W H A T ’ S F U E L L I N G T H E
of mutual funds with the ease of trading previously only found in equities)
could certainly explain some of the rebirth in the markets. In any case finance
is hot again. God bless America.
The second change is technological: It’s been almost 20 years since the
Internet revolution began on August 9th, 1995 (the day of the Netscape IPO
if you wonder) and technology has matured tremendously in many areas.
Those concurrent evolutions have combined to create a cradle of innovation
which is fueling the Fintech Fire:
■ The scaling of the public cloud (aka Amazon Web Services)
which not only lets startups rev up on a dime but also confers
them a significant long term cost structure advantage.
■ The maturing of app development via open source, re-usability
and tools which has reduced costs and timelines to hours or
days. Imagine holding a weekend-long hackathon in 1992, it just
would not have worked.
■ The coming of age of social networking and search engine
optimization (SEO) that have automated go to market strategies
and slashed customer acquisition costs. With social contacts,
adoption can go viral. Virality was not conceivable 10 years ago.
It is not even a valid word in my spell-checker.
■ The dawn of APIs (whether used for trading via FIX or for
market data consumption as with my company Xignite) which
enables true end-to-end automation of processes that used to
be complex and human-intensive. 15 years ago—without easy
trading, market data, and account funding APIs—digital wealth
management companies like Wealthfront, Personal Capital or
Betterment could not have existed.
These waves are hitting financial service institutions like a high speed
train. Most of them have had their heads buried in the sand focused on
regulation and cost savings since the days of that infamous Lehman Brothers
bankruptcy. Wall Street is now petrified that Silicon Valley is about to eat
its lunch and it is scrambling to catch up. But once you see that most large
banks still twitch when one whispers the word cloud, you realize that the
technology and cost advantage of the fintech revolutionaries is significant
indeed. God bless APIs.
The third change is social. It has to do with a generational replacement
of a population that has grown up with the internet, surrounded by
mobile devices, and used to instant gratification and levels of ease-of-
use never experienced by humanity before. That generation could not
care less about traditional investment and advice models. They would
not think twice about banking with Google, Starbucks or Facebook if it
were available. They are not worried about security on the Internet and
the last thing they want is to have to talk with someone to get anything
done. They are ready to use Siri to place a trade and expect an investment
account to open and fund instantly.
ARE BACK IN THE SADDLE.
AS A PROOF, THE DOW
INDUSTRIAL HAS BROKEN
ITS ALL-TIME RECORD
HIGH 79 TIMES IN 2013
AND 2014 ALONE AND
IT CLOSED ON OCTOBER
13, 2014 AT ITS HIGHEST
VALUE IN HISTORY.”
According to a survey conducted by e*Trade, what the majority (72%) of
millennials want is a financial advisor like R2-D2— “a copilot with diverse
skills who helps you when you need it and offer a variety of tools you can
use yourself”. Only 28% of them are looking for a friend like C-3PO, i.e. “a
constant companion focused on your money who will always tell you what to
do”. If you are betting that Millennials will reverse their habits to that of their
parents once they hit 40, you may lose.
One may look at the mortgage crisis and think that because of it, financial
services will never be the same. But the impact of the financial mortgage
crisis is negligible compared to that millennials will have on the industry as
they grow up. God bless our children.
So what is fueling the Fintech Fire is three deep-seated technological, social
and economical transformations that are catalyzing to create an innovation
bonanza that is turning the industry upside down. Of the three, only the first
one is cyclical. And even if a bear market could put a cold shower on the
whole phenomenon, the lasting characteristics of the two other trends allow
us to safely predict that financial services and financial technology will never
be the same.
* Technically a bit north of that since Wall Street is now lined-up with condos
and neglected for hip neighborhoods uptown by New York startups and since
Silicon Valley has been displaced by San Francisco as the startup capital of
lives of ancient
them to safety.
In 2015, Pharos
will help to guide
the development of
TO FIND OUT MORE:
T PRESENT THERE IS A DISPARITY BETWEEN THE EFFICIENCIES
offered to us by the internet and the technology used by the
Whilst the majority of us organise, socialise and transact
online, it is clear that banks are yet to catch up with this
trend. Yes, they offer internet banking but they are failing to spot a growing
trend in the way we are starting to use the internet - to disintermediate
systems and processes.
Step-up the blockchain. Blockchain is arguably the most exciting thing to
happen in finance. In fact not only finance but any kind of environment where
there is a requirement for information to be stored, shared, protected and
For a quick explanation for those of you who are unfamiliar with the term
blockchain, it is a protocol for the storage and exchange of value. It acts as a
decentralised database that records and verifies all transactions.
As we have seen, disintermediation is reaching into all areas of life; Airbnb
removes the need for booking agents, 99design.co.uk removes the need
for branding agencies, Oscar is breaking the health insurance market. The
blockchain tops them all, it removes the need for third-parties when it comes
to trust, verification and transactions.
There are many challenges the blockchain offers traditional banking
technology, but one that particularly stands out for me is the opportunity it
offers the unbanked.
At the moment traditional banking technology cannot be described as
inclusive. Standard Chartered Bank group chief executive Peter Sands
recently stated that blockchain technology was a “true computational
innovation that could be very powerful in the context of financial inclusion.”
Banking, in its current form, requires too much infrastructure and box-ticking
in order to make it efficient and affordable for those in remote and developing
countries to use it. But they have little choice and this monopoly costs them.
The Real Asset Co
O P P O R T U N I T I E S
The remittance market is currently worth around $436bn, thanks to the 20% -
30% it costs to send and receive money from abroad.
Sending currency via the blockchain - whether bitcoin or sovereign currencies
(were banks to allow it) is as easy as sending an email. This can be done at
virtually zero-cost, within minutes and in a transparent manner. So, with this
in mind, the banking system is looking at lost revenues of $436bn.
The blockchain also offers a much higher level of security. All transactions
are traceable and significantly reduce the risk of fraud and corruption (no,
this is not about anonymity). In terms of an individual’s credit-worthiness,
the blockchain acts as a substitute.
The efforts to open a bank account in terms of ID, location and infrastructure
seem enormous when compared to the ease of transacting using the
blockchain. Why would an individual looking to grow a business in, say,
Uganda, make the effort to go through traditional banking technology?
Yes, we have all seen in the media coverage of Silk Road and Mt Gox, bitcoin
and blockchain are open to abuse, however this is an opportunity for the
banks. As an already (fairly) trusted entity they can leverage the blockchain
by partaking in the innovation surrounding it. By doing this they won’t miss
out on the most exciting development since the internet.
The Real Asset Co
“BANKING, IN ITS CURRENT FORM, REQUIRES TOO MUCH
INFRASTRUCTURE AND BOX-TICKING IN ORDER TO MAKE IT
EFFICIENT AND AFFORDABLE FOR THOSE IN REMOTE AND
DEVELOPING COUNTRIES TO USE IT. BUT THEY HAVE LITTLE
CHOICE AND THIS MONOPOLY COSTS THEM.”
N RECENT TIMES, MARKETS HAVE CHANGED FROM FINANCE and
technology to finance with technology or, as it is better
known, Fintech. Fintech merges two industries into one
and the city that is developing this faster than any other
London has many incubators, such as Barclays Bank’s Escalator in East
London. There are also regular meetings and conferences to support start-
up fintech firms here, such as Finovate, a two day fashion parade of the hot
new firms that takes place here next February. It implies that this is a market
ripe for disruption, but what are the numbers? Is there a real change here, or
just an emerging trend of trial (and error).
Well, the first numbers that may startle are that over $10 billion has been
invested in fintech start-ups since 2009, according to Silicon Valley Bank.
This amount has been spread across over 2,000 start-ups. This makes it one
of the top 10 investment areas for funds globally.
This analysis is echoed by Accenture, who note that 2013 saw private Fin
Tech companies raise nearly $3 billion – more than tripling the $930 million
invested globally in Fin Tech in 2008.
So there’s a big deal here with finance, money and banking seen as the hot
space for change through technology.
THAT IS CLEAR.
What is even more interesting is that the place where all this development is
taking place is … LONDON.
Accenture’s analysis of European Fintech data reveals that since 2004, the
lion’s share of Europe’s FinTech deals and financing have taken place in
UK and primarily London. In 2013, UK and Ireland represented more than
half (53%) of Europe’s FinTech deals and more than two-thirds of Europe’s
Fintech funding (69%).
