Technology Innovation in Capital Markets: Open Platforms Opening New Horizons

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3 May 2020
Arin Ray

Based on detailed discussions with senior executives at banks and technology and solutions providers in capital markets, this report discusses the latest trends and themes in the technology transformation journey with a focus on banks’ attitude to and desire for open platforms.

Key research questions

  • How are banks approaching technology innovation?
  • What is the level of awareness and interest about open platforms?
  • When and how are banks likely to participate in open platforms?

Abstract

Treasury and capital markets divisions at banks continue to struggle with the trilemma of complying with regulatory changes and meeting evolving client demands while needing to improve business economics. Technology has emerged at the forefront of the capital markets because it is critical for executing business and operating strategies. Banks are increasingly turning to fintech providers to drive technology innovation because they are perceived to be agile, nimble, and unconstrained by old technology and bureaucracy. But banks’ ability to easily access and integrate new solutions is constrained by limited budgets, complex and inflexible internal technology, and onerous vendor management needs.

The growing adoption of cloud, open APIs, and platform-based business and operating models is creating new avenues for easier interaction in the technology ecosystem, giving rise to open platforms. Open platforms allow multiple participants (producers and consumers) to connect, interact, create, and exchange value with each other.

Based on detailed discussions with senior executives at banks and technology and solutions providers in capital markets, this report discusses the latest trends and themes in the technology transformation journey with a focus on banks’ attitude to and desire for open platforms. Key findings include:

  • All participating banks in our study were aware of open platforms, and a vast majority are currently using or exploring usage of open platforms.
  • Lower cost of entry to innovation and access to a trusted set of fintechs are the biggest drivers behind the interest in open platforms.
  • Regarding their engagement with open platforms, buying solutions from the platform was the near unanimous choice, and many are also interested in building solutions themselves as well as sharing them with others on open platforms.
  • Security concerns and integration with existing systems were cited as key challenges in the adoption of open platforms; however, the general view was that these concerns would not be show-stoppers if the platform has a thriving ecosystem and solutions that solved banks’ pressing needs. Banks think participation of a few of their peers on the platform should help mitigate the challenges and provide comfort to future users.
  • In terms of specific use cases, the biggest interest was in solutions that are non-core to banks’ operations; KYC-client onboarding, regtech solutions, trade processing and analytical tools especially leveraging AI and machine learning were rated highly. When it comes to technology innovation, many banks are not primarily motivated by specific use cases and are more attracted to the possibilities of discovering new solutions through open platforms, especially ones driven by new technology.

The high awareness of and interest in open platforms were reflected in banks’ eagerness to participate in an open platform, as 67% of them indicated they expect to start using them within the next two years if the platform has a critical mass of fintechs, peer banks, and interesting use cases.

In previous research Celent has noted banks’ desire to emulate technology firms such as Amazon, Uber, and Netflix, whereby they want to focus on building core capabilities while externalizing the rest through easily sourcing and connecting to specialist providers and solutions in non-core functions. The open platform model can be an enabler in realizing those aspirations.

This report was commissioned by Finastra, while Celent retained full editorial control.

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Insight details

Industry
Insight Format
Reports
Geographic Focus
Asia-Pacific, EMEA, LATAM, North America