Rethinking Operational Models in a Covid-19 World

First published in Harrington Starr’s Financial Technologist in August 2020

There is no mistaking that the legacy of Covid-19 will mean a complete change in working practices. Indeed, the chief executive of Barclays recently told the Guardian that, “the notion of putting 7,000 people in a building may be a thing of the past, and we will find ways to operate with more distancing over a much longer period of time.”
With respect to changing these operating models in order to accommodate the fact that people are no longer in the same premise, how can firms effectively adjust their infrastructure to support this new way of working?

Adapt and evolve – A new normal for financial ecosystems

Operating models will need to be supported by infrastructure in which flexibility and scalability are key. The wholesale disbursement of services and workforces due to lockdowns, has brought into light the effect of open source and cloud platforms technologies that have allowed businesses to keep functioning.

Furthermore, firms are having to rethink entire organisational structures. The days of build first, then buy are increasingly coming under pressure as large institutions look for ways to cut costs and improve returns on capital. A lot of human capital cost has been taken out of the front office, having long been replaced by machines. Now COOs are turning their eyes to market data functions, a $6bn a year business for the world’s largest investment banks¹. With many tired of long-term in-house build programs that haven’t progressed at the required pace, due in no short order to legacy technical debt.

Today’s cloud computing services offer reliable, scalable and inexpensive capabilities that can be remotely and effectively managed. This flexible and cost-effective compute power has spawned the emergence of microservice providers which offer banks extremely specific solutions. Where adopted, these micro services take away the need for larger institutions to build overarching, monolithic solutions. Because microservice providers are often cloud native and operationally lean, these solutions come in at a much lower price point than if one were to be built in house by incumbent players.

As a result, incumbents are slowly evolving away from using their dominant physical and structural position as an advantage. The build first mentally is shifting towards a buying in of advanced technologies and the most forward-looking institutions would now rather position themselves at the centre of a partnership ecosystem with the ability to pull together these best-in-class technologies. Conversely, Fintech firms that don’t position themselves within an ecosystem of their own will find themselves left behind. The ascent of challenger banks is indeed proof that traditional barriers to entry of offering technologies at scale are disappearing fast.

Accelerating change

Dramatic events, where people are asked to work in profoundly different ways, will likely lead to changing behaviours. The pandemic is, in effect, accelerating a marked change in advancing the usage of cloud technology and microservices precisely because they can effectively service dispersed workforces due to their flexibility and scalability.

The provision of data and data analytics is one such example. The oft used saying “data is the new oil” refers to the fact that, although an invaluable resource, the ability to access, analyse and store data has historically been exceedingly expensive. Microservice providers with a sole focus on data engineering, however, can provide data and data analytics at a cost-effective price which enables firms to capitalise on the resulting insight.

BMLL Technologies, for example, provides access to granular order book data and advanced analytical power at unparalleled speed and scale, allowing clients to generate alpha more predictably, drive more flow to traders and confidently back-test and launch new products. The offering means clients no longer need to buy and normalise the data from global exchanges; instead they are offered cost effective access to the full order book with a long history for back-testing. These capabilities are being used by key financial institutions to augment existing trading capabilities across the capital markets, from hedge funds seeking additional alpha from predictive data sources, to investment banks optimising their liquidity providing algos. Furthermore, BMLL’s Data Feed products enable banks to further streamline their data engineering processes by piping invaluable data and analytics straight into production systems, giving them insight they haven’t been able to access before.

Democratisation of financial services

Ultimately, the Covid-19 pandemic is forcing us to rethink the way we do everything. Because we expect lives to be disrupted for the foreseeable future, it is only prudent for firms to thoroughly think through whether their infrastructure and architecture can support dispersed working on an ongoing basis. Previously held assumptions that businesses have to own, rather than rent, services could perhaps be overturned for good, not only in terms of facilitating better support for a dislocated workforce, but also in attaining the competence to compete on a more agile basis. What this means is nothing short of a democratisation of financial services - a thorough levelling of the playing field in terms of infrastructure, whereby young challenger companies can spring up to levels of prominence without a single on-premise system. What we could well be seeing in the aftermath of Covid-19 is a change not only in working practices, but ultimately in the potential to shape a whole new vista of opportunities.