Reports that 80 percent of capital markets participants said they would rather buy in a trading data integration solution, rather than build one in house, reflect the way banking IT is going, and this is a good thing.
The findings, from a qualitative study undertaken by Inforalgo, are discussed in detail in the white paper, Buy vs build: The data integration challenge facing ECNs and trading institutions, and condensed in the article, Straight-through processing solutions: buy versus build. They paint a clear picture of banks (and broker-dealers) reaching a cross-roads, and choosing the more prudent route when it comes to solving complex data integration challenges. There has been a watershed realisation that persisting with their own, discrete development projects in house - each time there is a new requirement - is excessively costly and ultimately unsustainable. Moreover, it adds no business value.
Why reinvent the wheel?
Today, the culture in banking IT is very different to when I started my career. Then, banks built everything internally, believing it bought them competitive advantage. As a result, systems were unique to each institution. But with proprietary systems comes a huge burden of upkeep, which isn’t ideal when new requirements are being added all the time and time to market with new capabilities is a significant and growing pressure.
There is an increasingly significant skills issue here too, which the Inforalgo findings highlight. When there is a big technical challenge to address, something that skilled developers can get their teeth into, it’s easy to keep IT talent engaged and motivated. External technology specialists can provide that on an ongoing basis, so they tend to have an enviable talent pool. They’re continuously working at the cutting edge of IT and cracking new challenges on behalf of multiple clients, which means they tend to attract and hold onto some excellent technology skills. By drawing on their services, banks get to tap into the best talent and experience there is.
External specialists are also more likely to have up-to-date knowledge of the latest tools and techniques. This is almost impossible for any in-house IT department to match - certainly not without great expense; whereas the external IT vendor can offer its clients superior economies of scale, having spread the costs across their customer base.
The other significant advantage of letting go of non-core IT activities, from a skills perspective, is that internal talent can be refocused on more strategic and cutting-edge projects, which in turn will keep good people interested for longer.
Using a proven external service provider removes risk for banks, too. For a specialist trade data integration specialist like Inforalgo, delivering seamless straight-through transaction processing across multiple platforms, and multi-source data consolidation, verification and reporting, are the core business - the primary focus. So, along with speed to market and improved cost-efficiency, connecting into its platform offers a comfort factor: an assurance that all reliability checks, security, and current compliance requirements are taken care of. It also looks good to regulators, who themselves can take comfort in market participants having everything covered.
So, from just about every perspective market participants might look at this, the ‘buy’ option is a win-win over ‘build’ when it comes to trade data connectivity, management and reporting.
About the author
Over a prestigious career making strategic IT decisions in financial services, Alastair Brown has been CEO of Lombard Risk and CIO of RBS International Banking, and held a number of senior business and technology roles in the RBS Global Financial Markets division. In June 2019, he joined the board of advisors to capital markets data automation specialist Inforalgo. Alastair is also executive chairman at DTSQUARED, an independent data consultancy, and board advisor to SaaScada, which helps organisations rapidly build and launch financial services.