The momentum behind cloud in financial services is building, and quickly. With big names such as IBM moving into the space, it signals that this is the future of financial markets infrastructure. Looking specifically at FX, there are many reasons to believe that firms are shifting towards this technology as a central component of their technology stack.
Digital transformation is happening across every sector, and banks in particular are beginning to recognize a digital framework that allows their services to be accessed from anywhere will be key going forward.
The importance of relationships in FX has proved central to institutional trading in recent months. Not that relationship trading ever went away in the FX markets. However, in a clear ‘Back to the Future’ development, the role of the single dealer platform (SDP) is once again having a resurgence.
As pubs and restaurants begin to open their doors in England, so too are the world’s global banking giants. After a prolonged period of working from home, many of the top banks such as HSBC and Goldman Sachs have announced plans to urgently bring workers across the world back into the office.
The question is: Why the rush?
It is true that banks are having to do more, with less budget. Recent headlines have demonstrated we’re currently operating in an increasing cost pressured environment. The solution for some banks has been cost cuts through staff reductions – but is this always the right answer?
In an era where pundits like to predict doom and gloom for banks FX businesses, Integral’s Chief Revenue Officer Vikas Srivastava offers a different perspective that shows how a change in the approach towards technology can allow heads of FX desks to significantly increase their profits – even during the periods of low volatility.
We’re all aware that the size of the FX pie hasn’t been growing. The latest triennial survey by the BIS supports this sentiment, having flagged a decline in FX volumes for the first time in 15 years. After the slow-down in market activity amidst the spate of regulations that the FX market had to contend with it is quite likely that the worst may be behind us. Continue reading Why now is the time for a fresh approach towards FX technology at banks
Recently, two complex event processing (CEP) technology vendors changed hands. Progress Software sold its Apama CEP platform to Swiss vendor Software AG, and Tibco acquired StreamBase — the last remaining independent CEP vendor.
Both companies were tackling very complex issues in financial services and enjoyed initial success. The founders of Apama sold their firm to Progress Software for $25.4 million in 2005, the year StreamBase launched its first product. What sealed both vendors’ demise was not bad software, but rather a paradigm shift in the software industry.
When you search for the term “cloud computing” on Streambase.com, Google can find only two instances and they are both located in boilerplates of a business partner that is a part of a customer case study. Run the same test on Apama.com and Google responds that the search “did not match any documents”. These are bad signs. Continue reading A Tale of Two Kinds of Companies
1. What is the biggest change you have seen in recent years in FX markets?
The biggest change must be how technology has lowered the barriers to entry for many new market participants to enter and thrive in the global foreign exchange market. What was previously an extremely fragmented, disconnected, opaque market is transforming into a more diverse, integrated, and transparent market.
2. People are talking about a technology arms race in FX. With that said, does anyone other than the largest and best capitalized players stand a chance to compete at all?
Yes, it is true that in order to compete and win in this competitive FX market, one must make use of very capital-intensive technology infrastructure. It does not mean, however, that one needs to build and own that infrastructure themself. The Integral shared platform and the cloud services are on par with or better than any other technology solution out there, at a fraction of the price and with far less risk. The game has changed and as in other industries, the introduction of a shared technology platform has dramatically leveled the playing field.
3. What is your advice for market participants with large off-line or telephone-based businesses who are considering going on-line?
The good news is that today’s technology can deliver discrete functionality similar to what human traders or salespeople can do. Integral has a track record of helping banks and brokers launch their own FX platform, basically for free and with very little risk. It can happen with no capital expenditures on their part and can be deployed in a matter of weeks, because they benefit from the pre-existing connections with all major sources of liquidity and prime brokers that we have aggregated over many years. And, given that they have no ongoing fixed expenditures, they have no running costs to worry about. So why wouldn’t they go electronic now?
4. How is Integral different from other technology solutions?
We are a neutral service provider. We are not and will never be a bank or a broker, nor do we transfer the risk of a successful implementation to the customer. While this seems like an obvious distinction, it carries many ramifications that may not be as evident. The biggest difference to the traditional license-and-install software vendors is that we enter into true partnerships with our customers. The basic reason lies in the way we are compensated: Integral charges a small service fee on any trade our customers execute on our platform. If customers are not trading, we are not getting paid. If customers are not happy with the system, we are not getting paid. Therefore, our interests are fundamentally aligned for the short and long term. We want them to be successful and to expand their businesses.
5. What is your position on the discussion around platform proliferation?
I think that these new platforms are a great addition to global FX markets. Actually, they are a great indication of the technology revolution that has been taking place over the last few years. Today, technology has advanced to a point that mass customization is now practical and economically feasible. Modern cloud-based service offerings, like Integral, can automate what you have exactly the way you have it. What we are witnessing is that many off-line FX businesses are moving online by embracing e-FX. It’s a trend that we applaud and one that I think will continue.
