How Does Growth in the Number of Fintech Startups Cause Innovation in Trading

Using new digital technology, fintech (financial technology) aims to improve banking and financial services. Fintech is undergoing a paradigm shift because of the introduction of cutting-edge technologies like blockchain and artificial intelligence. Electronic payments, banking, insurance, personal loans, and wealth management are just a few of the many industries that are undergoing a digital transformation right now. Five years ago, the financial sector was buzzing about the disruptive impact of fintech companies, which provide customers with alternatives to established solutions. The tide seems to be turning.

Established businesses are more aware than ever before of the importance and promise of these new technologies. Customer expectations for frictionless digital transactions have grown over time. If they want to continue in business, financial institutions must provide such a service. Fintech startups and established firms are increasingly collaborating and merging, as a result. The transition from a business-to-consumer to a business-to-business strategy for a fintech company is not uncommon. In this manner, it can sell its technology to bigger organizations and have access to a much wider customer base.

Fintech

Established financial titans have a choice at a time when new fintech trends are developing and creative technology is becoming the norm: ignore the obvious or accept, adapt, and improve. Around 88% of global financial executives believe that emerging technologies pose a risk to their current business strategy. In addition, 81% of bank CEOs are worried about the pace at which technology is evolving. The fintech industry’s retention rate data suggest that established organizations prioritize simplicity of use and more intuitive product designs. AI and blockchain may be used to keep clients from moving over to the newer competition.

Sixty-one percent of bank executives think it’s critical to have a customer-centric strategy that allows them to respond to customers’ requirements in real-time. However, just 17% believe they are ready for an omnichannel approach. New financial start-ups worry about how they’ll fit into corporate culture, but long-established firms say that integrating with the fintech industry is complicated by IT security concerns. In order to attract some traders, fintech startups choose to furnish their potential clients with promotions. One of the examples of this is XM no deposit bonus, which allows investors to spend this gifted money on the broker’s financial services. Because of this technique, fintech companies, can see profits thanks to new investors who like using broker-provided incentives. Old and new schools of thought will have to come to an agreement on the fly as more and more fintech businesses shift away from the B2C paradigm.

Fintech Growth Statistics

To get access to broader consumer bases, these businesses are integrating their products into established financial systems. 2019 saw a record-breaking $97.3 billion in global mergers and acquisitions in the fintech sector. Fintech agreements increased for the sixth year in a row thanks to investments from global tech heavyweights including Alibaba, Google, Baidu, IBM, Microsoft, Apple, and Tencent, who invested $3.5 billion.

It’s worth noting that although cybersecurity-related investments climbed to $646.2 million in 2019, which is more than double year-over-year, cryptocurrency and blockchain investments declined dramatically to roughly $3.7 billion. In 2019, there were about 2,700 agreements in the financial sector, compared to 1,221 in 2020.

There has been a considerable fall in the amount of investment in fintech across all continents, with Asia seeing the biggest dip (69 percent drop). Since 2017, this was the weakest first quarter for investments. Across the globe, new markets are being sparked by the growth of new Fintech centers. Fintech firms now number 1,463 worldwide, with 2,745 unique investors. Funding for South American fintech firms has increased at a CAGR of 64% between 2016 and 2020.

Fintech Innovations and Forex Trading

For some time now, electronic trading has been a component of the conventional financial business. It’s also unclear how new financial technologies will be incorporated alongside traditional systems and whether or not major institutions would embrace them. Financial information eXchange is the abbreviation for FIX. In the cash stock, futures and options, fixed income, and foreign exchange markets, FIX is the communications system used by market participants to interact with one another.

Members of the industry gather on a regular basis to discuss challenges in the marketplace, such as workflow or new trends, and how to use FIX to help solve them as part of our active working groups in the Community. The sector has definitely become more cohesive as a result of regulation. Everyone participating in the investing and trading process is now aware that what impacts the major investment banks will also have an impact on the smaller businesses.

