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How Blockchain Technology will change the financial sector

blockchain-technology

Blockchain technology has been the guideline of many debates and evaluations about the future of the financial sector. It is clear that it is a concept with the potential to change the logic of the market and create new business opportunities.

Blockchain can be defined as a digital system of nodes that act in parallel and allow self-certification and exchange of information. Technically it is a process of adding cryptographically signed data blocks to form perpetual and immutable records.

blockchain-technology

That is to say, it is a chain system of blocks, used mainly in cryptocurrencies such as the famous Bitcoin or Ethereum, which allows online transactions without the need of an intermediary thanks to “smart contracts” guaranteeing an agreement between two parts. This system based on parallel and simultaneous processing of information is extremely safe.

The data of the transactions after registered cannot be falsified or deleted, and are stored in a history that contains all operations since its creation: a kind of digital account book that records transactions and information in a verifiable and permanent way.

The concept of blockchain arose to support the Bitcoin protocol, but is no longer limited to the monetary sector. The blockchain goes beyond the application to currencies, because it allows registering any type of financial transaction, which can be bonds, shares, transfer of property and any type of right or obligation.

Since the Blockchain technology was created primarily to support virtual currency transactions such as Bitcoin, its use was initially for the financial sector. However, over the years, the new technology has been developed and is now incorporated in most industries.

A 2018 study by Tactrica indicated that the 5 main sectors of the industry for the adoption of blockchain would be: finance, manufacturing, governments, health care and insurance. In 2019, those predictions are happening.

blockchain-transformation

It is expected that the top 10 business use cases for business blockchain will be:

  1. Trade finance
  2. International currency transfer
  3. Syndicated loans
  4. Post trade: compensation and settlement
  5. Automated compliance
  6. M2M IoT asset management
  7. Payments
  8. Crowdfunding + VC
  9. Supply chain management
  10. Patient registration management

For researchers Sander Duivestein and Patrick Savalle, bitcoin and blockchain technology are the third technological democratization of our era.

“The first came thanks to the internet, and enabled the democratization of information. The second democratization began with 3D printing, it is the democratization of manufacturing in which factories became obsolete. They are no longer needed to build a product Now we are about to meet the third democratizing force, the democratization of money and finance, there will be no more monopolies controlling our money or our business. “

That impacts the financial sector, generating new business opportunities. The big challenge of the companies is to adapt to this new scenario, with agility, but with a lot of security that is the key point of the sector.

Some relevant numbers of what the blockchain achieved and will achieve in the upcoming years:

blockchain-benefits

  • The financial sector has spent a total of USD 552M on blockchain in 2018 and the distribution and services sectors invested almost USD 379M.
  • 90% of North American banks and European banks are investing in blockchain to make their services more secure and transparent. According to Accenture, banks could save around USD 8-12 billion annually with this technology.

According to some Wintergreen studies, the global blockchain market was valued at USD 708M in 2017 and is expected to reach USD 60 billion by 2024.

In this image you can have an idea of the ecosystem that is around the blockchain and its main actors:

blockchain-ecosystem

The blockchain technology can and should be seen as a strategic ally and not as a competitor of financial companies. “This technology is not going to make banks disappear, but it will allow them to explore new niches and market areas,” says Antonio García-Lozano, consulting leader of Grant Thornton, in an interview with the newspaper.

The blockchain will remain during 2019 as one of the first ten strategic trends to consider in the industrial and government spheres globally.

A BBVA report from the end of 2019 indicates that the next steps and challenges for the blockchain in 2019 are summarized in 3 words: privacy, scalability and sustainability.

The third wave of Blockchain will have to solve the slowness of transactions, generating the capacity to increase transactions per second, maintaining security, and achieving scalability.

It is necessary on the other hand, the establishment of private channels between the different actors that make use of technology, granting privacy.

Sustainability will be centered on moving from the current financing model, based on ICOs in the past and exhausted years, towards a model in which companies receive a constant flow of money over time for the different services and operations, and thus be more sustainable.

The 5 main reasons why you should introduce a Market Data Management

The 5 main reasons why you should introduce a market data management

  • Cost savings
  • Market Data cost transparency: who uses what and how.
  • Being compliant in market and vendor audits
  • Updated information on costs by: person, department, area, entity, vendor, product, location, etc.
  • Increased bargaining power with vendors and markets

Market Data Management

In the past, the stock markets did not have competitors – if a financial entity wanted to offer the possibility to buy instruments from Euronext, the only available option was to buy them from Euronext’s traditional market, thanks to their local market membership or through other global brokers that were members of said market.

Back then, the biggest source of income of traditional markets was generated by the transaction costs.

However, this panorama has changed. A few years ago, the MTF (Multilateral Trading Facilities) showed up as a consequence of an initiative launched by the EU that regulated operations outside financial markets. The MTF offers investors and investment companies an alternative to traditional financial markets. They allow to operate in a wider variety of markets than most financial markets, even with assets that do not have an official market.

This has caused a decrease in the transaction income of stock markets. In order to compensate for this, stock markets have been making the most out of the data they have. They are creating new segments and new information packages in order to optimize these data.

Market data comes third when analyzing costs in financial entities, the first and second cost centers being staff and infrastructure.

Therefore, it can be assumed that an improvement in cost management, usually called market data management, can have a positive effect on the entity’s annual cost savings.

So far, in most entities there hasn’t been a proactive market data management. Bills are paid when they coincide more or less with the bill from the previous period, since there is no way to verify whether they are correct or not.

In the rest of Europe and the USA, the position of the Market Data Manager and the Market Data Department are a reality and they are of utmost importance within the entity.

