DTCC Connection

“Fintech isn’t new to the financial industry. It’s been going on for well over 100 years, maybe 150 years,” said David Craig, President of Thomson Reuters’ Financial & Risk unit, putting technology’s role in financial services into perspective as he opened a recent conversation on this topic with DTCC President and CEO Michael Bodson. Their discussion closed out DTCC’s 2017 European Client Forum in London on Tuesday, November 28. Craig manages the business unit which serves a global customer base of over 400k financial professionals with offerings including financial markets desktop Eikon, low latency data feeds and “know your customer” (KYC) service Org ID. Earlier this year, Thomson Reuters acquired legal entity data provider Avox and KYC/client reference data service Clarient Global from DTCC.

While noting technology’s history as a disruptive force in financial services, Craig and Bodson—both ranked in the top dozen on Institutional Investor’s 2017 Tech 40 list of leading innovators in financial technology—agreed the industry is now passing through a particularly stressful period. In military parlance, Bodson observed, this environment could be called “VUCA” (volatile, uncertain, complex and ambiguous). In response, many firms are experimenting with new technologies to stay competitive in a dynamic environment where they face growing regulatory demands and cost pressures.

But their discussion focused largely on the promise of technology—its benefits for the industry, the immense opportunities of big data and some lessons learned from Thomson Reuters’ experiences.

The Potential of Blockchain
In the short term, Craig said, technology’s greatest impact on the industry will come from unleashing the power of “big data” through machine learning.

“The challenge is not getting a lot of data,” said Craig. Rather, it’s “mapping the data, understanding it, looking at the providence of the data, managing and linking it.”

In the longer term, Craig believes that blockchain/distributed ledger technology (DLT) will be a major force in the industry because the concept that drives it—distributing and sharing data while preserving its immutability—is so important. Unlike prior fintech revolutions, which automated manual processes, Craig said blockchain promises to “create new processes around the technology, not around the human processes, and take out huge amounts of costs.”

Bodson and Craig agreed that the amount of time and cost required to implement blockchain and replace legacy systems should not be underestimated.

“We’re equally bullish on the long term for DLT,” Bodson said, “But the part I struggle with is the huge cost of that transition from the legacy infrastructure to the future.”

A Hammer Looking for a Nail?
Craig also cautioned that new technology applications can begin life as “hammers looking for a nail” where developers spend too much time exploring technology without a clear problem to solve. It is once you have identified real business problems that often additional applications become clear. . He cited the example of Reuters Tracer, a service the news team created that mines tweets to discover and corroborate breaking news. Thomson Reuters further developed the service with equity traders in mind but in tests has found that commodity traders are the primary users, specifically for news about events like oil pipeline ruptures.

“Just because you have data doesn’t mean it’s useful information or that you’re projecting it to the right people,” Bodson observed.

Another Thomson Reuters innovation, what Craig called “big open-link data (BOLD),” has hit the mark with customers by giving them a way of “taking our own gold -data – and unlocking it,”. The most recent development in this area saw Thomson Reuters deliver the first knowledge graph for financial services - a network of over 2 billion relationships that enables users to uncover new, unexpected or difficult to find insights from connected data

The Challenges of Collaboration
Collaboration—in building applications as well as offering “open” systems—also characterizes today’s financial technology, according to Craig. It makes sense, he said, because “sometimes . . . other people can do things better than you” and multiple proprietary systems are wasteful and inefficient. Craig said his group’s open-platform approach enables thousands of data partners and third-party developers to contribute and consume data and intelligence on Thomson Reuters platform.

But, even putting aside issues like protection of intellectual property, collaboration in such a hyper-competitive industry isn’t easy, said Bodson. Craig acknowledged that partnering with the Symphony open-messaging system was a surprise to many, but that it makes sense for the wider good of the industry.

“You have to figure out where are you competing—on content and capability in Symphony’s case—and where are you not—the transmission mechanism,” Craig said—and be guided by what your clients would want in order to offer choice and efficiency.

What’s to Come
Asked for predictions about the future financial services landscape, Craig pointed to China and firms there—Tencent, Baidu, Alibaba—that have “leapfrogged a banking infrastructure that didn’t exist” and captured 500 million users in a few short years. Their recipe for success?

“Too often, financial firms take a product and try and wrap a service around it, whereas Tencent, Alipay and others took a lifestyle product and then put financial products into it,” he said.

He doesn’t believe technology firms will necessarily become the dominant financial players, in part because they will seek the higher margins they can reap in other areas. But they will succeed in growing the pie, by creating new customers for financial products.

Craig also sees a big role for “crime tech”—data mining technology to fight financial crime. Bodson concurred that the benefits of shifting resources from Anti- Money Laundering (AML) compliance and regulatory reporting to actual crime prevention would be enormous.