Are you on top of FinTech trends that may affect your business?
Disruption, market shifts, and economic changes can cause a previously successful company to flat-line very quickly. Regardless of industry or what your company provides, you have to be constantly on the alert for changes in your market that will impact your business. You have to be ready and able to pivot in time.
Business graveyards are full of companies that didn’t notice the change in time or weren’t able to pivot successfully. In contrast, most successful startups had to pivot more than once as they grew.
In today’s podcast, I spoke with Rob Hegarty about several emerging fintech trends and how fintech companies are approaching pivots.
Rob has a 25-year background in financial services and FinTech. He was the president of Olmstead Associates. Before that, he served as global head of equities for Thomson Reuters where he ran a $1.2B line of business. He also ran strategy at DTCC and has served in leadership positions at Tower Group and 3 large investment management firms.
In our conversation, we touched on several trends that may demand a pivot from financial services and FinTech companies.
FinTech Revolution in Boston
There is a FinTech renaissance going on in Boston right now. Almost a billion dollars has been invested in Boston FinTech firms in 2016. This is part of of a broader trend. Since 2010, more than $130B has been invested in FinTech around the globe.
FinTech innovation is “Boston Strong.” The week of September 11, FinTech Sandbox organized a program called Boston FinTech Week. It was a grassroots event, organized in about 6 weeks. According to what Rob heard, the organizers hoped for 300-400 attendees. But more than 1200 people participated.
I didn’t make it, but will definitely plan to attend the next one. Apparently, it was a loosely organized week-long event, structured as a series of Meetups. The events covered covering a diverse set of topics, participants, panelists and speakers.
Speakers included well-known venture capitalists in the Boston area talking about what is happening in the funding space and the trends they are seeing. Some cool new startups celebrated their debuts, and two established companies that are in their B and C rounds of funding presented. Quantopian’s director of research spoke. They’ve raised $100M in funding.
Algorithmic Strategy Applied to the Investing World
In our podcast, Rob talked a bit about Quantopian. He feels that this startup is interesting for two reasons. First, they’ve taken algorithms and applied them to the investing world. They’re using these algos not just for short short-term trading, but are applying them to long long-term investing strategy. They’re figured out a way to combine algorithms with machine learning and massive datasets in order to identify investing opportunities.
But in addition to that, Quantopian is using crowdsourcing. They’ve created an open platform that allows people to contribute their algorithms. It’s like open source for algos. Rob offered this example. Let’s say you’re looking for undervalued tech stocks in a certain geography or in a certain market capitalization. Someone has probably written an algorithm to do that. You can take that algorithm right off the platform and then start adding to it and applying your own IP. Then you contribute back to the platform. This is a novel way to gain access to crowd-sourced talent, ideas, and strategies.
Quantopian’s investors are clearly convinced that the strategy has potential. Their most recent funding round included an additional $250M from Point72 Capital Management that Quantopian is investing using these crowd-sourced strategies.
BlockChain Forcing Change in the Back Office
Rob and I also discussed Blockchain. This trend is forcing custodians, asset servicing businesses, back offices and business process outsourcing firms to re-think their entire businesses. Rob points out that these firms have highly profitable, high revenue businesses that have the potential to be completely disrupted by blockchain. Fortunately, this new trend is quite obvious and getting a lot of press coverage, so it’s not taking firms by surprise. All these companies are looking for ways to leverage blockchain to pivot their businesses.
Rob doesn’t think blockchain will be a major disruptor for a few years. There are a lot of regulatory, business and technical hurdles to overcome. But it is a catalyst forcing these sleepy back office businesses to become more innovative.
Staying on Top of Trends and Preparing to Pivot
In a way, these companies are lucky. It’s not always so easy to see trends that require a pivot.
Rob said that pivoting was an overarching theme both at FinTech week and with the many companies he works with in his consulting practice. If a firm isn’t prepared to pivot to take advantage of market shifts, they’re likely to wind up on the wrong path. He pointed out “I don’t think there was a successful company formed in the last five years that hasn’t had to pivot in some way or another, and sometimes very drastically.” This isn’t just a small company or start-up issue. Pivoting is crucial for incumbents, because start-ups are emerging constantly with ideas to disrupt incumbents’ business models.
This issue is top-of-mind for me. I’m working with a few firms that are 15 to 20 years old. They’ve had solid, profitable businesses for years, and most have great client servicing models and client retention averaging 10-15 years. In some cases, these firms have seen their clients disrupted, and this had a dramatic downward effect on their businesses. In other cases, new competitors have entered the space offering more modern technology and taking a different approach to solving the same business problems. Regardless of the cause, these firms have had difficulty figuring out how to pivot to keep their businesses growing.
It’s crucial to stay on top of trends to know when and how to pivot. One way to do this is to plug into events like the Boston FinTech Week. I’m seeing accelerators pop up in several markets, and they often have a finger on the pulse of innovation.
Another way to stay on top of the trends is to talk to customers. As Rob and I discussed in the podcast, firms need to be constantly talking to customers – not just with their biggest or most accessible customers, but with a cross-section that represents a broad base of clients. The more you’re talking with customers, the more readily you’ll be able to identify trends in time to respond and take advantage of the market shifts. One of my other podcast interviewees, Stuart Farr, talks about how they approach this at Deltix.
Deriving Value from Massive Datasets
Another trend Rob and I discussed was the evolving role of data in the financial services ecosystem. For example, custody businesses are sitting on a treasure trove of data. Now they need to find a way to make better use of it as an asset without disrupting or alienating their clients or giving away their data. They need ways to anonymize and summarize it so it’s valuable to the investing community without causing harm.
This trend is creating more and more demand for data scientists, engineers and subject matter experts who can provide the right tools and technologies to provide access to the data, and more importantly, to derive meaning from it. As Rob points out, 15-20 years ago, the problem was getting enough information. Today, it’s getting the right information from a massive data set.
FinTech Sandbox is helping provide access to data to small startup firms. They’re curating data from multiple providers like Bloomberg, IDC, the exchanges and other data providers. Then they make this available to FinTech firms that would not normally be able to get access to these feeds. This allows these small firms to develop and bring to market specialized capabilities around the data.
Data is the New Plastics
Because of this, Boston now has a burgeoning ecosystem of financial markets technology firms that know how to take data and make it valuable…make it actionable. They’re combining disparate data from multiple sources and using it to make investment or trading decisions. This has the potential to become highly valuable to institutional investors, wealth managers, asset managers and trading firms on the buy-side and sell side. Quantopian is an example of just how valuable this approach can be.
In a way, data is the new plastics. It represents a huge opportunity for both incumbent and start-up firms that figure out how to leverage it.
For more information about Rob and his firm, visit the links below: