The recent proliferation of third-party technologies might seem like a tremendous boon for financial services buyers, but the question is: where to invest?
Procurement Leaders is seeing that its members’ organisations in the financial services space are waking up to the benefits of a more comprehensive sourcing approach, with the function wrapping its arms around new areas of spend which, given their previously ‘untrodden’ state, present opportunities for added value.
“We’re looking at some of these [trade life cycle] services, which were once deemed key to competitive advantage, and seeing that they have to some extent been commoditised, and that somebody else can do them for us at a much lower cost”, explained one senior sourcing executive at a major US investment bank during a conversation I had recently.
Still, the array of new offerings can be a dizzying one. It’s worth remembering that, inevitably, just as some of the new and impressive functionalities will prevail, some will quickly become obsolete. An important task is, therefore, to afford resources and time to the consideration of exactly which processes or services can be performed by a third party, and what that third party will actually add by taking the process out of your hands – a conclusion that must be grounded in the improvements that you’re seeking in a given area (cost reduction, quality, efficiency, innovation, for instance).
One area that has proved its staying power is that of robo-advisory – the term given to what is essentially a piece of software designed to enhance asset management on the front end. A recent report by Cerulli Associates predicts a robo-advisory market worth $500bn by 2020, and (as the US’ biggest asset manager) BlackRock’s 2015 acquisition of FutureAdvisor – a firm promising “data-driven recommendations for your investments”– as well as other examples of similar investments from the likes of Credit Suisse and RBS combine to put the proverbial stake firmly in the ground.
The merits of investing in certain areas are not always so apparent, however. A field worth monitoring in respect of this issue is that of enterprise app stores, specifically for banking activities – best thought of as hubs, connecting the various players in multi-dimensional and complex markets - designed to remove some of the mystery from selecting new and innovative third-party services.
In the world of payments, one provider of such a solution, Alpha Payment Cloud launched in 2013. It offers buyers supplier connectivity via a registry of third-party proprietary and white-labelled payments, fraud prevention and mobile wallet technologies, some of which are developed in-house by Alpha, but most externally by its panellists. For buyers, this is essentially an aggregation service. The difference, according to Alpha, is that by selecting one of its panellists, buyers get immediate access to the provider’s application programming interface (API) – a software component which allows applications to communicate with other applications - in theory allowing instantaneous integration of new technologies.
Back on the capital markets side, last summer, 13 banks joined a venture connecting them with three leading providers, including TriOptima, an ICAP company, of post-trade processing for swaps and derivatives. Members of Procurement Leaders’ Industry Intelligence for financial services can follow the link for a deeper analysis of the trends underpinning this and other related developments.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.