As digital acceleration continues to sweep through the financial ecosystem, the capital markets industry faces a preeminent legacy challenge: how to make the most of new technologies while keeping the existing business running profitably.
A new paper from Capco, Rightsizing the legacy and optimising front-to-back costs, considers the distinct set of obstacles facing capital markets companies, many of whom have overly complex and costly operating models and architectures, and explores how cloud-based, data-centric technologies can enable new growth opportunities in the short and medium-term.
For the paper Capco gathered global data and commentary from across 120 firms – including broker-dealers, asset managers, wealth advisory firms, private banks and investment banks – and identified five common themes to solving legacy platform challenges and reducing complexity:
- Cloud – firms are placing a high priority on cost and profitability through deployment of cloud-based solutions, creating better customer experiences and automating manually intensive processes, with an increasing focus in the next two years on growing new market segments and sustainability.
- Data-centricity – firms are actively analysing the possibilities of cloud-based data architecture, opening up possibilities to solve some of the industry’s long-standing processing and data challenges.
- Process ecosystems – an expanding ecosystem of vendors, fintechs and utilities allows many opportunities to rationalise, standardise and simplify, consolidating down to fewer or even single platforms for one or multiple asset classes, front to back.
- Custom engineering – cloud-based engineering is providing a step-change in how systems can be architecturally designed and built, allowing firms to fill gaps or rebuild legacy architecture afresh with custom solutions.
- Security – keeping data and infrastructure secure is an ongoing, multi-threaded challenge which requires scale and continuous improvement to govern, control and protect the underlying infrastructure and data.
The paper goes on to explore the ‘path forward’ across these five areas as institutions address their architectural renewal and rightsizing needs, noting that early movers could benefit from a substantive reduction in IT spend and a lower change budget going forward on a like-for-like basis. At the same time, their ability to cope with capacity volatility – a prize long desired by the industry – will be enhanced, as will security from external and internal threats.
Peter Kennedy, Capco Partner and one of the paper’s authors, comments:
“Capital markets players will need to invest in architecture modernisation in the long term to remain competitive. The cloud, data, custom engineering and security dimensions collectively mean that companies have a growing range of options and opportunities to deliver rightsizing and cost reduction alongside enhanced efficiency. It is no longer a binary decision between ‘buy versus build’ and it does not have to be a lengthy all-or-nothing transformation.
“As firms continue to rightsize, we’ll move towards a world where interchangeable and interoperable cloud-based services can solve many of the complexities existing within the industry today. Companies will increasingly be able to enhance systems, security, products and customer offerings without breaking downstream systems to ensure their commercial operations remain unaffected.”