Our experts discuss Covid-19, innovation labs, institutional attitudes and what makes a successful start-up. Chaired by Nicholas Pratt.
Adam Belding (CTO, Calastone)
Keith Hale (chairman, TrustQuay)
Andrew Hampshire (COO & CTO, Gresham House)
Olivia Vinden (head of fintech, Alpha FMC )
Nasir Zubairi (CEO of Luxembourg House of Financial Technology)
FundTech – How would you describe the relationship between the funds industry and fintech start-ups?
Andrew Hampshire, Gresham House – It is evolving. The challenge and the opportunity are big and it is an industry where there is more innovation and digitalisation to come. We operate in a very strict regulatory environment where you need bulletproof technology. That does not mean there is not an ability to work with start-ups, but you need a clear business case as to the value it is providing to justify the risk of working with a start-up rather than working with a more established firm. The value levers in a business like ours are pretty simple – you want to raise money, deploy money, manage money well, manage risk and take out cost. You want to do all this as efficiently as possible and deliver value to the clients in the process. There is plenty of opportunity to use technology to do that and start-ups can often provide innovation in these areas. Conversely, there is also a challenge around the nature of the regulatory environment and the complexity of the industry and this can be hard for start-ups to understand if they don’t come with a strong industry background.
Keith Hale, TrustQuay – It is mixed. The level of interest has changed dramatically in the last ten years, from very low to much higher, but the engagement with start-ups has a long way to go. The industry often wants to hear about blockchain, AI, big data projects and the solutions that fit into those categories, but the truth is the funds industry is a pretty conservative bunch. They point to regulation restrictions or lack of budget but oftentimes it is the procurement departments that are asking three years of P&L from start-ups that are still burning cash just to get started. This can kill the projects before they are born. But, that said, procurement has a point – 95% of start-ups do fail.
Hampshire – There are two aspects to procurement. One is all the checks and balances and the diligence that the regulator rightly requires us to go through when you work with or outsource to a third party. The other angle is that a lot of the firms in the funds industry are small and medium-sized businesses and they don’t often have a great amount of internal technology resource. They have IT and operations teams but there are not the resources who look to invest large sums into tech R&D. As such, those businesses don’t want to go to five or six fintechs who each offer a bit of a solution and then have to stitch them all together themselves. So, they are looking to other third parties and tech consulting firms to do that for them, which adds a layer between procurement and the business. In other words, it’s not just people at fund management firms doing their checks and balances, it’s also the people advising them in the first place.
Olivia Vinden, Alpha FMC – One way the industry is trying to counteract that is via the Investment Association’s Engine fintech accelerator. They’re trying to give a consortium effect to asset managers who want to select a fintech but don’t want to be their only client. For the last five years, asset managers have been focused on enterprise-wide technology and consolidating on to single platforms and it is only now that we are starting to see some more interesting and exciting technology projects. But there is still a long way to go.
Adam Belding, Calastone – It depends on which part you’re providing fintech for. If you’re providing fintech in the retail/front-end/user experience space, analytics or other business intelligence solutions, it’s a lot easier to be innovative because it’s less critical. You can fail fast. But if you’re working at the heart of an asset manager in the core platform, it’s a totally different situation. There will be greater risk aversion and a fintech with an offering in that space might not penetrate as much as they would.