ENTREPRISES & STRATÉGIES — Technologies

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“Build a solid base to enable innovation for all”


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A future financial ecosystem that will allow fintech innovation and competition to flourish can only grow through a new generation of infrastructure, with distributed ledger technology as a cornerstone.

For the past few years, financial companies, seeing the results of harnessing new technology elsewhere, have been picking up speed when it comes to high-tech innovation.

Their efforts have concentrated on client-facing solutions, although it is the backbone legacy systems they need to improve. However, change takes time in large companies that must maintain extremely reliable and solid architecture.

Step forward then fintech start-up, whose mission is to help the industry move to the future.

Some, with the support of a few critical incumbents, lead the creation of an entirely new interoperable ecosystem for financial services. At its heart are market infrastructure, hubs that allow all players to mutualise activities and fostering industry standards.

They are considering new-generation infrastructure that leverage the power of new technologies. 

A blockchain can cover the entire ecosystem and combine these ledgers into a single, fully-shared register.

Paolo BrignardelloPaolo Brignardello, Head Product Management and Marketing (Fundsquare)

Digital transformation needs new foundations

Both fintech and industry incumbents agree on this issue. To date, their efforts have focused on the user level because it is a good quick fix. However, they know it is the underlying plumbing of financial services that needs the hard work and clients are starting to demand services requiring a deeper change.

One approach facilitating this change is distributed ledger technology as the core infrastructure for providing transaction immutability through sharing a decentralised ledger. DLT’s potential for operational simplicity and efficiency is enormous.

A revealing example of this is from the fund industry. Today, an order to buy passes through several different, separate ledgers of each actor in the fund supply chain. A blockchain can cover the entire ecosystem and combine these ledgers into a single, fully-shared register. Complex, time-consuming approval and communication at each step are thus flattened.

On the other hand, it is crucial to understand that blockchain will not be the answer to all issues and other technologies will be used in conjunction with and around it, like cloud computing and API, and others will be most probably taken into account such as quantum computing, data science, machine learning and robotics.

The goal is to have a more modular and updatable infrastructure across the industry. Such a foundational technology will enable innovation to happen and start-ups to grow by not bearing the full costs of legacy activities.

Also, with a solid base permitting a multitude of new services and solutions, financial players will find that innovation will accelerate.

Empowered governance is crucial.

Paolo BrignardelloPaolo Brignardello, Head Product Management and Marketing (Fundsquare)

Enabling a collaborative model

The emergence of foundational technology does not completely guarantee success. Fintech and incumbents can work together to take advantage of each other’s strengths.

Unencumbered by legacy processes and systems, fintech are well-positioned, while incumbents have a wealth of knowledge and the necessary resources. Cooperation and collaboration is the best strategy for creating an evolving environment, rather than revolution or disruption.

To help facilitate this, empowered governance is crucial: a relevant institution must take the lead in creating and guiding the advancement of a next generation of digital infrastructure. Preferably, this should be a large player that has experience and know-how in financial services infrastructure. And this is what we see already happening in the main financial markets.

Such an approach, with fintech and incumbents working together and led by a strong infrastructure player, will also aid in the creation of future collective standards.

The ideal way forward is to link all willing actors in a vibrant and decentralised ecosystem. A conscious, concerted approach helps reduce the investment required. Eventually, in such an ecosystem, it will be less a question of what technology one is using and more a question of what you are doing to service and grow your client base.

The focus will shift back to the front end but this time there will be a solid and scalable back end in place.

Paolo BrignardelloPaolo Brignardello, Head Product Management and Marketing (Fundsquare)

Smart firms will be able to flourish and better tailor services for segmented clients and clustered needs. The focus will shift back to the front end but this time there will be a solid and scalable back end in place. The new generation of infrastructure, built on new technologies and led by strong players, will fuel even more fintech solutions, generating a virtuous circle that will produce a more agile and client-centric industry.

To continue with the example of the fund industry, a blockchain next-generation infrastructure, led by major actors with input from international players, is already taking shape.

It is energising the fund industry as actors see possibilities for operational efficiency, cost savings and client-centric services. Incumbents are starting to see that delegating to fintech more of what can now be mutualised frees resources for value-added services.

It isn’t guaranteed that blockchain will be embraced by all in the short term. But for some, the move is inevitable and, in the end, blockchain creates a barrier-lowering effect, increasing competition and fostering innovation.