Commentaries and insightful analyses on the world of finance, technology and IT.

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October 13, 2016

Fintech in capital markets - The road ahead

- by Varun Narang and Naveen PV

Capital markets have always been pioneers in adopting innovative ways to carry out business. However, more recently, the industry has been busy dealing with cost pressures and a shifting regulatory and compliance landscape. Meanwhile, increasing customer expectations, a surge in big data, information security threats and technology-driven disruptions have been pushing the walls, making the capital market sector more complex than ever.

In these challenging times, the rise of Fintechs has introduced much required flare of innovation to the sector. It has also expanded the horizon for the capital market world by providing more choices to companies and investors. Fintechs have already started making their presence felt in various segments of the industry by offering technology-based capabilities in areas such as trading (including social trading and zero brokerage platforms) and digital advisory. A few noticeable examples are 'eToro', an online social trading tool with social investments network and 'Robinhood', a US-based stock broker that allows individuals to invest in publicly traded companies and ETFs listed on US exchanges without paying a commission. Further, Fintech robo-advisors like 'Betterment' and 'Wealthfront' are growing at a rapid pace.

Off late, many leading players from the sector have shown a keen interest in the Fintech space by launching accelerators and conducting pilot tests in collaboration with Fintechs. Some capital market firms are experimenting with blockchain technology, which they believe could streamline clearing and settlement processes. UBS is building a blockchain-based trade finance system, Goldman Sachs has filed a patent for a cryptographic currency technology, aiming for a faster, cheaper and safer settlement process when trading and clearing transaction, and, RBS has been testing a 'clearing and settlement mechanism' based on the Ethereum-distributed ledgers and smart contract platforms.

Leveraging technological advancements and lower barriers to entry, some Fintech firms have almost reached the doorstep of larger traditional firms by focusing on business capabilities along with technology innovation. Capital markets firms are also aware of this dual role which Fintechs are capable of playing in their business environment. One, as a collaborative partner, helping existing players in the sector grow their business and bring efficiency to traditional processes and practices and two, as tough competitors, who can feed into the market share of the incumbents. Hence, there are some inhibitions on the part of traditional players when engaging with Fintechs.

Data security issues and regulatory hurdles are also acting as speed breakers in the collaborative transformation journey of Fintechs and capital market firms. Market regulators have already expressed their concerns on the rapid development of Fintechs, which may pose new challenges in managing risks and ensuring adequate investor safeguards.

However, as it stands today, Fintechs are poised to become real game-changers for global capital markets by brining greater agility, efficiency and transparency. With the Fintech trend catching up, the outlook of the capital markets sector looks promising, with robust capital market infrastructure, streamlined processes and stronger data security.

Overall, it is good news for investors as Fintech companies will enable more investors to access financial products and services at an affordable cost, and for companies too as Fintechs will help them gain access to capital in a much easier and transparent way. It also presents a big opportunity for technology providers as it gives them leeway to implement more innovative solutions and collaborate with Fintechs.

October 4, 2016

Chat and trade - The Chatbot way

- by Kiran Kalmadi and Durga Prasad Balmuri

Yes, Vikki did receive the US$100 that we had transferred. Wondering who Vikki is? In our earlier blog, Chat bots: So banking can be as easy as chatting, we focused primarily on how banks were exploring chatbots and how easy it was to transfer US$100 to Vikki through  Messenger without exiting from the app. It was just as easy as chatting! Just like our readers, Vikki was enthused to learn more about chatbots and their application in the financial services space. There is more to chatbots in the financial service space than what was discussed earlier, and so in this blog, we will be primarily be focusing on how chatbots are beginning to be used in the wealth management space, especially in the trading and investment arena.

In the trading and investments space, the earlier investors receive information about the market, their portfolio or specified stocks, the more advantageous it is for them. Imagine getting all this and more information just by asking a few questions or providing responses to the questions asked, all in plain conversational style and within the realms of your own messenger. Yes, this is possible, thanks to chatbots. For instance, one can start conversing with the Unicorn Bay (robo-advisor) chatbot to obtain information such as trending stocks, fundamental and key statistics for a stock, view charts, etc. The company is making an effort to provide personalized and fully automated online services to the non-professional investor.

With natural language processing (NLP) fast becoming ubiquitous and machine learning enabling bots to learn a user's preferences and deliver more value with every interaction by personalizing content, this segment is expected to see more customized trade ideas. The industry is seeing the likes of Polly Chat (Chatbot from Polly Portfolio, a wealth management technology platform) providing tailored trade ideas based on user responses. Polly Chat, an investment chatbot for Facebook Messenger, engages with users by having chats and based on the responses provided by the user, prepares a financial profile, which in turn is the basis for providing tailored trade ideas and portfolios.

This does not just end here. There have also been instances of trades being executed using chatbots. Yes, you read that right. In May, this year, AJ Bell Youinvest (a UK-based online investment platform and stockbroker service provider) undertook a stock trade execution via Facebook Messenger through a chatbot. The company bought 500 pounds worth of Facebook shares, thereby giving an alternate option to its clientele, who can now interact, manage investments, and execute trades via Facebook Messenger. Isn't this cool? And we are sure Vikki must already be itching to try this out. Aren't you?

So what's next? These are unchartered territories for many. A start has been made, yes, but they are still in the nascent stage and have a long way to go; but seeing the rapid growth of AI, we believe this is just the tip of the iceberg, and with proper application, this has the potential to disrupt the wealth management space and incumbents cannot ignore these developments for too long.