Having said that, it’s not just London.
It’s also Silicon Valley.
H O W
LONDONis winning the
In 2013, nearly one of every three FinTech dollars and one of every five deals
went to Silicon Valley-based companies. Europe, meanwhile, accounted for
13% of all Fin Tech funding globally in 2013 and 15% of deals. However as
the chart below highlights, London’s five-year growth trajectory in FinTech
investments has outpaced Silicon Valley.
With such frenetic activity, banks are waking up to the opportunity to disrupt
themselves. Many of the largest banks are creating corporate venture capital
firms. BBVA, Sberbank, American Express, Citibank, Visa and others have
all been very active in the startup space this year. HSBC’s fund runs at $200
million and Santander’s fintech fund has $100 million in capital.
Meanwhile, London has one other key feature that makes it the hottest
space for fintech globally and will see Wall Street fall behind over the years.
This X-factor is that London has its technology hub and financial centre
side-by-side. The City, Silicon Roundabout and Canary Wharf are all within
spitting distance of each other. New York doesn’t have that advantage as
the technology centre is six hours away on the West Coast in Silicon Valley.
As America has divided its resources between East and West Coast, does
that hamper innovation? Does that constrain their fintech capabilities?
Some would say absolutely yes. For example, when we look at where all the
fintech dollars are going into start-ups, a third is going into Silicon Valley but
$1 in every $6 is going into London, and it is doubling year on year.
London has just launched Innovate Finance, a nurturing centre for developing
fintech businesses, along with Level 39, the hotspace for fintech innovation
and we are seeing a true integration of finance and technology.
Do we see that in New York? No, as all their innovation is over 2,500 miles
away in San Francisco.
This is a real cause for celebration in London. As banks become technology
companies, having the banks and the financial technology innovators all
sitting together is truly going to make London the financial centre of the
world for the future.
Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro
Ltd. and comments on the financial markets through his blog the Finanser.
He can be reached at firstname.lastname@example.org.
OMEN HAVE ALWAYS BEEN UNDERREPRESENTED IN THE BANKING
and technology sectors. These industries in Britain have
given us the luxuries of the modern world, yet they are still
old-fashioned with their maledominated hierarchy. From
startups to global banks and large technology firms, it is
time for every player in this industry to address the serious
gender gap problem, take collective action and act now to shape a world
with greater gender equality.
Diversity campaigns are beginning to make an impact and companies are
starting to take notice of the importance of women in the workforce. Lloyds
Banking Group, for example, recently announced its plans to ensure 40 per
cent of the businesses 5,000 senior staff are female within the next six years.
Barclays and Credit Suisse have also begun to offer diversity initiatives as
well. Women are considering careers in the sector. According to a recent
Randstad financial survey, for the first time in history there are more women
applying for financial services jobs than men.
The technology sector –with its so-called forward-thinking vision of the future-
is stuck in a time warp when it comes to female representation in the workforce.
In fact, the industry is grappling with an even bigger gender gap than the
banking sector. Google has revealed in its first diversity report that only 30% of
its employees are women –surprising for a progressive company. At least it is far
better than the average 17% that you find in most tech firms. Another study by
the Centre for Economics and Business Research shows how a paucity of skilled
staff in the IT sector is causing a 15% drop in output, which could be resolved by
balancing the gender gap that permeates the overall industry.
How can we address this issue so that we can get the talent we need to
sustain these industries, but also to accelerate the growth of the fintech
sector– which combines both banking and technology and is playing a
crucial role in the future prosperity of our economy?
According to the latest figures, the alternative finance sector is now valued
at over £1billion, a 90% rise from 2012. Behind this growth is the fintech
innovation that is helping to create new services and products that are
disrupting traditional ways of banking.
C L O S I N G T H E
Being the world’s biggest financial services epicentre, London has taken a lead
to support fintech, creating accelerator spaces that bring top talent together with
established technology companies and banks to foster the innovation to make
finance work for everyone. There’s a lot of money being in invested in the sector
as well. Over $1 billion US dollars have been invested into 34,000 tech firms in
London this year- and a $200 million sovereign fund from Singapore’s Infocomm
Investments has recently been extended to European fintech firms too.
What would make this ecosystem better and more exciting is if we had more
women involved in the future of fintech.
A global movement in addressing the gender gap across the technology
industry has been gathering momentum in recent years - with government,
corporations and start-ups all keen to change the ratio. Studies repeatedly
show that companies with founding female members increase long-term
returns, by up to 30% on average. Given the clear commercial benefits, why
has this not translated into a change in numbers?
The pressing problem to highlight is not just the lack of women in senior
positions at tech firms, but it is also that female spearheaded technology
success stories are lesser known. The fundamental lack of female
Zuckerberg equivalent figures in the media is deterring young girls from
entering into the tech industry in the first instance.
However, this is all set to change. New female faces are cropping up in
London’s booming fintech scene. Last month, chancellor George Osborne
launched Innovate Finance at Canary Wharf’s Level 39, a UK trade body
association that will support the next generation fintech start-ups that are
disrupting traditional forms of finance. If we are to encourage young girls to
seriously consider a career in technology, we need to champion the likes of
Clare Flynn Levy, former hedge fund manager and current CEO of Essentia
Analytics, a platform that leverages behavioural economics to help fund
managers examine historical trades and to improve portfolio performance.
We need to cast a spotlight on women like Julia Groves, CEO of Trillion
Fund, a hugely successful crowdfinancing platform for renewable energy
projects. And Jan Skoyles, the CEO of the Real Asset Co, an online platform
that offers access to the bullion markets. By increasing the transparency
and prominence of women in technology, only then can we create a long
and lasting social and cultural shift in acceptance of women in technology.
Furthermore, more initiatives are necessary to increase the take up of technical,
engineering and computer science studies amongst females. A number of
coding clubs focusing on women has sprung up in the past few years with
this precise mission. In particular, Alice Bentinck, founder of Code First
Girls, provides free coding classes, career talks and hackathons at university
campuses across the UK to foster the next generation of female developers.
There is also Jess Erickson, founder of Geekettes in Berlin, a community which
nurtures support between women in technology, development and leadership.
Finally, and perhaps crucially, we need to give women the flexibility they need
to balance their careers with other priorities in life. Remote working, part-time
aving worked for the last 20 years for organisations at the
forefront of financial technology, when starting Pharos
one of my main assumptions was that easy to use, cutting
edge technology was enough create a great Fin Tech start-
This is only partially true.
So what makes a great Fin Tech start-up? Technology? Yes, to a certain
extent. But start-ups also need a real business opportunity – the elusive
‘gap’ - and be able to exploit the gap long term to create a profitable,
No matter how ground breaking your technology, if you haven’t recognised
and researched your opportunity and clearly defined the gap you’re going to
fill, you can build great technology but not create a great start-up company.
In the current business environment, if you build solutions aimed at
crowded legacy markets, with incumbent systems embedded, you’ll come
up against serious hurdles. Financial institutions have invested huge
sums in their legacy environment. They work - nowhere near as good as
your elegant new solution but it takes money and time to unpick current
systems to allow yours in and this can be a tough sell!
Sure you can do it, you are selling your vision after all but you are making
things difficult for yourself and slowing your potential growth.
So find your gap in the market and remember, there must be a compelling
reason to use your technology. Research where it can be positioned with
the least resistance in your target market and how you can present a
business case that cannot be ignored. Essentially, translate all the great
features of your technology into something that has a real, tangible benefit
to your target market’s business.
Secondly, partner with your customers. Work together to build intuitive
technology that tangibly simplifies your users’ daily tasks. Give users the
information they need to make better decisions quickly and more accurately.
We started Pharos with two development partners and work closely to solve
their business problems. Their knowledge of workflow, analytics and of
W H A T M A K E S A G R E A T
business critical reporting requirements is vital to the success of Pharos
and provides business feedback on all technology ideas we have.
Finally, assemble the strongest team available and ensure you get the
tech to business talent mix right. A start-up is essentially a collection of
individuals that share the same goals and ambition. The CEO provides the
leadership and culture but your team members must share the vision and
apply it daily. You must back your team to
work independently to deliver shared goals
and it is vital you spend as much time with
the Head of Sales as with the CTO.
