- A Q4 2017 GreySpark Partners survey of sellside e-commerce trends found that, in 2018, investment banks are competing to deliver the full breadth of their e-commerce services across both their single-dealer platform (SDP) and application programming interface (API) distribution channels.
- Meanwhile, sellside e-commerce governance functions consolidated over the past five years, and 80% of banks now perform these functions on a centralised basis.
- However, GreySpark anticipates that this trend will reverse over the short-to-medium term and instead shift into becoming federated governance models.
- The survey also found that technology and IT project delivery have shifted into the remit of business units at 50% of the banks queried.
London, Feb. 1, 2018 – In 2018, competition between investment banks over e-commerce service provision revolves around their ability to deliver full front-to-back e-trading capabilities across asset classes to their clients via a range of channels. GreySpark Partners surveyed 20 banks prior to the Jan. 3, 2018 MiFID II go-live to establish the state of e-commerce functionality, governance and strategies, identifying a number of current, key themes across the survey sample that will likely remain relevant over the next five-to-10 years.
E-commerce provision by banks has passed through a range of competitive stages, investment banks focused in the 2000s on offering e-trading services across all asset classes and, subsequently, in the early 2010s on the provision of full front-to-back services for trading on low-touch platforms. In 2018, banks compete to offer their services on both Web-based SDPs and via APIs, which are utilised by more technologically-sophisticated buyside clients to connect their internal systems to the market-facing systems of the banks. The bifurcation of e-commerce delivery channels aligns with changes in market structure on an asset class-by-asset class basis, as buyside firms increasingly invest in in-house trading technology and are slowly shifting from operating purely as price-takers to being price maker-takers and, in some cases, market-makers. As a result of these pressures on bank broker-dealers, sellside IT decision-making and delivery are increasingly being placed in the hands of specialised, centralized business or strategy units.
Concurrently, the commoditisation of e-commerce services and the increased role of independent technology providers in bank e-commerce technology stacks is forcing the sellside to develop new strategies for competitive differentiation going forward. GreySpark anticipates that banks will replace significant parts of their legacy technology systems across many asset classes with different types of vendor solutions, opening the door to offering fuller, more integrated cross-asset class trading and market-making services. Furthermore, the findings of the GreySpark survey suggest that banks will re-invest the run-the-bank savings that result from the integration of new vendor solutions to develop bespoke services and trading functionality in an effort to further differentiate themselves from their competitors.
Willis Bruckermann, GreySpark consultant and report author, said: “This report illustrates the significant internal changes investment banks are making to their e-commerce offerings and governance in response to shifts in market structure, particularly the increased technological sophistication of many clients and the perception that global regulatory consolidation has stalled out. Although some investment banks have adopted best practices of their IT technology suppliers when it comes to enhancing their e-commerce services, such as business- and strategy-owned IT decision-making and delivery or Agile development in a DevOps framework, the results of GreySpark’s e-commerce survey at the same time demonstrate that for all public hype of capital markets disruption at the hands of fintech startups, banks do not perceive these as a threat to their e-commerce services offering and client base.”
Russell Dinnage, Managing Consultant & Head of Capital Markets Intelligence, added: “The findings of our annual e-commerce trends survey and of this report suggest that, in 2018, Tier I and Tier II investment banks are more challenged than ever before to make informed decisions related to the uptake and utilization of vendor-provided financial markets trading technology to either replace or augment in-house built, on-premises deployed stacks. As such, banks are presented in 2018 with three choices: build internal or client-facing trading systems in-house at great expense, and augment them with vendor-provided development framework solutions; buy off-the-shelf packaged vendor solutions, which can be difficult to customise for client trading purposes beyond the constraints of specific parameters; or build and buy specific, modular vendor solutions that allow bank users to insert their own trading IP into the DNA of the system and customise it at will. The long-term internal governance implications of these three choices for banks are potentially profound, and this report explores how those implications could play out over time.”
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