Waters Wrap: Banks Increasingly Lean on Vendors for 'Moonshots' (And Office Space Concerns & Symphony's KYC Play)

Anthony says that plenty of innovative projects are currently underway in the capital markets, it's just that banks are relying more heavily on vendors for those moonshots.

This week we look at how banks are spending their IT budgets during the pandemic, whether or not they’ll shrink their office-space footprints, Symphony’s soon-to-be-seen KYC service, and more. Let’s get to it.

The Far Side of the Moon

At the start of 2015, then-UBS chief information officer Oliver Bussmann sat down with WatersTechnology for a wide-ranging profile. One of the things he was most keen to talk about was the promise of blockchain, saying, “I genuinely think that blockchain will massively disrupt the buy and sell sides, payment streams, and settlement alike, to the point where you can see that these things behave in totally new ways in five years.”

Well, five-and-a-half years after we published that profile, we’re still waiting for that massive disruption in the capital markets, and from the sounds of it, blockchain projects—and other projects that involve emerging technologies—may be put on the back burner for quite some time.

This week, we published a feature looking at how large banks are devoting their IT budgets to technologies that facilitate remote working, and turning their backs on so-called ambitious moonshot projects meant to have longer-term payoffs for their organizations. For the story, Luke Clancy spoke with senior technologists from Deutsche Bank, UBS, Nomura, Societe Generale, and also with Bussmann, who now heads his own advisory firm, Bussmann Advisory. (How he came up with that name, I’ll never know.)

Bussmann told Luke that big, multi-year transformation projects are being put on hold at tier-one banks “because that has an immediate effect on capital expenditure and cashflow. There is much more focus on short-term impact and cost-efficiency. The investment priorities have changed significantly since the beginning of the year.”

While some belt tightening should be expected for some time, the one good thing is that—unlike in 2008—tech and ops departments have not been gutted (not yet, anyway). That means that the institutional knowledge honed over the last decade will still be there when firms are ready to play ball again.

Right now the game is about keeping the lights on and using duct tape to plug the floor boards. But technologists, by nature and by demand, are innovative, and one thing that the pandemic has laid bare is the need for innovative solutions to unthinkable problems.

It’s also important to remember this: companies like UBS and Deutsche Bank had already made significant investments in remote-working solutions prior to the pandemic, potentially freeing up resources and time to dedicate still to moonshots, while others play catch-up. In either case, now isn’t a time to stand still—it’s a time to envision what you want your organization to look like in the future, and figure out how innovation can get you there.

I also think that there’s something being lost in translation here: Moonshot projects are still in the works at banks across the globe, even the ones that were unprepared for Covid-19. It’s just that those banks—which could be described as stodgy when it comes to innovation—are, and have been, relying on vendors to do the heavy lifting. Rather than build a Charles River-esque OEMS, State Street goes and buys the company. RBC doesn’t build an operating system to pop its internal OMS into, it partners with OpenFin. Banks don’t build video conferencing technologies, they license tech from providers like Symphony

Rest assured, there are plenty of capital markets businesses shooting for the moon; they’re just not always the ones calling the shots.

Office Space

This past week, Tribune Publishing announced it was closing five of its newspapers’ offices, including the newsroom at 4 New York Plaza in Lower Manhattan, the home of The Daily News. This was obviously big news in journalism circles, but it’s also likely a sign of what’s to come in the Manhattan real estate market. What happens when banks realize they don’t need to spend so much money on those fancy Park Avenue offices?

In the aforementioned article about IT spend and moonshots, executives also talked about how banks are going to look to cut back on the amount of office space they are currently occupying. Bussmann said that he’s hearing that “banks are considering reducing their office space by 20–30%.” And Deutsche Bank’s chief information officer, Scott Marcar, said that executives at the bank are asking themselves whether they need to be in so many buildings and whether they need to have so many physical disaster recovery sites.

Back at the beginning of June, Max Bowie actually explored this idea of banks lessening their office-space footprint. His story pondered whether all this unused office space could become like “WeWork” sites for fintech startups.

“Banks are working more closely with fintechs, and many banks have set up accelerators on their own premises, in a WeWork style. And in the last two or three years, we’ve seen the rise of banks as venture capital firms,” said Anthony Woolle, who was chief innovation officer at Societe Generale before leaving the bank earlier this year for a blockchain startup called Ownera. “Originally, banks’ VC arms tended to be quite separate from the rest of the organization. But in the last two or three years, banks have realized that if they are going to have a VC function, it should not be a classic VC function, but should be more strategic. Yes, the aim is to make money, but it should also be a strategic investment that is backed by one of the business divisions. So there is a lot of benefit to having those parties working closely and on-premise.”

