The following article was written by Nishal Ratanji, FinTech specialist at Hotwire, with a passion for all things related to capital markets:
Close your eyes and imagine yourself inside the belly of a FinTech. What do you see?
Chances are you’ve stepped into a stripped back east-London loft, wafting with the aroma of fresh coffee grounds, inhabited by hoodie wearing hipsters talking up the latest in mobile payments, digital banking and P2P lending concepts. Much of the appreciation right now for FinTech has been dedicated towards consumer innovation like this. I am all for it but retail Fintech is only one-half of the coin. A bustling world of FinTech exist in capital markets too, and it is about time it gets the attention it deserves.
Narrowly putting a dampener on my optimism, Boston Consulting Group published a report last month, covered by the FT, suggesting that the appetite for investment in capital markets FinTech businesses has shrunk to half what it was in 2015 and 2016. Yes, whereas the sector received funds totaling $1.18bn in 2015 and $1.19bn in 2016, just $570 million was handed over this last year.
But does this signal a lack of business appetite for capital markets tech? Not in the slightest. The fact of the matter is, with everything from intensifying political obscurity, to new market competitors, to fatter and deeper piercing regulatory and compliance measures, on the bucket list of worries, innovation has never been more critical to the effectiveness, relevance and profitability of the capital markets industry.
The slowdown in spend has come as businesses and investors move away from speculative FOMO bets on the “next best tech” to more informed decisions on what innovation will best help them solve their woes. In this frenzy, winners have emerged as FinTechs offering solutions based on blockchain, big data processing and artificial intelligence. No surprises there, until you check understand how the technology is being used.
Here is some of the companies I am watching closely in this space:
- SETL, a ‘legitimate’ blockchain firm shaking up the tired old trade settlement space with a real-time tool built on distributed ledger
- Duco, who are helping tighten up the back office function at banks by automating trade, portfolio and cash reconciliation between different systems
- Algomi, which has created a data aggregation system that allows bond traders to address liquidity issues and meet post-crisis regulations on how many bonds they are allowed to keep
- Digital Reasoning, the AI business helping institutions’ compliance functions spot dodgy internal practice with terminator-like accuracy
As technology advances, and the challenges for capital markets becomes more defined, innovation in this space is only likely to get more interesting. All I can say is buy a ticket and watch this space…because there will be a lot more noise around it soon!
Capital markets fintech ventures attracted less than half as much equity funding last year as they did in 2015 and 2016, according to a study from the Boston Consulting Group. The consultancy’s latest annual report found that $570m was invested in capital markets fintech companies last year, compared with $1.18bn in 2015 and $1.19bn in 2016. The decline comes even as investment banks and exchanges are still exploring ways to harness broad technology changes such as artificial intelligence and automation.