Patrick Lastennet and Bill Fenick, Directors in the Financial Services Segment at Interxion, forecast what the next 12 months will bring for the financial services industry, revealing how data and technology will trigger huge growth both for individual firms and cross-continent trading globally.
It’s 2014, and the spotlight is very much on the financial services industry and where it’s heading. Last year we saw robust IT infrastructure enabling the industry to develop and offer faster services to customers. As operations are increasingly moving into the cloud, geographical boundaries are simultaneously being lifted, resulting in more cross-continent trading than ever before.
Big data is slowly, yet cautiously, being utilised within financial services as investment firms seek to manage risks in real-time, while retail banks and insurance firms look to leverage the explosion of digital customer data to better tailor products and services.
What’s in store for the coming 12 months?
1. Cost cutting will encourage cloud adoption: Large Tier 1 banks will start their 3 year journey to a Hybrid cloud destination. As pressure to reduce long term costs and gain productivity increases and as the constant upward scaling of the major hyper platforms offering IaaS/PaaS/SaaS continue to drive IT resourcing costs far lower than what those banks can achieve even at over-capacity, banks will start to solution their architecture for the ability to use private and virtual private cloud through standardised technology that optimises data and application portability.
2. Tech giants will drive industry transformation: Large technology firms such as Apple and Google are scratching at the door of the financial services industry, held back only by industry regulation. However, in 2014 we’ll see companies like these lobbying regulators and as soon as there’s a loophole they’ll jump in. Expect to see the start of huge technological innovation in the financial services and long overdue transformations, where incumbent banks are forced to relinquish margins on commodity like payment processes and compete via value add and innovative products tailored to individual customers.
3. Big data will become mainstream for banks: Last year, research identified that better customer intelligence from big data could deliver £73.8 billion to the UK economy by 2017, so in 2014 we’ll see retail banking organisations taking advantage of the insights they can gain from in house and 3rd party customer data to further develop and subsequently tailor their products and services. Those banks will further automate the processes for data acquisition from their core banking systems and 3rd party marketing data sources and start integration of unstructured social media data. The latter having a significant impact on storage capacity and thereby prompting the associated IT department to solution for accessing hyper-scale cloud services.
4. Bitcoin – will the bubble burst? Bitcoin was big news in 2013, as uptake in virtual currencies soared. In December it was reported by one of the largest Bitcoin pay processors that the year-over-year growth for Bitcoin “Black Friday” (2nd December) was 6,260 per cent. However, the success has come hand in hand with a wealth of criticism – namely for its heavy usage on the Silk Road site, which was shut down towards the end of 2013. A paper published before the site was shut down estimated that one bitcoin in 20 was being spent here. This year will see the popular virtual currency continue to come under scrutiny, and become the focus of an even bigger global debate.
5. The year of the Exchange clearing services: With Dodd Frank and EMIR coming into effect and exacerbating demand from large banks to reduce capital needs through cross margining of Over the Counter and Exchange Traded Derivatives, the heavyweight global derivative exchanges (ICE, CME, HKEx-LME, Eurex) will aggressively position their clearing house services. Derivatives software and solution vendors will leverage the latest cloud compute infrastructure to offer real-time risk calculations mirroring those clearing houses margin formulas.
6. The Russian capital market matures: Russia has been gallantly ramping up its efforts to attract key trading firms to the country over the past 12 months. There has been increasing investment going out to Moscow highlighting itself as one of the growth areas for capital markets. Settlement period changes in trading like the move to ‘T plus 2’ in the latter part of 2013 will undoubtedly mean we’ll see the more established Russian banks stepping in gradually to provide direct market access to established Tier 1 US, UK and European players. This all forms part of the necessary market structure changes to facilitate major US and European firms trading more on Moscow Exchange.