Capital markets: Buying habits signal a shift towards the cloud

By Imran Majid | 10 December 2015

62% of technology projects in capital markets over the last year have cost less than $500K, with 45% having a CAPEX of less than $250K, according to our latest research.

This came as somewhat of a surprise.

My conversations with fintech companies serving capital markets have been consistent - times are getting better. Institutions are spending again and, although pressures are there, confidence is returning. Regulatory demands, technical upgrades and changing customer requirements were supposed to be pushing firms to spend. So, in a market widely known for major, wholesale technology change, this level of spend marks a real shift.

Smaller, faster, better

The results paint a picture of an industry at a crossroads. Motivated by the need to comply with technically complicated regulations but hamstrung by a lack of budget CAPEX spend has reduced.

Here’s a breakdown of the results by spend:

This reduction in CAPEX investment signals a change in approach from capital markets firms. Buyers seem to be eschewing large, cumbersome installations in favour of smaller, shorter, cheaper projects. It is the manifestation of increased pressure on costs which has led institutions to move to low CAPEX cloud-based solutions. Analysts have suspected this shift for a while. Aite Group recently forecast capital markets spend on cloud services to increase from $2.5bn in 2014 to $3.2bn in 2017.

The research (freely available for download) ‘How to influence fintech buyers in Capital Markets’ also found that 43% of this investment had been made in infrastructure and analytics technology. As expected, regulation is a big driver for investment with 37% of investments in the last year attributed to regulatory demands or technology advances.

Evidence not anecdotes

This demonstrates that buying patterns in capital markets firms are changing dramatically. Buyers are more circumspect about their spending and the main focus of these projects is driven by regulation. With this in mind, fintech vendors should explore how they can reduce the upfront costs of their technology. Furthermore, with regulation as a key investment driver, demonstrating how capital markets firms can better comply with legislation using technology is likely to resonate.

What is critical here is evidence over anecdote.

Too many sales and marketing teams at fintech vendors rely on experience and guess work to inform their strategy. Vendors are continuing to use marketing tools that they have done for years, purely because “that’s the way it’s always been done”.

However, it is clear from our research that “how it is done” changes, and quickly.

Being seen in order to be heard

The other half of our research focuses on what influences fintech buyers at the shortlisting, longlisting and selection stages. Where did they go for information? What did they read? What did they want to hear?

The findings suggest a complex, multi-layered buying process:

• Relationships and vendor profile are of utmost importance at longlisting stage
• Buyers want evidence, not just thought leadership, at shortlisting stage
• Reliability and reputation are the ultimate deciding factors

It is essential for vendors to be visible and credible. Buyers will form an opinion of the vendor long before the sales process – as typically seen by vendors – commences.

This is where intelligence can make the difference.

We know what messages resonate (flexibility, insight into market challenges), what channels are used (internal analysts, industry analysts, web search) and what content is engaged with (analyst reports, presentations, white papers) at each stage of the buying process.

Armed with the right intelligence, I believe vendors can build strategies that will give them an advantage over their competitors in a fluctuating, unpredictable market.

As the saying goes ‘knowledge is power’. 

By Imran Majid, Deputy Head of FinTech, CCgroup.