Over the past few years, financial market participants have come to rely more and more on third party tech vendors for a list of reasons. From risk management to trading to treasury and compliance, few financial firms don’t find themselves reliant on the expertise of the fintech community. But while selecting, negotiating, and dealing with third party tech providers has become part and parcel of each organisation’s chief technology officer (CTO)’s role, it might seem that the plethora of products and services available in today’s markets can be overwhelming. Here, we look at just some of the things a modern day CTO must weigh up when selecting the right fintech solution.
Needs and requirements
Some vendors offer wide-ranging, all-in-one products or services to work end-to-end across the business, and can be used for a number of different applications. Others are far more specific, offering niche solutions to a particular line of business. Some firms have been known to rush into buying a system they think will meet their needs, but knowing exactly what the requirements are and looking for the right product to fulfil those needs will benefit in the long term. Sensible technology consultants will advise thorough audits of the current systems, to find out exactly what is required.
With the fintech market becoming increasingly competitive, product and service costs have come down across the board. One of the outstanding additions to the fintech arena has been the growth in regtech offerings – particularly as regulators in the US and the European Union have come down heavily on post-crisis markets. As demand rose among financials, so did supply from the fintech community – and so the compliance costs of directives such as Mifid II are no longer as high as was previously feared. That said, failure to be compliant with all relevant regulations can be costly, so choosing the right fintech partner is crucial. And as many of the post-crisis reforms called for more transparent markets with a greater focus on data management, many fintech vendors are offering outstanding analytics, encouraging returns from the rules put into place by the regulators.
Implementation with other systems
Firms – particularly diverse trading organisations with interests across national boundaries – are finding themselves becoming more reliant on a greater number of systems from different providers. One head of technology at a large US bank recently told bobsguide he oversees “between thirteen and sixteen” commodity trading and risk management systems, provided by more than five vendors. The challenge, for him and many like him, is bringing the systems together and to report through the rest of the organisation. Finding systems that can – and will – integrate with other systems from other providers can be crucial in accomplishing long term strategic gains.
Bespoke vs white labels
As fintech offerings have become more advanced – embracing machine learning and other recent developments – it’s become increasingly popular among vendors to offer bespoke products, or tweaks to the off-the-shelf package. While the white label version is often tailored to the requirements of the market, many CTOs and their teams wisely look for bespoke renderings, in order to fit with their own systems and demands. Prices can rise, but those vendors offering bespoke services can add value where a firm is in niche markets or has specific risk, compliance, or treasury needs, for instance.
The speed of change
Fintech is moving at an alarmingly fast pace. New developments come onto the market every few months, that shake up the status quo and force vendors to take notice. The developments in cloud services and blockchain’s growing applications, for example, are just two advances fintech vendors have had to monitor and assess for suitability within their own product suites. CTOs are best placed being aware of these developments in order to ensure they’re getting leading edge products, but with caution: making sure that any new technologies or applications have been fully assessed can be vital, so taking a step back can be costly. Many also insist on an agreement that binds the vendor to initiate updates to the product as a technology develops.
With the instances of cyber attacks growing daily, according to a number of reports, it’s crucial to select a trusted vendor capable of offering safe platforms. Breaches can be catastrophic for any business - so it’s become vital for vendors to be able to offer a product that really protects itself and the systems it’s attached to. Fortunately, the developments that have driven the rest of the fintech arena have spilled into cybersecurity, and many vendors offer artificial intelligence and machine learning capabilities as tools in cyberwarfare.