6. With lower volumes, regulatory pressure, many new competitors, is this a good time to start your own FX brokerage?
If you have a solid business idea, if you are committed to great customer service, and if you’re marketing organization is top notch, there has never been a better time to venture out and compete in FX. There is more transparency than ever, the barriers of entry are lower than ever, and with the right technology partner, you can focus like never before on customer service and acquisition. If you have any questions, give us a call so we can discuss your opportunity in more detail.
7. What is cloud computing and how can it help me?
Cloud computing is a new paradigm that has dramatically changed many industries, including FX. Its key characteristics are the use of a shared IT infrastructure and a pay-as-you-go business model. Previous static technology products with fixed functionality have been replaced by flexible cloud services that you subscribe to on an as-needed basis. What all that adds up to is a business model with virtually no fixed costs, no CAPEX, and the built-in flexibility to change as your business needs change.
8. Where do see the future of white labeling?
Generally speaking, I see a bright future for white labeling, but it will be slightly evolved. Clearly, I don’t see many new proprietary platforms emerging that are not in one form or another based on a common underlying technology. In light of the quality of technology solutions that are available already, it just doesn’t make sense given the costs and time required to build something from scratch. I am hesitant to call this ‘white labeling’ since it is so much more. White labeling, how it came to be understood by most people, describes the licensing of somebody else’s technology platform and somebody else’s liquidity – without any real chance of making it your own. The new kind of white labeling, how we understand it, puts the business owner in control of key elements and allows for far-reaching customization of the technology tools to fit that business owner’s preferences. FX has come a long way from the one-size-fits-all white-label offerings from years past.
9. What is your position on the principal vs. agency business model?
The debate in the market is sometimes very heated, with different people making absolute statements for or against either one. In my view, both models have their respective merits. Our platform supports both, and at times even for different customer segments under the same brand. And that is the best news: You don’t have to take sides. In the end, your customers will tell you whether they want what you’re offering. And if not, and if you are one of our customers, we will help you adapt to better serve their needs; because that is the most important debate of all.
10. What has been your proudest achievement as CEO of Integral?
The fact that we helped launch more than 200 and counting FX platforms that are all unique, customized businesses that vary in market structure, value proposition, target audience, user experience and business model, all branded under the name of our customers. As far as I know, no one other than Integral offers technology that can support the variety of platforms on a single virtual SaaS system. That’s where we think we have accomplished something that fundamentally changes the economics of the FX service provider market. This is not unlike the effect that the introduction of Lotus 1-2-3 and MS Excel had on the financial software market: One system, provided by a technology vendor, extremely customizable, with virtually unlimited applications designed by and “owned” by the customers themselves.
PS: If you’re interested in the business of margin FX trading and want to learn more about what Integral can do for you, click here.
Just as I was looking for a new idea for how to tout the advantages of cloud computing in a different way, Deutsche Bank comes around and does it for me. And, they do it in a very convincing, 20-minute-long video that is very professionally done, featuring senior executives of their FX organization, both from the business and the IT side.
Granted, they talk about open source and we are talking about cloud computing but these are only different paths up the same mountain. The mountain is called shared IT infrastructure. The ultimate benefits for the end customer are increased operational efficiencies, dramatically reduced costs and lower barriers of entry. And they are the same with both approaches.
What the executives say as well is that the do-it-yourself model is dead. Kaputt.
The head of the United States Patent Office, Charles Duell, is credited with arguing in 1899 to close the Patent Office because “everything that could have been invented, has been invented.”
In the early 1940s, IBM’s president, Thomas J Watson, reputedly said: “I think there is a world market for about five computers.”
Jon Corzine, then-CEO of MF Global, in a company-wide email after a downgrade by Moody’s wrote in late October 2011: “While I am disappointed by this action, it bears no implications for our clients or the strategic direction of MF Global.” And: “The sun will come up tomorrow.”
In July 2012, one can read in an article in FXWeek that “The flurry of new trading platforms that have launched in the foreign exchange market in recent months is unsustainable …and will undoubtedly lead to further consolidation as the successful ventures are acquired and the unsuccessful ones are pushed out of the market, according to speakers at the FX Week USA conference in New York last week”.
Leaprate.com echoed this sentiment stating that “It is also hard to believe that all these firms will each build up enough volume to create worthwhile businesses.”
If you started out chuckling about how woefully shortsighted some people were in previous centuries, you can tell by now that we have comfortably arrived in the present and the current discussion about the proliferation of FX platforms. Are you still smiling? I am not. It baffles me to read story after story about ‘platform proliferation’ as a result of a measly 6 new ones that were announced by a variety of industry participants in the last 2 months. In that time frame, Integral alone launches that many and more on behalf of its customers. Continue reading About Predictions Gone Wrong