Financial Markets firms can achieve growth in a challenging market by opening APIs to partners and monetising data assets. Open APIs present the opportunity to scale distribution and partner connectivity at a faster pace than previously possible.
Financial Markets firms are facing profitability pressures due to multiple factors. Exiting lines of business (e.g proprietary trading) due to risk aversion or regulatory pressure reduces revenues. Competition from alternative players reduces market share. Regulator transparency mandates such as MiFID2 and other regulatory compliance requirements increase costs.
Driving down costs through technology upgrades, process simplification and automation improves margins, but only goes so far. Finding new sources of growth requires looking further afield.
Where to Find Growth
The digitisation of trading and internal operating models offers the opportunity to expand distribution channels.
Full-service banks are better able to cross-sell their markets products through their transaction banking and wealth business units.
Partnerships can be formed with FinTechs with complementary business models, who want to scale quickly without owning their own infrastructure.
And firms have more opportunities to monetise data assets, through mining the data themselves for customer insights to drive cross-sell, or by selling market data to clients or through partners.
But this doesn’t happen automatically. Key success factors include:
- Connectivity: Firms must enable internal and external partners to connect in a way that suits them. Partners may be more familiar with digital integration methods such as REST, rather than established capital markets standards such as FIX. Also, as new products and business models are devised, the
- Partner and Client on-boarding: A major contributor to the success of e-commerce platforms and digital marketplaces such as Uber has been the ease of buyer and seller registration. Scaling the number of partners and customers requires higher degrees of automation, straight-through processing and self-service.
- Culture of Innovation and Entrepreneurship: The ability to recognise business opportunities and act on them has always been critical. What is different is the variety and scale of market participation. And the use of automation and artificial intelligence in compliance and internal controls is needed to ensure that the greater variety and scale of activities can be carried out at the pace that the market demands.
APIs aid the Markets Customer Journey
APIs enable the components to be assembled from different sources to provide a simplified but comprehensive end-to-end customer journey. The firm can then focus on its core competence while partnering or outsourcing to address all the client’s needs.
In some cases, the firm will be a publisher of APIs. In others, it will consume APIs published by others to provide functionality best
The same applies within the firm itself, enabling autonomous teams to manage a service (or micro-service) that other teams can use without needing to know its internal details.
|Research and Market Data||Ability to search or extract market data for analysis||Exchanges, Bloomberg, Thomson Reuters, IHS Markit|
|Calculators, Simulators, Modelling and Algorithmic Tools||Can include tools on the platform itself, or enable client to extract data to own systems for analysis.|
|KYC and On-boarding||Perform regulatory requirements related to onboarding, screening and verification processes.||Outsource providers include Deloitte, Bloomberg, Thomson Reuters, IHS Markit|
|Trading||Market orders and execution. FIX is the established standard.||Saxo Bank, OANDA|
|Post-trade||Status of clearing and settlement|
|End-of-day||Extract (usually batch) to enable end-of-day reconciliation.|
|Client Management||Interface to firm or partner client management system|
|Compliance||Ongoing activity monitoring to ensure compliance with sanctions, AML, etc.|
|Regulatory Reporting||Regulator-specific requirements|
Currently Available APIs
Markets trading firms that have published Open APIs include Saxo Bank, OANDA, E*Trade, TD Ameritrade, IG, Open Markets, FXCM, Forex.com and InteractiveBrokers. These enable premium clients, introducing brokers, white label partners, and trading software providers to build custom tools to meet their specialised needs and trading strategies.
And regulator initiatives such as the Monetary Authority of Singapore’s Finance-as-a-Service API Playbook encourage regulators to publish APIs to simplify institutions’ regulatory reporting.
Roadmap for Successful Open APIs
Advancing along the Open API learning curve is best done incrementally. Technologies, processes and especially culture should be adapted internally first, then shared with select partners before announcing to the world. This journey outlined in Open API Roadmap – From Strategy to Execution.
Where This Leads
Financial Markets firms have been reluctant in the past to open up access to other players due to concerns about losing market share or their relationship with their customers. Rather than resist this, firms should position themselves to exploit the opportunities:
- Growth through expanded distribution
- Transformation through adoption of new business and operating models, and
- Cementing the firm’s place in the customer journey