Fintech Grows in State Street Global Exchange05.05.2015
The stereotypical image of a fintech company is probably a small bunch of 20-somethings in a trendy office in Silicon Valley. That image does not fit with State Street Corporation, which was founded in 1792 and had $28.2 trillion in assets under administration and $2.45 trillion in assets under management at the end of last year. However State Street Global Exchange, a new business to help the firm’s clients use new technology and data analytics, celebrated its two-year anniversary last month.
JR Lowry, head of State Street Global Exchange for Europe Middle East and Africa, told Markets Media: “The genesis of State Street Global Exchange was our sense that our clients were struggling with a combination of how to deal with an exponential amount of data and new technology, together with a tidal wave of new regulation.”
In 2010 State Street went through a project to digitise its own business and Lowry said the corporation’s clients were asking for help with the same challenges.
The new unit was formed from pulling together six or seven historical State Street acquisitions which were embedded in different parts of the company, and had to be knitted together. “We are the newest and fastest growing business in State Street, we are focussed on data and analytics tools and services that support the buyside, we are technology focussed and we our fuelled by our research and academic partnerships,” added Lowry.
Global Exchange now has approximately 950 staff, within the corporation’s 30,000-plus employees. Lowry is aware of the need for the unit to remain as flexible as possible and it is not part of the corporation’s broader IT organisation. “We have to balance between agile enough to compete against fintech companies while leveraging our scale and role in the global financial system,” he said.
A large part of Lowry’s role is to keep up-to-date with the market and he said he has spoken to at least 100 fintech companies in the last two years. The current crop of fintech start-ups have been compared to the dotcom start-ups of the 1990s, many of whom subsequently crashed.
“Even though the dotcom bubble burst in 2000, there has been a technological revolution in areas such as online shopping, micro payments, streaming video and social media and the same thing is happening in financial services,” added Lowry. “Globally there are $100 trillion of investable assets and only a tiny proportion so far is being managed by ‘digital’ asset managers.”
KPMG said in a survey, Investing in the Future, last June that the asset management industry will be bigger by 2030 but the number of firms will halve. The study said that to achieve growth over the next 15 years the industry will have to meet the needs of a younger, more diverse, customer base including young people, women and consumers in developing markets – but fund managers spend only 16% of resources on marketing strategies tailored to younger investors.
The report said: “We believe the industry will be significantly larger and have a more important role to play in society than today. However, in order to be part of this, many investment managers will need to drastically change their value proposition to remain relevant.”
The report highlighted new entrants who are already combining technology, data, social networks and communities such as Wealthfront, an SEC-registered online financial advisor catering to Silicon Valley which only offers exchange-traded and index funds; Dataminr, which analyses tweets to predict events for financial and government sector clients and eToro,an online market for trading currencies, commodities, indices and stocks which allows investors to automatically copy the investment styles of other network members in real time.
Lowry said the priorities for State Street Global Exchange clients are data aggregation, real-time data, getting data from non-traditional sources to drive investment decisions and risk analytics. A survey commissioned by State Street in March found that 34% of global respondents believe investment data and analytics as their most important strategic issue for their organisations. The survey interviewed 400 senior executives at investment organisations worldwide.
“Liquidity analysis is also a hot topic together with regulatory reporting,” Lowry added. “A core guiding principle is that we do not create products in a vacuum or ivory tower but that we respond to client needs.”
Jay Hooley chairman and chief executive of State Street, mentioned one of Global Exchange’s products on the corporation’s latest results call last month.
Hooley said: “We have developed some tools just through our Global Exchange business, portfolio stress testing tools that we’ve been sharing with our costumers so that as they look at their liquidity needs, it can be done more scientifically.”
One advantage of being part of a giant financial services organisation is that Global Exchange can test and co-develop products internally. For example, it has developed a multi-asset risk tool and State Street uses Global Exchange’s stress testing tool for its own submissions to regulators.
“We are not here to build only internal tools although we certainly benefit from ideas that are generated internally,” Lowry said.
Global Exchange earns revenues based on assets under management, the number of funds or through software licences.
“Revenue growth has been good and our hope is that over time we will be a big business that makes material contributions to the overall group,” said Lowry. “The unit shows that we are innovating on top of State Street’s core custody and administration business and allows us to differentiate ourselves from our competitors.”
Featured image via/Dollar Photo Club
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