And one last thing - don’t forget to make it
easy for customers to do business with you.
Make sure they can adopt your technology
quickly with minimal disruption; have
transparent pricing that fits the opportunity;
be flexible; and most importantly, offer
not just great technology but business
transformation that helps your customer’s
business to grow.
ALL THE GREAT FEATURES
OF YOUR TECHNOLOGY INTO
SOMETHING THAT HAS A REAL,
TANGIBLE BENEFIT TO YOUR
TARGET MARKET’S BUSINESS.”
lmost three years ago I made the decision to start my own
company. After 15 years in electronic trading, I felt the
frustration I know many share: of being a cog in a slow-
moving machine that struggles to innovate. I wanted to
make a difference and to relearn what it means to be in
business - listening to customers, solving their problems,
and building a lasting company.
Today FixSpec is a thriving, profitable start-up selling into top tier exchanges,
banks and software vendors. It has been an incredible journey and by far the
most rewarding (and exhausting) period of my life.
Along the way I’ve learnt a huge amount about start-ups - what makes them
tick, what makes them different, and how to build a company from the
#1 REVOLUTION NOT EVOLUTION
Financial services is full of skewed market shares, with their dominant
firms and long tails. Consider trading venues – each asset class has a small
handful of markets which dominate and then a sharp drop to smaller, niche
players. The pattern repeats for software vendors, market data vendors, asset
managers, brokers and so on.
There are two implications for FinTech start-ups: (1) you will likely launch as
underdog to a bigger, better funded competitor against whom you will always
be judged, and (2) you must choose to target either big or small customers.
So what do you do?
My recommendation is to avoid the common trap of building copy-cat
products and attempting to displace the incumbent based on price or
functionality. Unfortunately you are likely to be out-gunned by marketing, or
fail due to sheer inertia within your prospects.
Instead focus on radically changing the value proposition for the buyer; offer
a product that can’t be meaningfully compared to the existing players. Sound
hard? It is. But done right, you can consistently win against incumbents, even
when pitching to the largest prospects. I recommend the book Blue Ocean
Strategy for more on this topic.
#2 FOLLOW YOUR VISION
I’ve noticed that firms with successful products often forget their original
vision, focusing instead on running the business day-to-day. The outcome
works until the market turns, they start to lose market share and they
dispatch senior management to a fancy hotel to dream up a confusing,
one-line “mission statement” that should magically turn things around
(until it doesn’t).
A vision is different from a mission
statement; it describes the future state of
your company and markets, as opposed
to why your company exists today. A good
vision is simple, speaks to a known pain
point, and your prospects agree with it
without needing any sales pitch.
It’s vital that start-ups have a clear vision
to guide them through the early years
of continual testing, refinement and
re-positioning. For example, FixSpec’s
founding vision is that our industry currently
documents, develops and maintains APIs in
a very inefficient and error-prone way which
must be replaced. We are iteratively building
tools which surround better documentation,
unlocking the efficiency gains that flow
directly from that vision.
Your product should deliver your vision rather than be your vision. While
your products may change and evolve over time, a good vision doesn’t waver.
#3 REJECT THE CORPORATE NORM
All too often first-time founders replicate the structures, positioning and
even the products of their former employers. Yet entrepreneurs on their
second or third start-up rarely copy like this.
One of the most rewarding aspects of starting-up is the opportunity to shape
a company you want to work for; the culture, the processes and the values.
The simple fact is that big-company structures simply don’t work in start-ups,
so it is time to break the mould.
■ Do you really need an office, marketing or sales from Day 1?
■ What’s the ROI on that expensive conference stand?
■ Unless you are serious about creating content,
do you really need a blog or Twitter?
■ Do you really need external funding?
The answers will obviously depend on your business; my advice is simply to
question what you are used to. In particular, challenge the received wisdom
that says you need external funding and a fancy office in the City to win
clients – remember that some big companies started as self-funded ventures
in spare bedrooms, garages and dorm rooms.
“ONE OF THE MOST REWARDING
ASPECTS OF STARTING-UP IS
THE OPPORTUNITY TO SHAPE A
COMPANY YOU WANT TO WORK FOR;
THE CULTURE, THE PROCESSES
AND THE VALUES. ”
#4 SCALE LATER
It’s interesting to listen to managers in large firms talk about scale. Typically
they imagine going from zero to thousands of clients at warp speed, and
then speculate on how many off-shored resources one might need to do that.
The reality for start-ups is very different.
One ingredient for start-up success is rapid iteration, development and
testing of ideas (read The Lean Startup for more). The goal is to shape and
tune your product until it really resonates with your target audience at a
profitable price point. Only when you reach that position should you scale
and promote. Remember the adage “nail it then scale it”.
Established firms don’t follow this approach and often waste time and money
as a result. Just think about how many big projects or product launches you
have seen fail in your career. Bigger companies can afford to absorb such
waste, but start-ups can not, so correct timing of promotion and scale is vital.
#5 INVEST IN INTERNAL TOOLS
Building lean, automated internal processes is vital to keeping headcount
low while delivering the rapid change and exceptional customer service that
will be the hallmark of the new FinTech generation.
There are a wide range of affordable, online productivity and collaboration
tools that can eliminate the barriers to superhero productivity. I recommend
embracing these tools early and automate quickly.
At FixSpec we use tools like JIRA, Zendesk, Tresorit and Hackpad to achieve
massive productivity gains, and to share a common understanding of
priorities, customer issues and company direction despite being spread
over three timezones. We’ve also built our own tools to automate tasks from
accounting to QA to SLA tracking; investments which will pay real dividends
in our next phase of growth.
I have a lot of other tips to share, so if you are serious about starting up then
please get in touch and let me know how I can help. Good luck!
ANKS ARE DOING BATTLE AGAINST CYBER CRIMINALS, NATION
states and hacktivists in a digital realm which is constantly
in flux. These highly agile adversaries are adept at dancing
butterfly-like around our defensive measures before
administering a highly targeted sting. They operate in the
digital ether where the infrastructure and opportunities
are continually evolving and anonymity is a given. It’s like playing chess on
a board where the size, shape, pieces and rules are constantly morphing,
where your adversary gets ten moves to your one, and where if you win you
get nothing, but the man across the table stands to become richer than
Gates. Most distressingly, you may never know who beat you. In many ways,
this is not a fair fight.
It is generally accepted by cyber security professionals that cyber risk to
financial services organisations is increasing. Fortunately most people aren’t
cyber security professionals, but for the layman the news headlines offer a
glimpse of the skirmishes occurring in this ever evolving digital battle. There
are more threat actors with more capability, more specialisation, committing
more targeted attacks in more agile ways. In parallel, there is no doubt that
the digital economy offers massive potential upside to financial services firms
which are increasingly exploring new markets, devising new digital products,
opening new channels and therefore increasing their exposure to would-be
attackers. What is for certain is that a failure to take the opportunity offered
by the digital economy will alienate customers and further open the door to
the FinTech start-up brigade, leading to a downward spiral of market share.
One advantage we can bring to bear in this battle is our ability to spend
our budgets on effective security measures. Cyber security investment is
creeping up the ladder as an operational cost of doing business. In response
to the threat - and increasing budgets - technology companies have been
developing a myriad of detection and protection tools – whizz-bang gadgets,
some of which deliver value, some whose claims exaggerate capability. So
how does a bank decide which to buy? How do you know whether it is more
effective to implement a tool or to run a cyber security awareness programme?
Where is the hard data to support decision making for operational planning
and risk assessment?
The reality is that cyber risk is hard to measure as due to the many
CYBER CHESSHow can we enable the business to take
advantage of the digital economy, whilst
protecting its customers and assets from
the darker elements that lurk there?
factors involved it is constantly in flux. Unlike most risk calculations, in
cyber security we have extremely agile adversaries who are actively trying
to execute a business case against us. They will invest commensurate effort
and expense in order to realise their return on investment. For these reasons,
the Board and security leaders do not have the management information
to interpret overall cyber risk exposure, how it is changing and the impact
security investment decisions have on it. Previous arguments have
concluded that measuring cyber risk is too challenging: the answer will never
be ‘right’, the data volumes are too large and disparate, the business context
is too complex, and it’s impossible to put a dollar amount on the potential
downside of a successful attack.
