Having the right software increasingly means having a suite of tools tailored specifically to an organization’s needs — whether it’s performing core tasks such as analysis that can guide investment decision-making, tracking account status and activity or dealing with execution and reconciliation.
For organizations seeking a competitive advantage, proprietary software provides a means to stand out. PwC reports that in 2017, 82 percent of financial institutions expected to increase fintech partnerships in the next three to five years.
“Gone are the days when [firms] just wanted accurate reports. Today, they’re looking for best-of-breed technology that’s able to be highly integrated with their unique processes and data architecture,” says Joe Neuberger, president of U.S. Bank Global Fund Services. “The ease, flexibility and integration of the solution have become as important as the solution itself.”
Consider the following tips when developing a custom financial technology strategy that will set your organization apart.
Seeking a competitive advantage doesn’t necessarily mean building your own fintech suite from the ground up. Industry-standard solutions are standards for a reason — they excel at their functions and can be counted on to remain in regulatory compliance.
That said, most of those leading software tools can be customized, and it’s the customization that affords organizations the opportunity to add a proprietary layer. Some of this is branding, as it offers you a chance to tailor the dashboards and interfaces through which your clients will interact with their accounts. But there are tactical opportunities here as well, such as a unique algorithm that allows you and your customers to analyze data through a particular lens.
“It’s about organizing and presenting data in a more streamlined fashion but also layering on things such as autonomous processes and really leveraging artificial intelligence to analyze the data in different ways and make recommendations around the data points that you’re most focused on,” says Christine Waldron, chief global strategy officer for U.S. Bank Global Fund Services.
Building that proprietary layer for maximum effectiveness and to cover all processes is a big undertaking, one that would strain tech-team resources and exceed the core competencies of most investment-advisory firm IT departments. As a result, many organizations contract with a third-party partner to develop unique technology solutions while partnering with financial institutions to support certain processes. Financial institutions’ primary expertise relates to knowing their way around security and compliance issues, while software development shops’ specialty is coding expertise and product development.
Ideally, you want the strengths of both approaches — the discipline of a veteran financial institution as well as the responsive approach to your needs that’s a hallmark of Silicon Valley software development. That’s where another option comes in: Contract with a financial services provider to support certain risk-prone processes who also has a strong fintech perspective and solutions to allow for easy integration to those processes you believe provide a unique competitive advantage.
“You want a financial institution’s level of risk management and data security as well as the ability to manage this type of an infrastructure and scale. But if they’re not innovative, flexible and able to integrate [like a software development firm], it’s a serious drawback,” Waldron says. In contrast, many software development shops don’t have the mindset of a financial institution or the rigorous framework around information security, cybersecurity and business continuity, she says.
Waldron suggests prioritizing partners with development teams whose members represent the full spectrum of project considerations — the software skills, business-focused analysis and security- and regulatory-focused perspectives each need to be present.
“You’re looking for a very cross-functional team that has all the different disciplines built into it — information security, data architecture and certainly the business side,” Waldron says. “It’s when there’s an element missing that you tend to overlook something, and then you run into issues and things grind to a halt.”
A common pitfall in vendor selection when outsourcing processes is that the chief financial officer drives initial conversations while the chief technology officer leads implementation — a process that can lead to operational problems down the line. Instead, everyone should be involved from the start.
“It’s so important to have your technology team members at the table when selecting a service provider — just as much as your accounting team and your investor services people. When that piece has been overlooked, it creates undue friction and creates problems when the technology team has to work with a vendor where they hadn't been involved in the due diligence and selection process,” says Neuberger.
Like every aspect of your firm’s operations, your fintech suite provides an opportunity to help you stand out from the pack — but only if you’re able to develop a solution that delivers genuine value for you and your clients. Make sure your offering provides the customization your clients need, addresses security and compliance requirements, and is supported by a team that brings both technology and business perspectives.
U.S. Bank offers customized operational solutions combined with the strength and security of a major financial institution. Visit us at usbank.com/investmentservices to learn about our services.