Stephane Dubois, Founder and CEO, Xignite Inc.
Please give us a bit of background on yourself, and how your organisation plays a leadership role in the financial technology space.
I started Xignite more than 10 years ago after a 20 year career in Silicon Valley around enterprise software (Oracle) and investment management software (Advent Software). I fell into the data business when trying to build a wealth management platform and running into much pain and complexity trying to source and integrate financial market data into our application. To us, using XML APIs to deliver data seemed like the natural thing to do back then. Little did we know that we were quite a bit ahead of our time. We actually launched the first commercial pure-play API ever--again, without realising it.
Because we were so early with our easy to use REST APIs, fintech companies naturally picked us when they started their journey towards revolutionising financial services. This happened around 2008-2012, way before the Fintech Revolution started (circa late 2013 according to Google Trends). We solved a real problem for them. Legacy market data feeds were truly cumbersome and by using our APIs they could preserve their hard-raised capital and focus on innovation. And they did. We made market data simple for them. With a few lines of code they could start feeding data into their new robo-advisor platform or next generation lending solutions. They had no feeds or files to process and no infrastructure to build and maintain at high cost. So while we have not ourselves tried to revolutionise the world of payment, lending, trading or asset management, we have played a key role enabling the leaders in those fields - such as Betterment, Wealthfront, Robinhood, Square and OnDeck - innovate and reshape the world of financial services.
How well are financial companies adapting to the rapid pace of fintech development? What fields are furthest ahead of the game, and what sectors are being left behind?
Financial services organisations started shifting from denial to action in 2015. At first, many were just dismissive of the phenomenon. Then there was a wave of recognition that the threat was real, epitomised by Jamie Dimon's famous "Silicon Valley is coming" in his 2015 letter to JP Morgan's shareholders. Many financial institutions started buying fintech companies--most of which were our clients; BlackRock bought FutureAdvisor, Invesco bought JemStep and there were many others. Others--like JP Morgan--started to organise themselves as fintech companies.
In all fintech segments, you will find firms that are ahead of the game and some firms that are way behind. Just like you will find some locales are more advanced than others. What is most important is how deep the transformation is. This is not about small improvements. This is about changing some major assumptions regarding how firms operate and serve their customers. Advice for example, was something that the industry believed was rooted in personal relationships. Robo-advisors challenged that assumption forever and the financial advice industry will never be the same as a result. We see it in our field as well. We used to find financial services organisations rejecting the public Cloud and dismissive of APIs as "toys". Now many are engaging aggressively in order to build a transition path to using the Cloud for market data. They have realised they can no longer afford to forego the cost savings and innovation power that the market data cloud affords them.
What challenges do you see for fintech development and disruption, both from a user's perspective and from a regulatory standpoint?
While many firms sprouted up in all segments of the industry, the cold hard truth is that few will survive. And this will have little to do with users and with regulation. It has nothing to do with fintech per se and everything to do with how market expansion in new technology segments works. We have seen that over and over for 30 years now. This pattern could change, of course, but that is unlikely. This is how it works. New technologies and business models converge and come into the light. Entrepreneurs iterate and pivot around with this technology and business models until a new category is created and understood by all (e.g. Robo-Advisors). Once the category exists, one company will emerge as the leader and a few as challengers. Those companies stand a chance to standalone (i.e. IPO) as the market expands. Everyone else fails or gets acquired by other players.
It is true that fintech companies have benefited from a very limited regulatory landscape compared to their legacy peers. It is also true that it was excessive regulation imposed after the mortgage crisis that made it possible for the fintech revolution to emerge. The reason is that large banks got so busy with regulation that they forgot to innovate. They forgot they had clients. So the world ahead of us will be more balanced: more regulation for fintech and less regulation for the banks in a post-Trump era. This again probably means that only the strongest will survive as independent businesses. But the technology and legacy of fintech will forever impact the industry.
What impact do you think Brexit will have on the broader financial technology industry in the UK?
The impact of Brexit is already felt by fintech. A recent report from CB Insights indicated that Germany overtook the UK for fintech funding in Q3. But I think that those shifts are more due to uncertainty than to actual concerns that the UK will lose its power position in the world of finance. We are ourselves looking into opening an EMEA office in 2017 and we are still going to do it in London due to the critical mass of fintech and finserv firms in the UK. The UK is easily our second largest market. Can a finance-savvy but standalone UK hold up against a unified but amateurish Europe? Time will tell.
How is API technology changing the financial services industry?
Financial services used to be a world of silos. For generations banks have grown up as protective ivory towers of redundant technology, legacy processes and complacency. The amount of regulation imposed on them over the years did not make things better. Sure, some industry exchange standards emerged over the years (SWIFT, ACH) but they were just as bloated and complicated as the industry itself. This completely stifled innovation. But banks are just data processing companies. The physical relationship with clients does not matter as much any longer, even with wealthy clients. APIs are a simple protocol that make exchange of information and transactions simple. It challenges the industry to its core. They must embrace it or crumble under the weight of their inner complexities and costs. We have seen it in our domain where banks used to love spending hundreds of millions of dollars on on-premise legacy market data technology that brought them little competitive advantage. Now they are coming to us saying "we are going to use APIs for this project". The reason is simple: the cost advantage and simplicity of Cloud APIs is just too compelling to be ignored.
What’s next for APIs in the financial services industry?
APIs is a very diverse ecosystem. There are many types of APIs and each will have a different impact on the industry. APIs are being used internally by banks to drive efficiencies and interoperability. That trend is here to stay and it will dramatically reduce operational costs for banks in the long term as well as fuel their ability innovate. Many banks are now dabbling with Open APIs which are allowing them to create innovation ecosystem around them--although a lot of that effort remains unfocused. Few banks except for challenger banks are actually providing API products so there is much to be done and discovered in this area. Where we see a lot of potential in the next three years is for banks to start becoming broad consumers of APIs provided by third parties. The Public Cloud will be the main beneficiary of this trend for sure, as billions of dollars in IT spending move from on premise deployment to consumption as an API. Market data--our domain--will also see a massive migration from on premise to API consumption as firms seek to migrate a lot of their legacy market data infrastructure to the cloud. Because of its scale, the public cloud is where all innovation will happen in the next few years. On-premise will fall behind not only in terms of costs, but in terms of availability of cutting edge technology--which will all be available via APIs.
What will you be discussing at The Economist's Finance Disrupted Conference on January 25th 2017 in London?
My focus for the conference will be to talk about the next generation of innovation around financial market data in the Cloud.
To learn more about the Finance Disrupted event, please click here.