Finadium recently completed an analysis of emerging technologies and services in securities finance and collateral management. The results will be published in an upcoming research report (note: this is a separate report from our recently released analysis of large collateral management technology vendors). In the meanwhile, below are some common themes we see in the emerging vendor space.
A review of emerging vendors in the securities finance and collateral space reveals several important trends. We identify information delivery and operational efficiencies at the two strategic directives across 12 firms in our analysis. Information delivery is simply taking existing data that is typically too much for one person to digest and simplifying information into a readable format for decision-making. Creating operational efficiencies is the movement of data from point A to point B such that a firm can be certain that the process was completed correctly without direct human involvement. These are old concepts but changes in regulations have brought forth opportunities that new vendors and products now seek to exploit.
The firms in our review are also working to make their products and services easy for their clients. Cloud-based technologies feature prominently, including the ability to upload data and download reports in a variety of formats. Making things easy for clients is an old sales strategy made relevant by the genuinely complicated rules of changing markets; ease of use has also been an argument against major technology systems that require coding to specific formats and large-scale technology installations on site. While the first target market for new vendors might be smaller or midsized clients without large technology budgets, several firms argued that they could already move upstream due to the simplicity and robustness of their offerings.
Another recurring trend is filling in the holes that major technology vendors are skipping over. This may be in the creation of a toolkit that optimizes certain functions, moving a product online to reduce installation costs or creating a small niche product serving an equally niche market that would be seen as too small for a large global technology vendor. Again, regulatory change has opened the door for new entrants to gain a foothold by meeting market demand.
Lastly, we observe that the companies in our review are staffed by seasoned financial markets professionals. The securities financing collateral management markets are not a place for new entrants out of college. Rather, the market is driven by 10, 20 or even 30 year veterans out securities lending, repo, secure funding, collateral and prime brokerage. This is a case of market experience and client knowledge combined with regulatory change that has given market veterans the opportunity to do something new. In an era of bank downsizing, new vendor roles are not only welcome but are also sought after as an opportunity to use time-honored skills in a new context.
This is the place where we might conclude with platitudes about changing financial markets resulting in new opportunities. All of this is true. At the same time, we observe historical trends focused on quality client service and ease of use as a driver of new vendors in the market; this precedent will be important long into the future as well. While regulations have indeed created new opportunities, it is the addition of skilled professionals that makes new vendors and products worth evaluating. The environment for emerging technologies and services in securities finance and collateral management is the product of high-quality professionals and a market shaken by profound regulatory change. We look forward to seeing what comes next.