Looking back, 2014 brought more attention and investment to financial technology than ever before. According to data from CB Insights, FinTech investment in the U.S. has grown from $750 million in 2008 to slightly under $3 billion in 2014. And the future looks bright with forecasts reaching $4.7 billion in the U.S. and $8 billion globally by 2018.
Market stagnation, regulatory pressure, lower technology barriers to entry, and globalization constitute the core foundation of the current wave of capital markets technology innovation. The demand for solutions in mobile, analytics, cloud, compliance, and security are being driven by the banks, capital markets firms, and insurers.
Aite Group has been tracking this trend since early 2014, and our March report entitled “Capital Markets Tech Vendors 2.0” profiled 13 of the many innovative software vendors and service providers focused on capital markets. Some are on their way and others may not last, but their focus on and developments for Wall Street 2.0 are impressive, and their technology and intellectual property will no doubt live on, forming the foundation for the next generation of market growth.
Our recent research highlights key commonalities among the companies include five traits: democratizing ownership and data sources, leveraging nontraditional data sets, focusing on visualization and user interface, using the cloud for scalability and cost control, and finally, creating and relying on community to constantly improve performance.
This isn’t the only time in recent history that entrepreneurs have sought to make their mark – and money – in capital markets with disruptive technology. In the mid- to late-2000s, firms such as Monitor110, Marketcetera, YellowJacket and Ballista (both acquired by ICE), and Derivix (acquired by Flextrade) were led by founders driven by similar motivations of today’s entrepreneurs. They sought to improve transparency for investors, reduce costs, and deliver a vision there has to be a better way. Prior to this, companies like Bloomberg, CreditEx and Liquidnet were game changers. To their credit, those earlier upstarts toiled in a world without incubators, accelerators, AppStores, Hadoop, cloud-based market data from Xignite, and low-cost platforms like “the cloud.”
Today’s startups include Estimize, Kensho, DataMinr, Quantopian, RobinHood, Motif, Openfin, and IEX. They carry the entrepreneurial torch and are fed by investors such as Goldman Sachs, Bain Capital Ventures, Contour Venture Partners, Bessemer Venture Partners, FirstMark, and Spark. Accelerators such as ValueStream Labs, FinTech Innovation Lab, FinTechStars, and Level39 have sprung up to provide entrepreneurs access to capital, mentorship, and networks.
And while these entrepreneurs have been innovating, the dialogue around Wall Street and D.C. has focused on improving market stability, revamping market structure, reducing systemic risk and regaining the public’s trust. Not all of us, however, have the influence to steer discussions about improving the industry. Those on the front lines are focused on exchange access fees, extending equity platforms to trade fixed income, electronic access to emerging markets, FIX connections, OMS/EMS integration, algorithmic trading, market-making, and the search for alpha.
Act Locally
Its important to recognize that an opportunity to get involved is right in your own backyard. You too can contribute to job creation and technological innovation. Even startups that address the most mundane back-office issues and regulatory requirements create jobs.
A few years ago, the community steering capital markets startups was without real form. Now, the scaffolding is up. Capital markets pose unique challenges, with its long sales cycles, complex integration challenges, and high regulatory and compliance barriers. Most traders and investors arent keen on using “minimum viable products.” Founders need your knowledge, mentorship and access to relationships in order to avoid costly missteps in a highly competitive and regulated industry.
If Wall Street is going to attract the best and brightest, theyll need to know there are interesting and complex challenges to solve and the opportunity is there to use cutting-edge technologies. If your firm isnt using one of node.js, python, Angular.js, Puppet, NoSQL, or a similar technology in your stack, consider doing so. The talent coming out of higher education is learning to use this cutting-edge technology.
It’s not just about the gear. Buyside and sellside professionals must go out and talk about what they do. Work from within to help the industry understand the complexities we face every day. Help in the fight to regain trust in our industry.
If youre not sure where to start, every innovation hub is likely to have a group hosting a FinTech Meetup. Just search FinTech for your locality on Meetup.com and attend your first event.
If 2014 was any indicator for whats in store in FinTech, dont miss out on opportunities in 2015 to get involved. When it comes to capital markets, the time to invest — or re-invest — is now.
Spencer Mindlin is an analyst with Aite Group who focuses on capital markets technology.