I disagree for two reasons. Firstly, Big Data technologies now exist which
allow us to get our arms around ALL of the raw data needed to make
informed quantitative assessments of risk. Secondly, just because it is not
possible to get a perfect answer certainly does not mean that there is no
value in the exercise. We have spent years modelling market and credit risk,
but the answers can never be completely accurate. The key to value is to
incrementally improve metrics in order to achieve a meaningful ROI – i.e.
maximise the effectiveness that your cyber security budget whilst enabling
the business to take advantage of the digital opportunity. If we can do this, if
we can create fact based cyber risk metrics, we can realise numerous business
case in one fell swoop. We can enable new business operations by offering
a better understanding of the forecast change in cyber risk profile. We can
identify when security budget is insufficient to keep risk within an acceptable
appetite. We can benchmark against peers to find areas for improvement.
We can run due diligence on suppliers and target acquisitions in days, not
months. These use cases and benefits have been enabled by the emergence
of Big Data technologies and I expect to see cyber security as an emerging
‘must have’ use case for these platforms.
Let’s finish with an example which you will likely have seen in the press.
Following an attack which leaked seventy six million consumer records and
seven million small business records, Jamie Dimon stated that JP Morgan
spends approximately $250M per year on cyber security, and that he expects
to double that in the next five years. The first question I find myself asking is
“Was that enough money?”. The second question immediately follows, “How
do we answer the first question?”. Without understanding the effectiveness
of the budget through quantitative cyber risk metrics, we will never be able
to answer that question.
Panaseer is developing new technologies, models and processes to devise
timely, quantitative cyber risk metrics in order to answer the important
questions raised here.
VER SINCE THE RECENT FINANCIAL CRISIS OF 2007-2010,
there is a renewed interest in technology businesses that
attempt to change the way finance operates, both from a
consumer and business aspect. There are many exciting
and fast growth segments of Fintech that have attracted the
attention of entrepreneurs and investors alike.
For example, the ability to assess risk has become a critical center point. With
new data sources such as social media like Linkedin, mobile location services,
etc, there are more markers available by which to evaluate creditworthiness
for consumers. As a consequence, peer to peer platforms and online
credit agencies can assess risks with theoretically lower default rates than
traditional banks. New lending platforms are being started constantly that
make lending to businesses easier and direct, all because of a better and
more tech oriented methodology for risk assessment. Applications span
across credit card refinancing, home loans, business working capital, invoice
financing, and on and on. End clients are often able to save considerable
money in financing rates, but more importantly shave off days or weeks in
paperwork or process.
The analytics space within Fintech has also gained significant momentum.
Early startups such as Algomi have amplified the amount of data banks that
investors have access to, and consequently allow relationships to be far, far
more effective. As a result, the financial service industry is racing to adopt
the technology, and gain greater insights.
Building trust will remain the greatest challenge for new Fintech platforms.
While many startups are able to build a loyal early adopter base, catering
to the mass will require tremendous PR and marketing efforts to build trust
Traditional banks will see greater pressure to compete for clients, and often
will face rapid margin pressure from cheaper online alternatives. It isn’t
inconceivable to imagine a world in 10 to 15 years where the traditional
banks transition more into advisors or agents, guiding individuals and
businesses to the most optimal platform suited for them – instead of
managing everything in-house. However in the near term, the brand and
trust created by large institutions remains strong and will remain pervasive.
THE TOP TRENDS
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H A R R I N G T O N S T A R R
E NEED BANKING, NOT BANKS’
In 1994, Bill Gates predicted the end of traditional banks.
Twenty years later, a new wave of companies intends
to disrupt financial services and reinvent the banking
experience. Baptised ‘FinTech’ for ‘Financial Technology’,
these companies operate in the fields of payments,
lending, money transfer, data and analytics, and digital currencies. They
long for innovative, transparent and inexpensive financial services that
banks have failed to offer to their customers.
Frustrated with paying high bank fees for international money transfers,
Taavet Hinrikus and Kristo Käärmann have reinvented how money is
sent abroad. TransferWise, their peer-to-peer service, is spearheading
a revolution against banks and promises a ‘clever new way to beat bank
fees’. It has become notoriously well known for its belligerent advertising
campaigns including a highly successful campaign exposing high bank fees
by spreading the words F¥€K, $CAMM€D and DA¥£IGHT ROBB€R¥ across
bus stops, tube stations and billboards across London.
Internet has changed the way consumers interact with money – making it
possible not only to transfer money, but also grant loans or raise funds in
one click. While banks have struggled to shift from traditional branches
to online services, FinTech companies are born mobile and are ideally
positioned to target the new generation of ‘digital natives’.
Fidor Bank in Germany is an online and mobile ‘Community Bank’ that
offers ‘banking with friends’. ‘Fidor Bankers’ sign-up through Facebook
Connect and share saving tips on Twitter. The bank even offers an interest
rate based on the number of Likes on their Facebook page. Fidor Bank’s
purely online and social media strategy has led to a 20% decrease in their
cost of customer acquisition compared to High Street banks.
In a recent interview with Bloomberg, Marc Andreessen – co-founder of
the $4 billion venture capital firm Andreessen Horowitz – proclaimed that
FinTech ‘can reinvent the entire thing’. He predicts that ‘nonbank entities
[will] spring up to do the things that banks can’t do’. Will FinTech bypass
traditional banks in the future?
BANKS ARE DEAD.
BANKS IN CONTROL OF BANKING
Despite the banking industry being shaken up by the arrival of non-bank
players, it is still dominated by the same few big names that Bill Gates
dismissed as ‘dinosaurs’ twenty years ago. The main reason is that the
highly regulated banking industry creates high barriers to entry. Therefore,
the industry has resisted disruption by new technologies better than other
sectors such as books and music.
Banks definitely have had a head start due to years of investment in security,
compliance and regulation – necessary divisions to which FinTech start-
ups struggle to devote significant funds. Besides, banks have deployed
huge capital intensive distribution networks through branches making their
Despite several attempts by anti-bank movements such as Occupy Wall
Street to create mechanisms for people to bypass the traditional financial
system, the reality is that banks remain in control of banking. Due to anti-
money laundering rules and other regulatory concerns, large banks refrain
from opening bank accounts for FinTech companies in areas deemed risky
such as digital currencies and remittance. If banks holding the accounts
of TransferWise locally decided to close them, they could shut down the
revolution within a day.
Therefore, rather than building a new financial system, FinTech will ride on the
rails of the existing one. Not only will they use banks’ reliable infrastructure,
but FinTech will also inherently benefit from their investment in security and
compliance. By adding a layer of innovation to the existing system, FinTech
will save time and capital as well as gain the confidence of their partners and
BANKS FOR CORE BANKING
FINTECH AT THE EDGE OF BANKING
Traditional banks and FinTech will play complementary roles in building the
“Bank of the Future”. Banks will remain in place to provide the backbone on
which non-bank players could rely on to offer value-added services.
FinTech will compete at the edge of banking to accompany and empower their
customers in their every-day lives. Specialised players will provide tailor-
“WHILE BANKS HAVE STRUGGLED TO SHIFT FROM TRADITIONAL
BRANCHES TO ONLINE SERVICES, FINTECH COMPANIES ARE
BORN MOBILE AND ARE IDEALLY POSITIONED TO TARGET
THE NEW GENERATION OF ‘DIGITAL NATIVES’.”
made offers for targeted markets and geographies. FinTech is addressing the
underserved and revenue generating niche segments such as money transfer,
personal financial management or mobile payments, all propelled by the
Internet, which has proven to be a lot more cost-effective than branches in
reaching the “last mile” customers.
For example, in the United States, Simple does not intend to become a bank
itself, but to develop a better interface around how modern banking should
work. Hence, the online banking service built a layer on top of The Bancorp
bank’s infrastructure. Using a similar model, PayTop offers a multi-currency
prepaid card in France targeted at frequent travellers and students under
Raphaels Bank’s license.
Serving niche markets, FinTech companies know their potential clients and
are able to monetize Big Data and analytics. For example, by inventing new
risk-scoring models, OnDeck has reshaped how loans are granted to SMEs.
It evaluates creditworthiness based on business performance analytics –
compiling cash flow, credit history, public records, and consumer experiences
– rather than just credit history files.
