The small number of respondents expecting startups to push changes through the sector sits at odds with figures in the study showing that within wider financial services, capital market infrastructure is attracting the most interest from these small, agile innovators. The study outlined that the sector, with its massive loads of data processing, was ideal territory for these technology-led firms.
Capital market infrastructure covers firms responsible for the execution of trades, clearing securities positions, settlement of payments and custody of assets, all using secure networks for transactions, communications and data analytics.
Despite overall funding for startups fading from its 2016 peak, investment in fintechs targeting capital market infrastructure has “continued its rapid growth, reflecting the variety and novelty of the offerings”, the study found.
The percentage of capital being allocated to startup firms in this sector grew from 5% in 2014 to 9% in 2015 and 15% a year later.
Large technology companies are expected to force change at exchanges and clearing houses, but a report warns them not to ignore the fintech startups targeting the sector.
Fintech Decoded, a report by consultant McKinsey & Co and trade body the World Federation of Exchanges, found that 41% of those working in market infrastructure thought giant tech firms such as Apple, Amazon and Google would be responsible for updating their sector.
Almost the same number — 39% — believe the sector itself will drive the biggest changes, with just 20% saying fintech startups would be the catalysts.
The report’s authors encouraged market infrastructure firms to connect with startups rather than feel obliged come up with new ideas themselves.
Matthias Voelkel, McKinsey partner and report co-author said: “We have identified roughly 700 capital market infrastructure-related fintechs at various stages of development and activity across the capital markets infrastructure value chain — incumbents, therefore, need to focus. An unfocused investment approach would be unmanageable and expensive.”
The report said these established players should “understand that fintech, in itself, is not a strategy. Instead, it is a means to a strategic end — a collection of new tools and technologies that have to be tested and thoughtfully introduced into each… offering”.