McKinsey & WFE: FinTech decoded – Capturing the opportunity in capital markets infrastructure
The report—based on a survey of The World Federation of Exchanges (WFE) members and data from the McKinsey Panorama Fintech database —evaluates the fintech landscape within the capital market infrastructure (CMI) industry, potential uses of new technologies across the value chain, and areas likely to see the most innovation.
In this decade, the evolution of fintech activity in the CMI sector has outpaced other areas in financial services, growing 277%, compared with corporate banking (186%) and payments (184%). Whilst fintech activity is highest in the access to capital area, WFE members mention that the post-trade services space currently attracts highest attention in the organizations as follows:
- Access to capital – by creating innovative way to reach and serve issuers and investors, and by broadening the range of asset classes available;
- Trade execution – by gaining new efficiencies;
- Post-trade services – by bringing simplification, automation and improved security;
- Data, analytics, and information services – by developing new way to mine and interpret data; and
- Operations and technology – by driving cost efficiencies, lower latency, and reduced operational risk.
While the boundaries among fintech technologies may blur, the solutions they deliver can be grouped into four main categories: Advanced Analytics and Artificial Intelligence (~50% of CMI fintechs); Distributed Ledger Technologies (DLT), including blockchain (~25% of CMI fintechs); cloud and quantum computing (~15% of CMI fintechs); and automation and robotics (~5% of CMI fintechs). Of these, survey participants identified DLT as the technology which could be a game changer in the industry. Although while it may have the potential, it may also be the furthest from realisation at scale.
The report concludes that it is essential to CMIPs to understand that fintech is a means to a strategic end, and not a strategy in itself. To that end, the report outlines three strategic priorities that CMIPs can adopt when considering how best to engage and work with fintech: protect your core business from erosion; modernise existing business practices and operations; and capture new business opportunities through fintech. By taking this focused, proactive approach, CMIPs can ensure they benefit from the myriad changes in their industry that will be brought about by fintech.
The survey sample group saw partnership-driven approaches (collaboration agreements (40%) and joint ventures (25%)) as the most efficient relationship models with FinTechs, but investments (both minority and majority) both at 13%, and acquisition and integration at 9% only.
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