5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

1. 60 Minutes: Fintech shaking up the financial industry: Looks like fintech has reached the mainstream with this 60 Minutes segment on Stripe and the entire financial technology movement. Until now, much of the excitement about the changes going on in finance were relegated to tech publications, the startup press, or within tighter financial circles. With this profile on 60 Minutes, it’s a big step forward for some of the younger firms in the industry that will continue to exert pressure on incumbent financial organizations to innovate (or parter/buy the innovators).

Counterpoint: While the startup ecosystem patted itself on the back after the airing of the episode on CBS, a few outspoken voices complained that the coverage didn’t go a good enough job explaining the whole story. Sure, startups are innovating and all that, but the banks do, and will continue to, play an important role in the financial system.

2. Is the online finance apocalypse upon us? : In spite of the good press the industry got in the 60 Minutes piece, this was a very trying week for online lenders. Bloomberg is now reporting that Prosper, the pioneering marketplace lending platform in the U.S., is indeed eliminating 171 jobs, closing their Utah office and letting go of their chief risk officer. That amounts to 28% of its staff. Oh, and CEO Aaron Vermut’s salary has also been cut to zero.

OnDeck, an online business lender and one of the first from the current class to make it to public markets, saw its share price shellacked as an FBR analyst cut his estimates on the firm. “FBR analyst Bob Ramsey blamed the weaker outlook on reduced volume of loans sold and slower origination stemming from diminishing marketplace demand and tougher underwriting standards.”

There’s definitely some alarming things going on in online lending right now — the most important is the rapidly diminishing demand for these loans from both retail and institutional investors. Time will tell whether this is just the rebalancing of supply and demand in the space or whether something organic is afoot.

Oh yeah, also, growth in roboadvisor land is rapidly decelerating.

3. New technology turns smart cars into payment devices: Payment technologies in cars have gained a lot of momentum in the past few months. We wrote recently how new payment technology is helping Gett, one of the top competitors in the on demand transportation market, compete with Uber.

However, there have been a series of strategic partnerships in the last year that have given insight into a new, and bigger, concept than just being able to pay for things from the comfort of your vehicle: Turning the automobile into a credit card.

Imagine the following scenarios:

  • Purchasing food from a restaurant while driving there, and the kitchen being informed of when to cook the food in accordance with traffic and arrival time
  • Purchasing groceries while driving to the supermarket, while the supermarket knows when you will be arriving to allow curbside delivery
  • Emergency mechanical situations, where the car guides the driver to the nearest mechanic, with the part needed to be fixed already waiting and paid for before the car arrives

It’s happening.

4. Thomson Reuters seeks openness, builds hooks into core products: It’s an age-old debate: when building technology, is it better to build open or closed systems? In finance, closed systems have generally ruled the roost. But history has shown over time, that open systems have the potential of becoming true platforms, with vibrant ecosystems of apps, services, and support helping to keep the platforms ahead of any closed competitors.

We interviewed Abel Clark, head of Thomson Reuters’ financial products group which provides data, research, and trading systems to many of the top financial firms around the world, to get his view on the discussion. Thomson Reuters has made openness a core value at the organizational level.

“Openness wins longer term because it provides for more customer choice,” Clark said. “When there’s sharing and collaboration happening between partners, the financial industry will be better equipped to thrive in this challenging era of innovation.”

5. Cashless society? Not so fast as countries invest in cash technology: We’re always so quick to talk about digital payments and how moving to a more pure digital system could benefit our economy and our personal payment experiences. But, what’s interesting, is that while some countries, like Sweden, are headed to an economy that has untethered from cash, many other parts of the world are seeing an increase in demand for cash.

Even here in the US, we’re seeing an upgrade cycle by the major banks to improve technology at the ATM machine in a wake of a mega merger of the largest ATM players internationally.

So, cash is certainly not dead and in fact, we’re seeing a variety of new designs and aesthetics injected into the money we carry. We’re also seeing new technologies applied to cash and coin currency. They range from new types of inks and materials to holographics and other nifty security features.


