The World Federation of Exchanges published a joint report with global management consultancy McKinsey & Company’s Banking & Securities Practice on the fintech landscape in the Capital Markets Infrastructure industry.
In this decade, the evolution of fintech activity in the CMI sector has outpaced other areas in financial services, growing 277%, compared with corporate banking (186%) and payments (184%). Whilst overall investment in fintech has plateaued since 2015, funding into CMI fintech continued its rapid growth. WFE members say that the post-trade services space currently attracts the highest attention in their organizations.
While the boundaries among fintech technologies may blur, the solutions they deliver can be grouped into four main categories: advanced analytics and artificial intelligence (AI); Distributed Ledger Technologies (DLT), including blockchain; cloud and quantum computing; and automation and robotics.
Of these, the WFE’s survey participants identified DLT as the technology which has the most potential, though it may also be the furthest from realization at scale. There are some initial use cases, such as the implementation of a DLT clearing and settlement system at the ASX, but these examples are, to date, limited.
The use of advanced analytics and AI is set for rapid growth, as the volume of data in the capital markets grows. Cloud and quantum computing will bring greater efficiency, and drive depth in both markets and asset classes. Automation and robotics are likely to improve the productivity of post-trade services, alongside the evolution of regtech in the risk management and regulatory reporting space.
41% of respondents noted that large technology companies (firms such as Amazon, Google and Microsoft) could be the most impactful in the CMI space in the next five years, while 39% expect incumbent CMIPs to have the largest impact in the same period. About 20% of the survey respondents see this disruption coming from start-ups.
The survey found that CMIP’s view partnership-driven approaches such as collaboration agreements (40%) and joint ventures (25%) as the most efficient relationship models with fintech, followed by investments (both minority and majority) both at 13%. Only 9% of the survey respondents see acquisition and integration as the most effective route.