REAL-TIME RISK: NEWS

What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes

#Human Element in #Fintech Strategies to mitigate #RealTime #Risk

By Steve Krawciw

A race for Fintech innovation at the Big Banks is on. As described in detail in our new book, “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes” (Wiley, 2017), whoever is the first to streamline and speed up traditionally cumbersome processes via automation will reap the first rewards. The buzzwords are mostly connected to robot-like machines: computers, data centers, API, and a slew of other abbreviations and acronyms abound in the board rooms. The human “element” is often left to almost an afterthought, an awkward presence in the glimmer of technological promises. In reality, however, it is the humans who are instrumental to the successful adoption and deployment of Fintech initiatives, particularly in large corporations. This article summarizes the key four  drivers of successful personnel management in the age of Fintech to achieve the desired results.

First and foremost comes the Fintech talent. In the previous decades, banks’ major competitors for quality personnel were other banks, and, later, other financial institutions, such as hedge funds. As discussed in our “Real-Time Risk” book , today’s banking competition is everywhere. Indeed, companies like Apple, Amazon, and Google, among others, have already launched financial services platforms. They have aimed at niches where they can establish a strong position, but have set sights on the core banking models of the largest-tier banks. Threatened by these new entrants, traditional financial stalwarts are hearing the pitch: Adapt to the new environment or perish.  With that, investment in quality Fintech talent has moved from “nice-to-have” to “must-have” on the priorities thermometer.

In addition, according to the Millennial Disruption Index, many banking customers today are prepared to walk away from the established banking brands with trusted names like JP Morgan to banks owned by the consumer software giants like Apple and, in the foreseeable future, Google.  Fintech talent follows suit, compelling banks to offer special incentives and higher salaries for qualified Fintech staff.

Next comes the implicit realignment of bank functions driven by Fintech. In the past, banks’ technology and operations departments were clearly delineated functions. Technology mostly comprised of vendor-sourced applications integrated in-house and a selected range of in-house-built tools. The operations comprised staff that was tasked with operating the said technology, ensuring compliance processes were followed to a t. With Fintech, the distinction between the two groups is rapidly disappearing. A separate class of Fintech applications known as Regtech for “regulatory technology” streamlines workflows typically processed by ops departments. The savings rise and the degree of error diminishes in the process. The explicit organization realignment is key to a successful transition to a Fintech-imbued organization.

Third, comes the training of employees. Many long-term employees may feel uncomfortable with Fintech, potentially due to their lack of understanding of the functionality and impact the technology provides. A successful Fintech-oriented training session is mandatory in helping these employees adjust to the new reality.

The above initiatives may look simple in a textbook, but are very complex in large organizations. Identifying and hiring quality professionals capable of putting this all together is also a priority and no easy task, given the relative newness of Fintech itself. A substantial background dealing with large organizational structures, reorganization and realignment, alongside with technology management experience, are required to successfully navigate the banks away from the competition and into the 21st century’s profitability.

Steve Krawciw is an expert on Fintech strategy, a co-author of “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes” (Wiley, 2017, www.realtimeriskbook.com), and Managing Director and CEO of AbleMarkets.com, a big data for capital markets company. Prior to AbleMarkets, Steve launched over $4 billion of products for Credit Suisse over a 7-year span. Previously, Steve ran asset and wealth management initiatives for CIBC, and consulted for McKinsey and Co., and Monitor Consulting. Steve had an honor of working for President Mandela of South Africa. Steve holds a BComm from University of Calgary and an MBA from Wharton School at University of Pennsylvania.

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