While 2019 winds down, the fintech industry continues firing on all cylinders – from global fintech investment trends and corporate activity, to big deals and top investors.
It’s been a tremendous year for Elsen. We kicked off 2019 by announcing an exciting new partnership with Franklin Templeton to accelerate the global investment management company’s data-driven strategies and provide its research and technology groups with efficient and scalable access to financial data through Elsen nPlatform. Most recently, Elsen was named a 2019 Benzinga Top Fintech Listmaker in the Best Data Analysis Tool category, recognized for its leading contributions to the financial technology industry. As the fintech landscape continues to evolve, our team is committed to continuing to work to transform the industry to become more data-driven.
In the following Q&A, Elsen’s Chief Sales Officer, Chris Harrison, and Director of Data and Analytics, Hemal Kapadia, share their insights and 2020 predictions for the fintech industry.
As we enter a new decade and technology continues to be an even bigger driver of the way investment firms conduct business, what do you think will be the biggest change over the next ten years?
Hemal Kapadia (HK): In the foreseeable future, technology such as AI/machine learning and blockchain will change the way we do business Investment and financial firms especially will start taking advantage of new technologies to automate Behavioral Analysis Unit (BAU) work and focus on the greater cause of expanding business in various new sectors.
In addition, another change will be advancements in the F2B (Front-to-Back) trading and settlement process. We will leverage blockchain technology to integrate client transactions and/or portfolio investment data seamlessly. This will reduce the overall cycle of quality, timely delivery of data for the downstream process.
Chris Harrison (CH): The use of machine learning to help automate the investment process in both equities and fixed income. This will eliminate many of the roles for portfolio managers, analysts, and traders.
How do you see the relationship between quants and fundamental managers changing over time? Where are we in that evolution?
HK: With the exponential growth of data, it will be imperative for fundamental managers and quants to work side-by-side. They will explore the option to combine structured, analyzed and verified data with the unstructured data from various sources to find commonalities and care for their predictive models to gain a competitive advantage. There is already the coined term “quantamental,” referring to the fading gap between two different methods of investment.
CH: Quants have been around for 25 years, but that is now old technology with little value or alpha potential left (think Fama French Model). New machine learning technology combined with speed from the cloud and new alternative data (more variables) will unlock many new potential sources of alpha. Fundamental managers will be forced to adapt, or they will be left behind.
Is there any certain type of alternative data that you’ve seen firms using – or that you think firms should start using – that has you most excited?
HK: Most finance companies have started to harness the power of data and especially alternative datasets. Many of investment firms and quants have already started to leverage feeds from social media to find the next alpha that will give them an edge by producing better results than their competition.
CH: There is an enormous amount of new alt data being created each week and this will greatly accelerate with the full roll out of 5G. I think anything that moves away from the old Four- to Six-Factor Model have opportunities to find new sources of alpha – e.g. LinkedIn, Glassdoor, satellite imagery, credit cards, car inventories, residential properties, etc.
As alt data becomes more prominent, how do you see that impacting traditional data providers?
CH: Traditional data providers will actually be most likely to aggregate data from alt data providers, however, their ability to have the data in a uniform format for clients to integrate with their existing security master will be of critical importance. Right now, there doesn’t appear to be an easy way to do that. They have been slow to change, so there is a big opportunity for new tech-driven firms to grab that opportunity.
Any other big things you see on the horizon?
HK: The future of the finance market will continue to advance with a focus on alternative investment funds with two key areas. One being digital advancement development such as blockchain or Distributed Ledger Technology, Artificial Intelligence etc. and another is sustainability. Which means more money going towards FinTech firms as they bring innovative ideas and product to the market where large financial intuition cannot navigate swiftly.