Fund management lego
Collaboration with Fintechs and integration of APIs to seize opportunities in the financial industry
The question of how business models can be adapted to keep up with the rapid changes of modern times and what the future will bring is one that also concerns the service providers of the fund industry, especially specialists in fund administration. Innovation and digital transformation are as ubiquitous in analytics and reporting, the outsourcing of certain functions outside of portfolio management and the sale of investment funds, as the assets managers themselves.
One study follows another and the first best practices implemented in the fund industry are forcing us to become early adopters as quickly as possible. Among the trends currently gaining momentum among institutional investors and in asset management are, above all:
- the incorporation of the ESG criteria (environmental, social and governance) into the investment,
- the controlling and reporting process,
- the outsourcing of front and middle office services, and
- greater standardisation and harmonisation along the value chain.
In fund administration, in particular, fee competition in this intensely competitive environment could ultimately lead to further specialisation on the part of smaller market participants on the one hand and inorganic growth among larger market participants on the other.
Furthermore, regulation, the low interest rate environment and new technologies will radically – and no less effectively – transform this industry in the coming years. This is also the conclusion reached in our survey “Taking the Long View” conducted last year among 100 buy-side experts from eight European markets. In the opinion of the respondent asset managers, institutional investors and real estate and private equity managers, it will be the new technologies that most powerfully transform the business in the coming years. For all securities service providers this means putting the entire business model under scrutiny and adapting it to the new environment.
DISRUPTION OFFERING OPPORTUNITIES
This development has a disruptive effect, while at the same time offering opportunities. It is therefore vital to choose a suitable strategy when incorporating new technologies.
“On the way towards the goal of digital transformation it makes sense to take a pragmatic approach, introducing innovations step by step.”
Thus companies can use new technologies by, for instance, following a partnership approach and collaborating with successful fintechs. This allows the development of new services that create added value for the customers of both partners and that stand out from the competition while simultaneously reducing risks.
One approach that meets the demands of a modern and broad service offering is the integration of Application Programming Interfaces, known as APIs for short. These are programming interfaces that combine software components, for instance applications or user interfaces, thus enabling the real-time or almost real-time exchange of data between two IT systems as well as with third-party providers. This opens up many new opportunities for the financial industry: faster data availability, a better response to customer needs and greater efficiency are just some of the advantages. APIs are also the basis for open banking, i.e. the opening up of banks and parts of their data and services to third-party providers.
PARTNERSHIPS WITH FINTECHS
Due to these diverse options Societe Generale Securities Services (SGSS) also concentrates on the use of APIs in the context of its digitisation strategy. According to the findings of the most recent survey, collaborations play a central role here. While smaller asset managers, in particular, predominately consider partnerships with their existing service providers, larger asset managers envisage collaborations with fintechs as they have considerable expertise in the field of new technologies.
However, these partnerships are by no means of benefit to only one side. That’s because fintechs also need partners, to handle their standard business, for instance. Major banks, custodians and capital management companies are not only extremely competent, but also benefit from economies of scale. Thus the Berlin fintech company Acatus, for example, which makes digital single-asset securitisation possible through a multi-asset platform, uses established services from SGSS such as issuing and paying agent services, as well as custodian bank services in Germany and Luxembourg.
The next step, which is only made possible through APIs, is to include a fintech in the services offered by a fund administration provider, which can bring added value. Such services can offer customers access to many innovative applications - through a web-based platform or a marketplace - made available by fintechs and retrievable through APIs.
Acatus is an example of the full digital transformation of loans, receivables and other illiquid assets into fungible securities that can be kept in safe custody. End customers – in the case of Acatus these are mainly institutional investors, i.e. asset owners and asset managers – can view the platform with the help of a browser, thus gaining access to the Acatus marketplace, especially the overview of currently available receivables to be securitized. Here the investor can identify interesting investment opportunities and then place an order directly, which triggers the securitisation process in real time. The settlement process can then be followed live in the order book.
A further example is the automated commenting of investment portfolios on the basis of artificial intelligence. For this purpose, SGSS has entered into a cooperation with the fintech company Addventa. The performance and risk analysis data collected by the fund management is prepared over a certain period according to the customer's requirements, in different languages and in a clear and consistent style.
APIs can also be of benefit to financial technology startups. In principle the API world can be imagined as being made up of Lego bricks. They can be put together over and over again in ever changing combinations so that new solutions and products are constantly being created.
MORE FLEXIBLE, MORE EFFICIENT AND MORE AFFORDABLE
At Societe Generale group, more than 2 500 APIs have been created so far, of which 200 for its Securities Services business; new APIs are being added every day. This results in the development of a platform that gives access to the services and data of SGSS, but also to other providers like fintechs. The special charm of this approach is that everyone can choose the APIs that are important for them and their business, just like building a world out of Lego bricks. The exchange of data - as mentioned in real time or almost real time and also with third-party providers - takes place in a secure and controlled environment. This allows financial service providers to work more flexibly and more efficiently.
In addition, they can respond better to the needs of their customers. APIs thus make it possible to transfer money in just a few seconds and to offer services at lower prices. APIs thereby offer a flexible and affordable basis for collaborations between various providers from the financial industry - the basis for open banking.
However, securities service providers must decide individually which APIs they actually need, externally and internally. The adaptation of the existing IT infrastructure is also an essential investment. Otherwise there is a danger of missing the boat into the future and of losing the business to competitors or to the big IT companies. Whether new technologies can be developed independently or used in the context of collaborations with known or new partners, is a decisive issue for every company.
“Taking the path of innovation sometimes involves risks and loss of control, but is unavoidable for survival in a smart new world. “