Jan 23, 2020

Today’s Technology Forces Really Matter: How Equipped Are You to Compete?

Reflections of a CEO

Steven O’Hanlon, Numerix CEO

On November 13, 2019, I attended and spoke at the TABB Group’s FinTech Festival 2019: FinTech and the Future of Capital Markets Ecosystems. This year’s conference, as was expected, featured thought-provoking presentations and panel discussions focusing on current and future uses of fintech technology in the capital markets. I had a number of great discussions while I was there and the event left me thinking a little more deeply about the digital transformation of the capital markets and, as a CEO and President of a fintech firm, I want to briefly share some of my year-end reflections on two of the key technology forces driving the industry into the future: data analytics and artificial intelligence (AI).

Data Analytics

Data analytics dominated much of my conversations at the conference. There is good reason for this. Deriving insight from market data, having greater access to it, and squeezing more value from it can increase effectiveness and efficiency in making trading decisions. Data is also critical to best managing market and regulatory risk profiles.

So, we know it’s important to collect and analyze a lot of data. But at the event, this question was raised to me “Is there any issue?” Yes. Many capital markets institutions are held back by legacy technology, thus limiting their ability to effectively derive and analyze data and therefore are not able to successfully leverage it for the benefit of the enterprise in terms of turning data into opportunities and a competitive advantage.

Data is coming increasingly into focus and it is becoming clearer to me that those firms that invest in the critical technology that allows them to make the most out of the information that is out there, and to learn how to work with it and optimize their use of it, are the firms that will win. But I do acknowledge that there is almost too much data available and that it is a significant challenge to collate all that data and transform it into something valuable.

Nevertheless, the more important point here is that, in my view, organizations can no longer afford a culture of favoring legacy systems, which are often siloed, and which keeps them from being “up and running” in the most optimal way. It’s not easy changing the engine of the aircraft while it’s in flight, and it requires time, money and commitment from senior management to go through the change. However, if you don’t go through with it, you will be ill equipped to land in a position of growth.

For my part, I encourage institutions to take an outside and realistic view of their architecture situation–holistically, across the entire IT organization–to understand the current state, the desired state, and how to get from here to there.

Artificial Intelligence

We all know that AI is among the dominant topics in the financial markets today, and it certainly was a focus of the agenda for the TABB Group FinTech event. AI seemingly promises to deliver numerous advantages to capital markets institutions, such as improved operational and cost efficiencies, enhanced client services, improved data and analytics, increased profit and revenue generation, and (just maybe) better investment returns for clients.

One participant at the event told me that his firm’s quantitative portfolio managers love the fact that the firm has embraced AI. He added that the focus of these portfolio managers is to use AI and alternative data together to find alpha, to build custom portfolios, to improve portfolio allocation, to rebalance portfolios, and to mitigate risk.

Sounds great, but we must also acknowledge the challenges involved, such as the complexities of integrating AI techniques into an existing analytics platform, and, in terms of alt data, sourcing it, cleaning it, and incorporating it into existing processes.

AI is still a maturing industry, so I think there is another challenge with AI, and maybe greater than all its others: Can AI machines be trusted for asset management? Or more specifically, can we trust machines to make investment decisions, such as making the best trade choices, as good as or better than humans?

To explain it at the most basic level, AI is about machines that are designed to complete tasks that normally performed by humans. These machines “learn” as they encounter new tasks or situations. They access data, apply algorithms to this data, and then train themselves to deduce valuable insights and make decisions based on the underlying datasets.

To put it in a comparison perspective, a powerful technology that consumers still do not seem to trust are mobile payments. About five years ago, many in the banking industry predicted that mobile payments would quickly replace consumer's use of cash and plastic. Well, that doesn’t appear to have happened. At least, not yet. I remember a time, and I am showing my age here, when people didn’t trust ATMs, but they have obviously grown to gain universal trust.

I don’t know whether this mobile payments comparison is fair or not to AI in financial services, but I will state that after attending the TABB Group conference, I learned that AI in asset management is actually maturing more quickly than I had imagined, particularly as there is increasing collaboration between financial services companies and fintechs, with the result being the development of some very specialized AI technology solutions.

So then, as regards to the trust question concerning AI in the investment management world, I imagine the answer will eventually be “yes”.

Adoption = Winning

It is clear there is one dynamic that exceeds the impact of all others, with regulatory issues a close second, and that is the accelerating pace of technology change and innovation in the financial industry. I touched upon only two of the emerging technologies that are beginning to impact the capital markets. The industry also leverages electronification, the cloud, blockchain and others to create efficiencies, streamline processes, and build competitive advantages.

So, something that has been obvious the last few years, but now more so than ever, is that to thrive in the short and long term, firms must embrace the growing emerging technology phenomenon. They must evolve their business models to accommodate it—and quickly. If a firm does not clasp onto the new technologies available today, another firm will, and it will be more competitive because of it.

Aside from the tangible benefits of using these technologies, there are the intangibles that can be just as important. I am a strong adherent to the belief that technology gives us ideas, it instigates new thinking, it helps us come up with new concepts—all of which can change the way we work and the way we understand new opportunities and challenges.

It is interesting to note that one speaker at the event commented that capital markets institutions may even start to hire less people with business degrees but focus more on hiring engineers, who by nature will think more like technologists.

The bottom line: adopting the new technology forces will be the way to compete in the financial services industry in 2020 and beyond.

Steve O'Hanlon is president and CEO of Numerix, a Fintech specializing in solutions for capital markets. O'Hanlon has spent his 40-year career in leadership positions growing start-ups and SMBs across the financial services technology industry. He has a passion for entrepreneurship, leadership and innovation. Today, O'Hanlon is focused on building businesses, promoting a digital mindset and driving success.

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