Revisiting the era of finance 2.0

9 Apr 2018

Image: CHAINFOTO24/Shutterstock

Interxion enterprise VP William Fenick reflects on the status of finance 2.0 and what 2018 might bring to fintech and financial services.

In 2015, we looked at the emerging area of finance 2.0, the changes and trends we were seeing at that time, and some predictions for the years to come. Today, we revisit those trends and forecasts to see just how the financial industry has changed over the last three years.

Between 2005 and 2015, we could see advances in technology and changes to the regulatory landscape as well as the aftermath of the financial crash. We could also tell the similarities in the way transactions were operated and executed, which today remain very comparable.

When we think of legislation, the most transformative regulation to be introduced to capital markets in recent years – MiFID II introduced in January 2018 – is still causing changes today, nearly four months after coming into law, with special dispensations being carved out for some sectors as industry adjusts.

‘As Europe and the world consider what financial instruments will continue to be cleared in London, cities such as Dublin are fighting to gain new banking business’

In 2018, however, we are faced with uncertainty in the potential implications and effects that Brexit will deliver, something we could never have predicted in 2015. As Europe and the world consider what financial instruments will continue to be cleared in London, or if a move to another European city is on the horizon, cities such as Dublin are fighting to gain new banking business from London.

In 2015, we could see the arrival of new technology capabilities, and the potential disruption and innovation this could bring. Today, we can see clearly the impact that fintech is having on the financial sector. Start-ups have provided new innovations, from payment methods and transfers to cryptography. The initial wariness that accompanied start-ups in this sector quickly passed as large institutions could see the benefits they could offer. Now, we have numerous examples across the financial industry where established firms have partly or fully acquired fintechs to benefit and utilise their innovations.

Where we previously discussed the features of finance 1.0, we spoke about low-latency transactions and the impact of market speed on profit lines. We could also see financial services invest heavily in their IT teams and rival technology companies in the number of engineers they employ – an investment that would be hard to maintain in the long term. To overcome this challenge and to drive efficiencies, financial institutions looked to consolidate and maximise opportunities. We can see this in the ongoing consolidation of firms in the high-frequency trading world.

In comparison to the initial backlash and increased regulation following on from the financial crash and indeed PSD2, there are signs that President Trump’s administration could relax some of this regulation, including Dodd-Frank legislation. While this opens up opportunities for the industry, we also need to be careful not to repeat mistakes of the past.

‘This democratisation of services is a positive step in opening up the industry to competition and innovation’

When we looked to other changes in 2015, we could see the impact of cloud and big data. Today, these innovations have an established presence in financial organisations. Services such as Microsoft and AWS are becoming the norm, taking up the position of a utility or essential service. This democratisation of services is a positive step in opening up the industry to competition and innovation.

In 2018, the changes we can see in technology include the impact of machine learning and AI, both of which are predicated on the amount of big data they can access at incredibly fast speeds. These developments are driving the need for quant developers and data scientists as large firms continue to look to exploit the data at our fingertips. Core to this is ongoing innovation and collaboration as financial institutions and technology providers come together with colocation providers and build communities of interests around Europe.

As we revisit finance 2.0 and consider the desired outcome, there are some mainstays that are not different to 2015. The industry still aims to provide customers with better services that lead to good returns for companies. The prediction that we could see many more companies in 2018 compared to 2015 may not ring true but, rather, we will see greater communities of interest established as organisations look to collaborate across industries.

By William Fenick

William Fenick is vice-president of enterprise at Interxion and is based in London. He joined the company in 2013 to spearhead Interxion’s business development internationally with a specific focus on the financial services market.