To conclude, the banking sector has been affected by the digital revolution
over the past twenty years. Although the ‘dinosaur’ banks have undoubtedly
evolved, they have not gained the agility of reptiles (yet). To cope with
upcoming changes in the financial industry – which, according to the
chairman of Lloyds Banking Group, will be more significant ‘in the next 10
years than there has been in the past 200’, - banks will have to innovate or
live with razor thin margins.
Banks are considering various strategies to keep up with the pace of
digital revolution. Firstly, the creation of dedicated internal structures
will help spread an innovation culture within and across departments.
Traditional banks could also leverage external innovation from start-ups
by engaging through incubators and accelerators. Lastly, partnering with
FinTech companies will help them to provide value-added services. FinTech
companies are ‘enablers’ for banks to acquire digital innovations by adapting
new white-label technologies and banks need to start finding some new
friends amongst them.
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H A R R I N G T O N S T A R R
E REGULARLY BEMOAN THE FACT THAT THERE’S NOT ENOUGH
venture capital available to support entrepreneurs through
the early stages of their companies’ growth cycles. Is that
changing? Is finTech changing it?!
European VCs are thinner on the ground than their US
counterparts but with the rise of new finTech specific accelerators (think
Level 39 and TechStars) and the hype generally around the global finTech
phenomenon, we are seeing a huge increase in the number of VCs that are
focusing on this sector. New finTech funds are being created by the banks and
investment managers (such as Orange Growth Capital) but it is particularly
interesting to see the more generalist Tech VCs also piling in. When big VC
brands such as Sequoia, Accel, Andreessen Horowitz and Battery Ventures
start to consistently back a tech sector then the world takes note.
Analysis carried out by CB Insights on the investment patterns of 12 of the
biggest global VC funds showed more than 300% growth in new monies
invested in finTech in 2013 compared back to 2009 levels. And, on our
doorstep in Europe, we are seeing even greater levels of growth in finTech
investment that the traditional US tech are receiving. The US market remains
much larger though and we still have some way to go to begin to consistently
match the huge rounds that are achieved in the US (think, for example:
Square’s $100m round and Stripe’s $80M round). However, whilst we all
applauded the Funding Circle $65m series D round led by Index Ventures,
this is a sign of things to come for Europe in general but London specifically.
Investors are most actively looking at four segments: lending; personal
finance; payments; and bitcoin/blockchain technologies. What is becoming
increasingly apparent though is that there are a very large number of “me too”
companies seeking investment. These companies are looking at nuanced
variations on themes that either exist already or that are being explored by
significant numbers of other start-ups.
I was reminded recently by Phil Black of True Ventures of the phrase ‘blue
ocean investing’, which involves investing in the development of new
products or business models in uncontested or new markets. There is a
lot of existing activity to disrupt and new demand can be created in a blue
ocean. Compare and contrast this to ‘red ocean investing’: investment
Graham & Co
FINTECHONOMICSIS INVESTMENT BACK
Graham & Co
into existing industries where significant competition already exists – not a
strong place to invest…
FinTech represents a fantastic opportunity for VCs to invest in blue ocean
business models – many industries are ripe for disruption (insurance
certainly comes to mind) and there are some technologies where we
have only just begun to understand how they will be deployed on a mass
scale (think bitcoin). Investors often struggle with pure technology risk
though (certainly on this side of the Pond) – security, development, IP,
reputation and competing technologies can mean that there’s only one
One thing is for sure though: 2015 is definitely going to be the year of finTech.
“THE US MARKET REMAINS MUCH L ARGER
THOUGH AND WE STILL HAVE SOME WAY TO GO
TO BEGIN TO CONSISTENTLY MATCH THE HUGE
ROUNDS THAT ARE ACHIEVED IN THE US.”
EGIONAL BANKS THAT FIND THEMSELVES IN THE ‘WAIT AND
see’ position over mobile trading in 2014 may find the
competition has overtaken them if they aren’t careful.
Most tier-one banks already give their clients mobile
access to real-time pricing and market data, as part of
offerings. Some have gone further, allowing their clients
to manage orders and execute trades via mobile, but now more and more
clients are demanding mobile as an additional channel for trading.
Research presented in a new Caplin whitepaper, Trading On The Move,
shows that a wide range of users including hedge funds, corporates and
wealth management firms are hungry for more trading options. They want
mobile apps that provide a real-time view of their trading positions and,
increasingly, trade execution, order management and post-trade services.
It seems they are not as concerned about security and compliance as the
sell side assumed, and in fact are just like the rest of us, whole heartedly
ready to embrace mobile, if only the sell side would provide it.
The more agile banks have already recognised this as an opportunity to
get a head of the pack and capture customer loyalty. Pioneers such as JP
Morgan and Citi have demonstrated both the global demand for mobile
trading and the feasibility of providing it. Their mobile offerings allow their
clients to manage orders and execute trades via mobile, and Goldman
Sachs has announced that it will shortly do the same. These banks that
have aggressively rolled out mobile execution offerings worldwide have
seen rapid adoption with few regulatory issues.
But while other tier one banks still ponder, regional banks are fast catching
up, with some already offering mobile trading and many more planning
it. Until recently, most regional banks were still at the stage of evaluating
demand and debating technology, security and compliance issues. But
a growing number are now making mobile trading a key part of their
e-distribution strategy, viewing it as essential to protect and grow their
franchise. In most jurisdictions there are few regulatory constraints on
using such services, provided that all transactions are recorded, and those
that have gone before have already proved, mobile trading is highly secure
if properly implemented.
Caplin Systems R
ANOPTIONFORcapital markets mobile trading
is no longer
From a technology standpoint, the barriers to entry are also tumbling
down as it is no longer necessary to build, maintain and support multiple
mobile apps, since HTML5 has evolved to the point at which it can be
used to create a high-quality near universal solution. With firms such as
Caplin being able to offer mobile trading solutions as standard products
that can be configured and customised, this has greatly reduced the cost
of and timescales involved in bringing a mobile trading channel to market.
It would appear mobile trading in the capital markets is not about if, but when.
“WITH FIRMS SUCH AS CAPLIN BEING
ABLE TO OFFER MOBILE TRADING
SOLUTIONS AS STANDARD PRODUCTS THAT
CAN BE CONFIGURED AND CUSTOMISED,
THIS HAS GREATLY REDUCED THE COST OF
AND TIMESCALES INVOLVED IN BRINGING
A MOBILE TRADING CHANNEL TO MARKET.”
ECENTLY THE FINANCIAL SERVICE COMMUNITY HAS BEEN
faced by numerous regulatory changes that have posed a
plethora of challenges to their technology teams to meet
the new demands. Where the changes have largely been
to improve transparency and reduce risk, many felt that
the regulations would negatively impact the true nature of
technology and its inherent need to constantly innovate.
What has emerged in the past year has been a huge amount of growth in
the financial services start-up community, similar growth in the regulatory
software vendor space, in data and in telecommunications. Across the
technology space there has been vast amounts of innovation in response to
regulatory changes. So what may have seemed at
first like a problem, the industry has responded
by making it into an opportunity for innovation,
growth and prosperity.
One can’t deny that the challenges have been
huge and the impact of the regulation did mean
that investment into technology had to change its
direction to immediately impact the demands of
the impending laws. What we have seen emerge
in some firms is that when facing the regulatory
changes head on they have allowed steps forward
in their technology teams to build more adaptable
and transparent platforms for trade.
Looking at the question of whether regulation
and innovation can coexist we have seen that
with the onset of the new regulations, technology
teams had to be innovative to ensure they were
compliant in their hugely vast and complex
technology platforms. Where some people
foresaw the demise of prop trading, on the other
hand we have seen a massive growth in demand
for in house technology teams to build electronic
trading systems from scratch in reaction to the
broadened use of this type of trading.
“IN THE ENTIRE HISTORY OF
TECHNOLOGY THERE HAVE
ALWAYS BEEN PROBLEMS
THAT HAVE PROPELLED THE
c o e x i s t i n t h e
Again where every technology platform in finance had to be checked with
a fine tooth comb to see if it was compliant, the technology challenge and
therefore innovative response grew. With all the new laws and more set to
come, the challenge has increased for technologists working on these trading
New regulatory legislation is presenting more and more significant
challenges to the financial services technology community and in turn many
senior heads within the industry have decided to innovate entirely outside
of their usual norms and start up their own firms in response to some of the
challenges regulations have posed to the market. We have only to look at the
peer to peer lending firms, the mobile technology forms and the compliance
organisations that are cropping up across the industry.
