Asset managers look to APIs for innovation
As regulatory requirements, investors’ demands and disruptive threats all increase, asset managers are under pressure to be more innovative users of technology. APIs could hold the key.
Asset managers do not have a good reputation when it comes to technological innovation. Prudence and conservatism are fine traits for managing other people’s money but not so useful for developing new technology solutions and services.
Asset managers also tend to develop their technology in multi-year cycles in line with the long-term views of the asset owners and end investors. In contrast, technology today is in a state of continuous development. However, relentless regulatory requirements, market complexity and the threat of disruption are all forcing these traditionally staid institutions to be more agile and innovative, especially if they want to attract the investors of the future.
Asset managers also have a poor track record when it comes to collaboration, both with each other and with technology firms. This is beginning to change. Earlier this year the 214-year-old investment house Schroders launched its own fintech programme, Cobalt, which selects start-ups with a solution in production but not enterprise-ready, to work alongside Schroders’ staff for 12 months and gain an insight into the market.
In the last two years, one technology has been highlighted as a key component in the quest for more innovation and collaboration – the application program interface (API). A 2016 report from consultant Deloitte on the future of investment management, stated that APIs had been ‘elevated from a development technique to a business model driver and boardroom consideration’.
In essence, APIs have lowered the threshold for connecting to external data sources and systems that previously sat behind firewalls or involved expensive middleware. Most asset managers work with multiple third parties and have to exchange data with all of them.
Currently this is where most APIs are deployed in the asset management world - to connect the front-office to various data sources and then push this data back and forth to end investors.
But it’s still early days for asset managers and the use of APIs. Other financial services sectors, such as payments and retail banking are looking to APIs as a way to develop new client-focused services – especially with the recent introduction of the European Union’s Payment Services Directive II and Open Banking, which allows non-bank third parties to connect to banks’ payment and transaction data via an API and offer their own payment services to consumers.
It’s possible that APIs may hold the key for developing new services, products, tools and revenue streams as well as drastically reducing the cost of existing processes. For example, given fintech disruption and the introduction of the blockchain, we could see the asset management equivalent of Spotify – an on-demand service for sharing and streaming market and reference data digitally using distributed ledgers and APIs.
APIs may also enable asset managers to move from legacy architecture to micro-services. For example, third party software systems may in the future be wrapped in APIs and presented as platforms where users can access a range of components. Or asset managers may be able to develop their own apps or web services which can be made available to investors and asset owners.
Finastra’s FusionFabric.cloud platform has been designed with these possibilities in mind. New services can be developed and tested within the safety of a sandbox environment and the platform-as-a-service model enables collaboration between the asset manager and any number of external developers, system integrators, data providers or creative investors.
In such an API-enabled and cloud-hosted environment, asset managers should be willing to explore partnerships, feel emboldened to try new things and be constrained only by their imagination rather than the confines of their systems and software.