Thomson Reuters seeks openness, builds hooks into core products

Thomson Reuters builds open systems

While some of its competitors have built black boxes, Thomson Reuters has made openness a core value at the organizational level. That’s because the firm, which now bills itself as the “answer company”, believes that opening up its platform products makes them better longer term and produces better customer outcomes.

And that’s something in a market that’s facing challenges from all directions.

Financial firms contend with unprecedented challenges

Regulation and technology are exerting pressures on financial firms that require them to considerably up their games. That’s not really anything new and generally business-as-usual for an industry that’s still emerging in the wake of a global financial crisis. More expansive regulation, increased capital requirements, market structure changes, digitization and automation are all pushing financial firms to become more efficient at what they do and rationalize all the businesses they continue to compete in.

The speed required for innovation, though, is getting so fast that it’s hard for individual financial firms to keep up, according to Thomson Reuters’ Abel Clark, who heads up the firm’s activities in the financial industry. “We went from analog to digital, from voice to digital trading — these digitization trends have been with the industry for a long time, but we’re reaching an accelerated chapter in the financial industry’s evolution,” the executive said. “We’re seeing a step change, an accelerated evolution.”

It’s within this environment that Thomson Reuters has made a big push to open up its core products, creating platforms for its financial-industry customers and partners.

Managed services an industry-wide opportunity

In the wake of this increased pace of change, which requires continuous cost reduction, financial institutions are taking long, hard looks at what parts of their organizations are core to their businesses and jettisoning the rest. Given its positioning within the industry, Thomson Reuters sees an opportunity to provide shared infrastructure, much like Amazon has done with its AWS for the technology industry.

An example where the industry benefits from collaboration, TR’s Clark cites Know Your Customer (KYC) programs, required at all financial institutions. KYC is hugely important and every organization needs to run this process. “Because everyone runs their own KYC programs, there’s huge duplication across the industry,” said Clark. “There was an opportunity for Thomson Reuters to step in and provide industry-wide KYC services.”

Org ID is the name of the firm’s global KYC managed service. The service collects, classifies, and verifies a client’s identity in compliance with global regulators.

Openness a core value

At the core of Thomson Reuter’s KYC managed service is the firm’s open-sourced PermID, a unique identifier assigned to every piece of information collected about an individual or a firm. In fact, PermID is more than just a building block for good database management — it speaks directly to the firm’s strategy in building open systems. This theme of open systems is one Clark continuously comes back to. “Openness is core to our strategy — core to our firm — and existed long before the debate of open vs. closed began and before the terms were even coined,” he said.

TR’s Eikon terminal and its messenging product were constructed so that the financial industry can plug-and-play their own data and applications into them. Customers and partners can build proprietary apps directly into Eikon for internal distribution using a firm’s own data, Thomson Reuters’ feeds, and 3rd party data. The open research and trading platform is also well-suited, according to TR’s Clark, to act as a distribution mechanism for fintech startups. Financial technology firms can focus on what they’re good at and can use TR’s platforms as broad distribution channels.

Front end tools to information backbone

This ability to play nicely with customer and competitive systems is exemplified by the firm’s Thomson Reuters Enterprise Platform, or TREP. This middleware product serves as the information backbone of financial organizations. Clark says that TREP, which underpins the majority of trading floors globally, has also attracted a vibrant ecosystem that’s grown up around it. With 3rd party APIs, partners know that if they build out functionality on TREP, they’ll have access to a large global customer base. Conversely, customers know that when they choose an open system like TR’s Enterprise Platform, there are thousands of partners with whom to collaborate.

And this comes full-circle to TR’s belief that openness makes for better products and customer experience. “Openness wins longer term because it provides for more customer choice,” Clark said. “When there’s sharing and collaboration happening between partners, the financial industry will be better equipped to thrive in this challenging era of innovation.”

Photo credit: cogdogblog via VisualHunt.com / CC BY