In many countries there are Market Data management professionals that meet periodically to discuss techniques, different ways to optimize market data management, and the trends in this field. They also request vendors that, whenever they want to introduce a new service, they do it to all entities at the same time. All of this helps create market transparency and give prominence and power to entity versus vendors.

In Spain, until recently, this was unimaginable since market data management was limited to what was done when a user wanted a new terminal or wanted to add a new market to the terminal they already had.

An improvement in cost management, usually called market data management, can have a positive effect on the entity’s annual cost savings.

The financial risk of not implementing a market data management

However, this tendency is starting to shift directions, not only because of the increasing interest shown by financial entities in controlling and optimizing costs but also because of the audits that stock markets and data vendors are carrying out in entities.  This tendency of carrying out audits has the aim of studying where and how the data is being used and introducing new user licenses from stock markets and vendors, which increase their revenue.

The objective of all markets is to thoroughly control who is receiving their data and how they are using it.

Up until very recently. The lack of total transparency due to the absence of a real market data management didn’t bring about any consequences since once being audited, agreements were reached. Now it seems that different stock markets are increasingly requiring a more clear vision of their data use – posture backed up by the transparency required by European regulations like MiFID.

The consequences of the lack of transparency brings about million-dollar fines, as entities must prove “their innocence” and if they cannot do so, different markets impose backdated fines that can reach up to 5 years back in time.

The best defense against these audits is having a market data management that could show:

  • The contracted data
  • Who can access the data
  • The profiles of data users
  • What they use the data for

In order to perform a market data management, market data inventory control systems are needed, which allow to organize this information and they give the entity the kind of essential transparency required during audits.

What is more, once these systems are implemented, the entity can reduce the time invested in administrative management and focus instead on value added services, such as: analysis of alternative products for users, better attention to demand, etc.

SMEs can benefit from having what is called a “managed service” or outsourced service.

SMEs can benefit from having what is called a “managed service” or outsourced service.

How to achieve real cost savings thanks to market data management

The most important entities, which are following the procedures of North American and European banks, are opting to create or boost their market data management department.

SMEs can benefit from having what is called a “managed service” or outsourced service, which allows them to have the necessary transparency without the need to invest on additional resources for this management.

Some of the services offered by these managed services are:

  • Contracts management
  • Cost allocation
  • Invoice conciliation
  • Permissioning
  • Reporting
  • Quote planning assistance

The entity can access the information at any given moment and be sure that it is up-to-date and corresponds to what was hired and what is being used.

This situation can be seen as a lifeguard when being audited, and these processes turn out to be much smoother whenever information from 5 years back has to be retrieved.

What is more, once they see there is a control system, such as a cost inventory system, auditors can tell that there is better control in that entity than in others that do now own that kind of service, with the positive consequences this entails.

 

Also, this type of transparency and control allows the entity to have information and not just data. Information they have:

  • Total cost per vendor.
  • Market data cost per user, department, division, office, etc.
  • If there are users that have similar or duplicate services by two different vendors.
  • If there are users that have a much more elevated cost that the average cost of their department.

 

Besides, the entity has information to carry out a proactive market data management:

  • Set notifications to alert contracts cancellation or renewal dates
  • See the reasons why there may be differences between the incoming invoices and what was stipulated in the contract

 

Thanks to all of this, the financial entity gains control over their data management, it can negotiate contracts with better conditions and have control and profitability out of their assets (the market data generated within the entity).

 

Once the entity gets this recurrent control, it will be able to make other types of analysis such as:

  • Demand analysis
  • Alternative product analysis
  • Etc.

How to increase the profitability of your online broker

The online brokers were the first fintech product – even before the word ‘fintech’ acquired the current sense – to cause a disruptive effect on the brokerage service sector during the beginning of the ‘.com’ boom. Traditional brokers suffered an abrupt acceleration in the reduction of their commissions due to the arrival of these new agents, apart from the fact that traditional banks found in this kind of tool a way to prove they were keeping up with the technological revolution without compromising their main activity.

How to increase the profitability of your online broker

With minimum investments in add-on tools, it is possible to complement an already existing online broker and increase client activity significantly, achieving, in this way, the desired profitability for the online broker.

The rise in competition and the apparently easy access to the online broker technology changed the market conditions for brokerage services completely. This new panorama turned online brokers unprofitable for most financial intermediaries and this tendency has lasted for 20 years. Therefore, stock market transactions have almost become a commodity, but they incur high technological costs, and let us not forget that the platforms are quickly becoming old-fashioned. The outcome has been that many banks have conceived of the online broker as a necessary cost or, in the best-case scenario, as an eye-catching product. What is more, given the high technological and compliance costs, the main costs of an online broker are fixed ones while its variable costs are relatively low. With this situation we find ourselves at a crossroads when it comes to getting more profitability out of the online broker.

How to increase the profitability of your online broker

Fortunately, there is a win-win solution for brokers and their clients. Brokers can offer high quality value-added services that allow clients to have a greater understanding of their market activity and to clearly visualise their actual profitability, automate the protection of their invested capital or calculate, at any given time, the estimated capital gains that their investments should bring. The aim of these services that improve the global service for the client/investment is to ultimately boost transactions. Given the cost structure, the best way to achieve profitability is to help clients to intelligently invest in the stock markets, boosting their activity. What is more, these additional services can attract new clients, since what they offer is a component that will make it stand out from the competition.

The aim of these services that improve the global service for the client/investment is to ultimately boost transactions.

With minimum investments in add-on tools, it is possible to complement an already existing online broker and increase client activity significantly, achieving, in this way, the desired profitability for the online broker.