We only need to see how TeraExchange have recently performed their first
regulated bitcoin swap highlighting how innovation and regulation have
coexisted – in this instance the regulators did all they could to ensure a
clean, transparent and fair market for everyone.
In the entire history of technology there have always been problems that
have propelled the market forward from the code breakers of WW2 to Linus
sat in his bedroom playing Prince of Persia in the 80s; the industry thrives on
a challenge and the recent regulatory impact has allowed for some positive
steps forward, and many more to come.
“For online personal finance nerds
- like your humble correspondent -
Finovate is the Super Bowl
and World’s Fair rolled into one.”
- Mary Pilon, Wall Street Journal The Wallet
LONDON • FEB 10 & 11, 2015
The selected companies will showcase their latest ideas to an influential audience that’s
shaping up to be Finovate’s largest ever outside the US (well above last year’s sellout crowd
of 1,000+). It should be a packed house at the Old Billingsgate Market Hall, and we hope
you’ll join us to watch the future of finance unfold live on stage (and don’t forget, because of
Harrington Starr’s partnership with Finovate, we’ve got a special discount for you – see below).
WITHOUT FURTHER ADO, HERE ARE THE COMPANIES
WHO WILL BE DEMOING AT FINOVATEEUROPE 2015:
SEVERAL ADDITIONAL PRESENTING COMPANIES WILL BE ANNOUNCED CLOSER TO THE EVENT.
Each company will receive just 7 minutes on stage to do live demos of their latest technology
(no slides allowed!). The demos will be followed by four hours of networking time each day, giving
you a chance to connect with the most interesting minds in European fintech.
If you’d like to join us at the event, you can register here. And don’t forget to use our special
partner discount code HarringtonStarr20 on the registration page to save 20% on your purchase
(on top of the Early-Bird discount). Hope to see you there!
On February 10 and 11, 70+ handpicked companies will
take the stage at FinovateEurope in London to demo their
latest financial and banking technology innovations.
MBANK & I3D
POWERED BY ASSECO
NCREASING NUMBER OF CAPITAL MARKET REGULATIONS ARE
kicking in that financial trading institutions have to comply
with or risk paying heavy penalties to the regulators.
Regulators, such as the European Securities and
Markets Authority (ESMA), the Securities and Exchange
Commission (SEC) and the Commodity Futures Trading Commission (CFTC)
in the USA have brought out regulations that have an impact on trading
CFTC’s Concept Release on Risk Controls and System Safeguards for
Automated Trading, SEC’s 15C3-5 regulation and ESMA’s guidelines on
automated trading are forcing trading institutions to have a better look at
their pre-trade risk management
in particular. However, they are
costly to implement in software,
adding hundreds of microseconds
to every single trade, and reducing
competitiveness as a result.
So what’s the answer? Do your risk
management on an FPGA! Because
of the inherent parallelism offered
in FPGA architecture, they are able
to hugely improve on the latencies
offered in equivalent software
implementations, decreasing latency
by between 50 and 100 times – taking
it to nano-seconds.
The advances in FPGA technology
are such that it is now possible to
implement a firm’s credit limits and
total aggregate volume limits on
an FPGA. As new regulations such
as MIFID II kick in and as further regulations are introduced over the next
few years, financial institutions will have to implement more and more risk
checks. But of course no one wants to pay a linearly increasing latency
“WITH EFFECTIVE USE OF SUITABLY
RIGOROUS DEVELOPMENT AND TEST
ENVIRONMENTS, IT IS NOW POSSIBLE
TO SCALE UP THE COMPLEXITY OF WHAT
IS TARGETED TO FPGAS RELIABLY.”
does not have to
penalty. This is why I believe that FPGAs will become central to pre-trade and
post-trade risk management: in an FPGA all the checks can be implemented
in a massively concurrent way, massively reducing the processing time.
Doing 20 pre-trade risk checks for example, would not take much longer than
However, there is a trade-off to be made in terms of needing more logic real-
estate on the FPGA. We are in luck. Just like server CPU technology, FPGAs are
getting bigger and faster. For example, the forthcoming Stratix 10 FPGAs from
Altera will have up to 10 billion transistors compared to 5 billion in today’s
largest Intel Xeon CPUs. With effective use of suitably rigorous development
and test environments, it is now possible to scale up the complexity of what
is targeted to FPGAs reliably.
I believe that FPGA-based pre-trade and post-trade risk management
will become commonplace over the next few years. FPGAs offer trading
institutions the ability to outsource compliance to current and new
regulations effectively and reliably, all this with minimal impact on existing
infrastructure. The other benefits: you have a near zero impact on latency and
have that competitive edge.
MY FIRST TASK AT THE FIRST job I took in investment banking
technology was to read a paper describing a new model for
interest rates (Heath Jarrow Morton) and mine it for use in
swaption pricing software. It was illustrative of the start of
the art at the time: take some maths, create a valuation and
risk model, add a GUI and something in the way of booking
and portfolio management, and thus render it tradeable. The measure of the
value of the maths was the range of products it enabled you to trade.
Most of us with those roles eventually moved from small software firms to
large banks since they placed a high value on building in-house expertise to
offer new products faster than the competition. As markets got more technical
– both mathematically and technologically – several of us ended up moving
out of IT to run trading books.
The dynamic driving that career trajectory ended in 2008. The cause of this is
well illustrated by the fact (according to a Wall Street Journal writer interviewed
on the BBC World Service) that HSBC has around 25,000 staff working in
Compliance and Risk. This solidly shows the two central facts of banking
technology in late 2014: (1) the agenda is dominated by regulation, and hence
standardisation over innovation; (2) there’s no money left for anything else.
This has swept off the table IT investments in trading most complex products,
which are now variously illegal, unprofitable or unfashionable.
The trading businesses that are left can be divided into:
1. Those from which any spread has long been squeezed out, such as
2. Those over which a cloud of regulatory uncertainty still hangs, such as
Spot FX and agency/algo trading;
3. Risky lending (Credit), which is the business regulators want the banks to
remain in (and from which almost all banking crises have sprung).
The consequence for IT departments is that they can no longer afford to
run deep benches of experts maintaining proprietary trading systems. A
positive result of this is a broader interest in fintech investments alongside
an emerging desire to re-think the process of innovation. Organisationally,
it has manifested itself within banks in the tendency towards empowerment
of IT Architecture functions (or “horizontals”) whose aim is to rationalise
THE NEW EQUATIONSOf
IT investments across the Product X Region matrix. Historically, these
Architecture groups have struggled to gain organisational traction since
they lack a natural constituency amongst the parts of the bank that cover its
costs. Now, though, they are amongst the least unrealistic of the desperate
measures invoked in response to the industry’s desperate times.
Naïvely, Architecture groups have the aim of identifying the best stacks of
software that a bank possesses, or could easily acquire, and standardising
as quickly as possible onto those. This is an obvious approach to cost
rationalisation. It is operatively how most Architecture functions at the largest
banks construe their task today.
While this is sensible, it misses the mark. A far more powerful goal is to re-
organise a bank’s software architecture so that as much as possible can be
flexibly sourced. This more sophisticated approach to Architecture treats
cost reduction as an industry portfolio question. Even if each of the Tier One
banks that is spending billions of dollars annually on technology moved onto
its own single stack there would still be a massive amount of duplication.
Furthermore, opportunities to learn and improve excellence by adopting
shared solutions would be lost. To unlock the maximum benefit banks have
to migrate away from the practice of developing non-shareable software and
establish the habit of successfully integrating software developed elsewhere.
The best stacks approach does not achieve this by design nor will it achieve
it by happy accident.
Exactly where this “software developed elsewhere” might come from is the
question of the moment. Some try to bypass it altogether by looking for as
a Service solutions in which either the bank’s software deployment footprint
(in Software as a Service) or operational footprint (in Business Process as a
Service) is significantly reduced. These ostensibly have both the emotional
benefit of minimising the collaboration burden and the tangible financial
benefit of making the bank smaller. However, they mask but do not avoid the
questions of exactly what the software does, exactly how you check and change
that and exactly how it interfaces to the software that you don’t outsource.