Trading firms have shown that business can continue even with a workforce that’s completely dispersed. But while getting rid of office space will certainly help cut costs, one has to wonder if it’s truly better to have a remote workforce all the time. 

Teams feel connected and as if they’re working toward a common, greater goal when they are interacting with one another, face to face. Yes, work can effectively get completed remotely, but are you then growing a team that wants to work together as a unit and build bigger and better things? Or, by showing that work is simply a transaction, will you have a bunch of employees who are simply looking for the next, better transaction?

Also, there are serious HR issues that will need to be addressed. Who gets to work remotely, and who has to continue to trudge into an increasingly desolate office? I brought this up with my co-host and great friend Wei-Shen Wong on Friday’s Waters Wavelength Podcast, but what happens when I—a white male—gets permission to work remotely from, say, North Carolina, but Shen—an Asian female—is told that she’s not allowed to work remotely from, say, Sydney? Now we’re a smaller team, so hopefully any issue around remote working can be easily resolved, but when you’re a bank or tech company with hundreds, thousands, or tens of thousands of employees, the chance of litigation grows.

And I’ll leave you with one more thing to think about: Even as the income inequality gap has grown and homelessness has risen, New York City has (relatively speaking) been recession-proof due to the revenue generated by real estate and also the taxing of millionaires and billionaires that call Manhattan home.

If more and more major companies follow in the footsteps of The Daily News and significantly scale back on their office space needs—or cut the office out entirely—and if that has a domino effect whereby the 1%-ers (and the .0000001%ers) decide that the prestige of having a high-rise Manhattan apartment is no longer desirable, what becomes of New York with all that lost tax revenue? (And my guess is that there are similar questions for Hong Kong, Singapore, London, Frankfurt, etcetera.)

Economics and tax policy are way outside of my expertise, but if more large companies do scale back their office footprints, it’s a conversation that will move to the front and center of every boardroom and election.

A New Kind of Symphony

Communication and collaboration platform provider Symphony is moving into the KYC space, as Rebecca Natale first reported.

Reb also broke the news earlier this year that Brad Levy was leaving IHS Markit—where he was global head of loans and the CEO of its post-trade processing business, MarkitSERV—to join Symphony. With this move into KYC, that move to bring on Levy makes even more sense. While at Markit, Levy was focused on digital identity and KYC solutions, so it’s natural he’d bring over his expertise and apply it to Symphony’s suite of services.

The goal here is to make the Symphony offering more of a “must-have” for buy-side firms. The vendor has seen growth for its collaboration platform as a result of the pandemic, but it’s found the most success as an internal comms platform at large sell-side institutions (which make up the bulk of the company’s investors), rather than as a comms tool that connects the buy side to their sell-side counterparts to create a seamless trading ecosystem, as the Bloomberg Terminal does.

If Symphony can add sticky solutions to its offering, the better its chances of winning and keeping hedge funds and asset managers. Additionally, something like KYC can one day help Symphony to potentially expand into other sectors beyond the capital markets.

Finally, it will be interesting to see how Levy’s role at Symphony expands over the coming months and years. When talking to sources at competing firms, there are those who believe that if David Gurle, Symphony’s CEO, were to ever leave the company that he essentially started as a company called Perzo in 2012, Levy would be the natural choice to take the reins. But we’re getting ahead of ourselves. For now, let’s see how Symphony continues to expand its offering after announcing Symphony 2.0 last fall.

Quick Hitters

* BNY Mellon and Deutsche Bank are expanding their partnership in the securities processing space to extend their FX API to include Indonesia and India. Speaking separately to WatersTechnology, both BNY Mellon and Deutsche Bank said that securities processing in restricted currency countries is mainly manual, and often managed using spreadsheets. The banks are aiming to bring a touch of automation to the process.

* Trading systems giant Ion will split up Broadway Technology—the rival it acquired in February—to allay concerns the deal would erode competition in the market for fixed income trading software. As a result, Ion will keep Broadway’s foreign exchange business and find a buyer for the firm’s fixed income franchise. One e-trading executive described the planned sale of Broadway’s fixed income assets as “a big defeat” for Ion.

Of late, Ion has not had an easy go of it in the M&A space, to say the least.

* Following last week’s article about how vaccine data is gaining prominence in the alt data world, Josephine Gallagher takes us inside UBS’s Evidence Lab to see how the unit uses hospital data to see how communities across the US are handling the coronavirus outbreak.

* American Banker (where I landed my first job in NYC!) writes that “the biggest US and European banks added 19,000 people to their payrolls in the first half of the year as demand for loans and other services surged during the pandemic and planned staff cuts were largely put on hold.” The story says that Citigroup and Bank of America, specifically, are hiring for tech and ops.

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