It is highly helpful for regulators to have access to information on messaging protocols such as ours, and those messages may be enriched and expanded to provide even more information and clarity. Institutions must be taught about blockchain before it can be employed in the electronic trading market. However, the large banks are now looking into how this new technology may affect their operations, and they’re doing it with a great deal of care and attention. It’s not clear whether this is at the transaction or post-trade level.

But in recent years, there has been worry over the lack of openness in electronic trading compared to how systems operated 10 years ago. Because so much trade is now done electronically, human contact is no longer necessary in any way, which has an impact on how business is conducted. With the development of computerized trading, how many more humans does the market require? Some examples include cash equities and other asset classes like fixed income or OTC derivatives that have always been traded over the phone or over the counter, such as OTC derivatives. Many of these institutions will have to undergo a major shift in infrastructure and a change in infrastructure as a result of the migration to a single exchange.

Digital Assets

Financial institutions on both the purchase and sell sides have been paying growing attention to the potential of digital assets as an investment and trading vehicle, which has led to a wide variety of digital assets emerging in the market. There’s little question that interest will expand in the future. The institutional market is increasingly intrigued by the possibilities for digital assets, such as tokenization, decentralized finance (DeFi), and smart contracts, to build more frictionless marketplaces.

In addition, there are still a number of issues that need to be addressed, not the least of which is the way digital assets are regulated. However, in the EU a planned law called MiCA (Markets in Crypto Assets) seeks unified regulation, but there is less certainty in the United States. Data standardization is also an issue, however, organizations like ANNA, ISO, and FIX are beginning to solve this. And projects like Wilshire’s Digital Asset Taxonomy System (DATS) will assist the industry to identify, manage, and study digital asset technologies, which will drive additional development. It’s just a matter of time until a plethora of trading platforms, OMS and EMS suppliers, market data providers, and more enter the digital asset market. Further innovation is expected in 2022, as well as a broad range of products in both the assets themselves and the market infrastructure that supports them.

Exchanges in Cloud

In light of the growing popularity of cloud computing in the financial markets, recent pronouncements from two of the world’s largest exchanges indicate that the future of exchange technology will almost probably be cloud-based as well. With Google’s $1 billion investment in November, CME announced a 10-year strategic relationship with the exchange to migrate all of its markets and technological infrastructure to Google Cloud.

A multi-year agreement with Amazon Web Service (AWS) was also revealed in December by Nasdaq, which would see all of the exchange’s North American markets relocated to the cloud. These two announcements are crucial in terms of exchange and trading technology.

This trend toward contemporary, open, modular frameworks, which use microservices architectures and DevOps, has been rapidly increasing over the last several years inside the trading IT infrastructure. Even said, there are still plenty of front-office solutions, both in-house and provided by third parties, that depend largely on the former. In 2022, what will be different?

While monolithic standalone applications are still available today, we expect more software vendors to offer API-ready components in the form of SaaS rather than monolithic standalone applications in the future. This will allow businesses the flexibility and scalability APIs and low-code/no-code application development environments provide, while also enabling them to connect best-in-class components.

Final Words

When asset managers outsource their trading and execution operations to third parties (usually specialized outsourced trading businesses or sell-side firms like brokers, custodians, etc.), one of the largest developments we’ve witnessed in the previous year is the expansion of outsourced trading. Outsourcing trading to an asset manager makes a lot of sense. The expense of running a trading desk is considerable. Execution of trades does not produce alpha on its own.

Offloading such non-core duties to external experts helps asset managers to concentrate on what they do best, namely asset management, in light of the margin challenges that buy-side companies confront today. Though it has been slower in the United Kingdom and Europe to embrace outsourced trading than in the United States, that is now beginning to change, with a rising number of outsourced trading service providers providing services throughout these regions, who are seeing increasing demand. Those gains are expected to continue over the next decade.