While potentially transformational in some areas, as a Service strategies don’t
reduce the centrality of implementation details - and since these become one
or two steps removed, the need for transparency can be even greater.
“A FAR MORE POWERFUL GOAL IS TO
RE-ORGANISE A BANK’S SOFTWARE
ARCHITECTURE SO THAT AS MUCH AS
POSSIBLE CAN BE FLEXIBLY SOURCED.”
Asalargebankinthequestfor a flexibly sourced ITarchitecture, the alternative
software authors of choice might well be other large banks. After all, they
are the firms who are also spending the most on banking technology and
have thousands of live applications. The cultural shift that is needed for such
banks to enjoy constructive discussions along these lines and then transact
with the speed and frequency to be mutually relevant will be well understood.
Also not to be discounted as “dark pools” of technology supply are the large
trading firms. They are notable both for agility and strength of technology, and
although they lack the breadth of the banks – which is how they can afford to
trade – they are a potentially significant part of the ecosystem.
If these are the dark pools, the light pools are the banking software community
whose assets are well advertised. Traditionally, the “software vendors” have
made their goods available only in closed (binary) form. While this can
work, it has historically presented problems of transparency, adaptation and
“vendor lock-in” and has lacked the plasticity that large firms need to embrace
software successfully as their own.
More recently firms such as Paremus, OpenGamma, uTrade and OpenFin who
have evolved in the Open Source era look to provide solutions that can be
adopted more organically in a complex environment. The optimal business
model for realising value from such firms is not yet robustly solved.
A flexible sourcing strategy that incorporates the IP of others while
simultaneously curating a distilled base of in-house software is tough to pull
off. It’s what we do now; it’s the rocket science of our times.
HE INCREASING REGULATORY PRESSURE ON THE BUY-SIDE
combined with the drive towards operational efficiencies
and requirements to deliver ‘’Best Execution” have
provided a heady cocktail of challenges for leading
Buy-Side firms to reassess their data and technology
infrastructure. Financial Technology spend is seeing an
increase within the buy side, this has impacted on FinTech Vendors who now
need to reassess their client base and solutions provided. Although single
asset class execution can be processed on independent OMS and EMS
systems (Order and Execution Management Systems) the complex search
for Alpha across all asset classes is now testing if traditional broker offerings
will meet the new challenges ahead. This at a time when businesses are
reducing resources and FinTech budgets when their regulatory obligations
are reaching an all-time high.
Buy-Side firms need to consider investing in independent FinTech vendors,
to address the new challenges. Growing demand for fast accurate analytics
and risk management increases the need for a seamless integration of work
flow processes across the trading cycle, from the Front to the Back Office.
Only serious investment in new technology should now be considered.
The drive to expand into new markets and asset classes creates further
challenges on the regulatory front. From MIFID to Dodd Frank, EMIR to
MAD and AIFMD, what appeared to be minor operational details are fast
becoming major changes in FinTech requirements and work flow processes.
Until now, Buy Side technology has focused entirely on Front Office
trading with adaptation of EMS algorithms, smart-order routers and TCA
(Transaction Cost Analysis). We are now seeing a growing need for full Front
to Back Office collaboration and the fear of non-compliance placing a strong
focus on the real need to invest in Back Office technology.
Historically OMS and EMS have had different technologies however,
now both systems are developing increasingly overlapping functionality.
OMS is a complex system and usually imbedded deeply into the Buy
Side infrastructure for portfolio construction, attribution, reference data,
compliance, risk management, order processing etc. In the meantime, EMS
has evolved from a growing need for trade execution efficiency and speed
across multiple order types and new destinations.
TO INFINITYAND BEYOND!
As Buy Side and Sell Side firms start to consider platform consolidation, it
is not a simple decision based on factors such as features, benefits or price,
it is a matrix of factors, including charging mode - per seat / user, consulting
services, connection fees, technology, data integration, multi-asset class
access, to name a few and not forgetting cost of ownership.
The strength of OMS is in the depth of functionality, robustness and
support, however, the potential for EMS differentiation also lies in added
value analytics and enriched data. Even though there are clear market
leaders in both OMS and EMS providers, it will be the seamless integration
of combining EMS and OMS functionality which will permit the Buy Side
leverage real value.
Individually an OMS or an EMS cannot offer a one stop solution, but the
ability to integrate will be the key differentiating factor.
OEMS - THE FUTURE!
The Buy Side has always provided challenges and
new opportunities to FinTech vendors offering new
constantly moving depending on where and what is
traded, trading speed and volatility, how many asset
classes and trading strategies. FinTech Vendors
can no longer develop technology led products
in attempt to be an all to all Buy Side provider,
or reduce the capabilities of EMS. Consolidation
however of OMS and EMS offers key benefits, for
the Buy Side needing to trade multi assets, manage
portfolio risk in real-time, ability to customise
algorithms, manage execution destinations and
using data analytics within the trading process
will require complex event processing modelling.
The integration of the ‘’best in class’’ OMS and
EMS in a cost effective ‘’market led’’ solution will
win the battle. Fin Tech Vendors who offer a ‘’real
story’’ and provide advanced market led technology
combined with a lower cost of ownership will gain a
FROM SELL SIDE TO BUY SIDE
Traditional broker relationships are also being redefined due to changes
in market structure. Buy Side firms will always rely on a ‘’High’’ and ‘’Low
Touch’’ Sell Side services for liquidity, how these services are delivered will
undergo transformation. Increasingly Asset Managers will rely on their own
resources to develop execution strategies, increase their understanding of
how algorithms work and manage their own risk. The resulting Buy Side
evolution of ‘’OEMS’’ will leap beyond Sell side applications in providing
platform integration, and the addition of decision support tools from
pretrade analytics to real-time execution across multiple-asset classes.
AI (Artificial Intelligence) must be included to provide shorter term Alpha
capture enhancing trading execution strategies.
“THE STRENGTH OF OMS
IS IN THE DEPTH OF
AND SUPPORT, HOWEVER,
THE POTENTIAL FOR EMS
LIES IN ADDED VALUE
EMS having dominated in playing a key role as an Independent provider to
calculate, deliver and monitor trading algorithms from a variety of providers,
the movement to e-trading FX and Fixed Income products is leading to new
requirements such as interoperability and collateral management.
Additionally the need to monitor risk effectively is moving from traditional
risk assessment, for example; growth, leverage or yield to more complex
strategies based on credit exposure, volatility and options expiries, OEMS
solutions must begin to focus on trade support, trade processing, portfolio
management, risk and compliance.
PLATFORM EVOLUTION - BUY SIDE
Regulatory complexity is increasing and the move to trading across multi
asset classes across new markets is creating a real need for different systems
to communicate as one, Front to Back and globally. Whether it is London
Traders calculating real-time exposure risk in Brazil, to the latest Post-Trade
reporting requirements of Compliance, the Buy Side requirements are
growing beyond the Single Asset system. And with more trading functionality
available to Buy Side firms, combined with dynamic free flow of data
throughout the lifecycle of a trade, will facilitate data consistency, accuracy
and seamless integration between combined OMS-EMS systems.
Institutions will begin to reduce costs and complexity, therefore platform
consolidation across multi asset classes and markets will become a natural
solution. Although management reporting and accounting aspects of OMS
systems will remain beyond the scope of OMS/EMS hybrids, platform
consolidation will continue as cost reductions and the use of a single OMS-
EMS system increasingly becomes the ‘’Holy Grail’’ for the Buy Side.
RADING BUSINESSES RELY ON MATHEMATICAL MODELS ACROSS
the entire value chain—examples include deriving forward
curves; pricing deals and calculating risk sensitivities. This
dependency on models brings with it challenges around
developing, deploying and using them:
■ Developing and deploying models quickly is key, but often impossible
within the framework of existing trading and risk management systems.
■ Access to the right input data is often a big challenge.
■ Models are often compute-intensive, making efficient use of available
server resources vital.
■ Separation of data access, presentation and model algorithms is good
practice and promotes maintainability and reuse, but it’s often not practical
with the technologies used (eg, Excel).
■ Model developers need flexibility to use their preferred technologies
(MATLAB, Excel, F#, etc).
■ Lack of version control, security and audit history bring significant
A typical scenario involves quants developing models for various purposes
(eg, optimisation, pricing, risk), often using different technologies (eg,
MATLAB, Java, Python, C++). Quants spend a lot of time on routine tasks
such as connectivity to data sources, handling security and running models
in parallel. These tasks detract from doing the job that adds the most value
to the organisation—implementing mathematical models. The infrastructure
available to run models is often far from Enterprise Level. Production runs
might be performed on a user’s PC and it can be unclear which version of a
model produced which result, causing problems with audit and traceability.
Modelling platforms can be developed that address these issues. They
provide a set of generic, shared services used to support any model-based
process. This increases the return on investment of the platform, since
it can be reused across the organisation. With an agile approach to
development, these services are built in short iterations and grouped into
releases that allow value to be delivered quickly.
A typical modelling platform consists of four major components.
Model Management: Provides facilities for storing the models developed by
quants with full version control and permissioning. This means that it is easy
to control who can update which models and see who has done so in the
past. There is never any confusion over which is the latest version of a model.
Model management also includes facilities to capture meta data for each
model—such as environment prerequisites and the parameters it needs in
order to run.
Runtime Environment: The environment within which models are executed.
This typically makes use of a high performance computing architecture
to enable models to be run in parallel over multiple nodes. The runtime
environment provides a host container for each model technology supported
by the platform—eg, Java, MATLAB or C++. The rest of the architecture can
then remain independent of the model technologies in use.
Data Federation Services: Provides an abstraction layer on top of the
organisation’s data sources. These might include internal databases and
external data sources such as Reuters. This decouples the models from these
underlying data sources. The Data Federation Services layer determines
which data source to access in order to retrieve the data needed by a model.
This has advantages in terms of future scalability and flexibility and removes
some of the more mundane tasks for the model builders.
Model Data Store: This is specifically designed for storing the large volumes
of time-series data consumed by and generated by models of this nature.
This typically involves manipulating large matrices of data. The Model Data
Store is optimised for reading and writing such data and does not impose
any specific structure on the data that a model uses.
Moving from a starting point with many models running in different
environments using different technologies to a single, fully featured
modelling platform can require a considerable investment. Attempting to
make the leap in a single step is costly and risky. However, the implementation
does not have to be tackled in this way.
A phased approach to implementation allows the organisation to evolve the
solution in-line with business priorities. Such an approach should start by
identifying a long term vision for the modelling platform that clearly lays
out the objectives. This can then be refined into a prioritised “backlog” of
features that will form the roadmap for development. This should be done
with the recognition that things will change as the programme unfolds and
people use the platform and re-prioritise.
From the backlog the initial phase can be scoped. This should focus on a
small number of features that will add value but will not take too long to
implement. The first phase should focus on one or two models and preferably
those that are well understood and for which the source data is readily
available. Otherwise there is a risk that the combination of developing new
features at the same time as redesigning a complex model and rationalising
data sources will cause the project to grind to a halt.
Further phases can then add more features, with the backlog being
reprioritised at each stage. Releases should be kept to approximately three
months duration to maintain momentum. Adopting an agile approach
combined with techniques like continuous integration and test driven
development shorten the feedback cycle further. This ensures there is
constant collaboration between the development team and the business.
In summary, a modelling platform is an environment within which model
developers can construct complex models based on consolidated enterprise
data, test them and release them into production where the results can be
used for business decision making. The benefits are:
■ A common interface to data held in multiple repositories to reduce the
time and effort spent building models and accessing results.
■ The capability to manage distribution of model executions across servers.
■ History of model execution results and input parameters automatically
■ A scalable solution that evolves with the business, availability of data and
expertise within the organisation.
■ Controlled access so only approved models run in production; changes can
be tested and authorised and models only run when they should.
With this approach model developers are empowered and can focus on
where they add value to the organisation.
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QUANT DEV AND
VER THE PAST YEAR THERE HAS BEEN A FLURRY OF ACTIVITY AS
Banks prepare for the introduction of the Volcker Rule in
July 2015, which will mean that they can no longer carry on
certain types of Proprietary Trading. The main question that
has been asked is what is going to happen to the current
teams and traders – are the banks going to find a way to
ring fence them or are they going to set up shop on their own?
The answer is mixed and there have certainly been examples of both over the
last year. One of the most recent news clips has been that RBC has declined
to spin out their proprietary trading unit, having looked at investing nearly
$1 billion dollars in a hedge fund. However, there have been examples of
other firms being formed from within Investment Banks, most high profile of
which are nQuants from Barclays and Societe Generale, who are planning on
spinning out their proprietary trading team.
There has already been considerable rhetoric written about how this will
affect market making, with arguments made that it could either be negative
or won’t have an impact at all. However there is another question that I
think is worth asking, when these new entities start springing up how are
they going to affect the technology used and the individuals who use that
What effect has the Volcker rule had on
Proprietary Trading and start up funds?
“THE MAIN QUESTION THAT HAS BEEN ASKED
IS WHAT IS GOING TO HAPPEN TO THE CURRENT
TEAMS AND TRADERS – ARE THE BANKS GOING
TO FIND A WAY TO RING FENCE THEM OR ARE
THEY GOING TO SET UP SHOP ON THEIR OWN?”
Well for a start these teams within the banks have always had a terrific
reputation when it comes to technology and are seen as a shining light in an
occasionally stagnant investment banking environment. So now these guys
are becoming independent they will have even more freedom to experiment
and come up with new and different ways to make the most out of their
technology. It’s entirely feasible that we could see a real change in the
established market players as these firms no longer become constrained
from the institutions that they sit in.
It’s also going to increase competition for the best Developers and PhD
candidates as Banks and existing Hedge Funds face competition from these
new firms. Very talented technology candidates want to work somewhere
they can solve the most complex problems and have the freedom to come up
with innovative solutions, so these new prop trading firms will be the perfect
Moreover once they get their hands on this opportunity and start using
automated, systematic and quantitative trading without the previous
problems that could be thrown up within an Investment bank, what is going
to happen? We’ve already been in a technology arms race for most of the
last 10 years, just look at the money spent by HFT Traders on hardware
and software, but this could mark another stage of it. By forcing the money
outside of investment banks and into the hands of extremely smart people
with little regulation then expect the arms race to reach another level.
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HE QUESTION FOR START-UPS TRADING ENERGY AND
commodities is rarely one of “which is the most expensive
risk management system available?” For potential new
entrants involved in trading, the “ETRM/CTRM system” may
well be kept within the bounds of a spreadsheet marking
unhedged positions to market (MTM) and then a potential
stop loss on these positions. With the basics in place the next steps for
most companies is to look at the Value at Risk (VaR) position. I believe this
calculation to be widely underused as a passive measurement. Investment
into VaR calculations can be made more attractive if the calculations are used
as an active measure and driver in the risk policy.
Value at Risk (VaR) is the most common form to determine the volatility of the
market and the changes expected to a MTM position using either analytical,
historic or Monte Carlo simulation. In short terms the measure gives the
user an indication to an industry standard 95% confidence of the change
in the value of a portfolio the following day. The user should also bear in
mind that there are a further 5% of possibilities that may contain so called
“fat tail” risk. The use of VaR is used by most companies as a passive tool for
risk measurement, driving the controls established as VaR limits. I believe
that VaR can also be used as an active measure of market volatility helping
to establish the profitability of new markets and establishing the amount of
Capital at Risk (CaR) a company may have.
INCORPORATING A CORPORATE LIQUIDITY FACTOR
One of the issues with VaR is that it looks only at one further day of risk. It
has become established that, using a square root of the number of days, VaR
can be escalated to show the losses over the same number of days. This is
important as we can use this function to take into account inherent risks in
portfolios lead by either an inability to hedge quantities unit for unit, (owing
to differences between physical positions held and the contract sizes of the
financial tools to hedge them) or by incorporating liquidity risk into the
calculation. A Corporate Liquidity Factor can be determined to establish the
number of days required to unwind positions, depending on the size of market
position and market liquidity. Then by using the same square root of number
of days calculation, the exposure to the moving market can be more accurately
identified. In the case of physical trading it may reflect the time needed
Artaois Ltd T