Clock ticking for banks on fintech disruption – Morgan Stanley

Sep 19, 2018
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Clock ticking for banks on fintech disruption – Morgan Stanley

Global Investor Group, September 19, 2018

By Andrew Neil

Banks need to get their IT investment priorities in order now given the rising risk of fintech disruption,
according to analysts at Morgan Stanley.

“The clock is ticking for banks, with new entrants able to provide banking services up to 50% cheaper, in
part thanks to legacy-free IT,” Morgan Stanley’s Global Banks team wrote on September 18.
“Banks are in the driver’s seat, for now, thanks to network, cheap funding, trust, but they need to act
fast before they get disrupted.”

Earlier this year, Morgan Stanley sent a fintech survey to 175 banks around the world.

It found that investments are top of mind for many large cap banks, most notably the trust (custody)
banks which are heavily investing in technology to improve operational efficiency not only for
themselves but for their asset manager clients.

Examples listed in Morgan Stanley’s note include BNY Mellon building its government bond clearing
blockchain to help improve clearing efficiencies.

State Street’s $2.6 billion deal to close the trading order management processing foodchain by buying
Charles River Development Corporation also gets a mention.

“The goal is to enable asset manager clients to have one single security identifier for any trade,” Morgan
Stanley’s experts wrote, commenting on State Street’s purchase.

“This is the last mile needed to enable straight through processing which should lower costs associated
with trading operations like reconciliation, audit, and control.”

Meanwhile, Goldman Sachs and JP Morgan are leveraging a variety of new technologies for improving
their trading operations.

“Goldman, for instance, has created a fully automated bond pricing engine in its credit business,” the
note adds.

“JP Morgan is investing in AI, blockchain, big data, machine learning and bots to both improve efficiency
and provide clients with more sophisticated tools.”

Digital Asset Holdings is among the firms listed in Morgan Stanley’s fintech directory.
The New York-based fintech is currently building a blockchain settlement system Australian Securities
Exchange (ASX).

AcadiaSoft, which operates a derivatives and collateral management risk workflow solutions for
institutional investors, is also featured.

Others include tZero, the blockchain subsidiary of online US retailer Overstock and Credit Benchmark, a
company which collects credit risk information on major banks, brokers and corporates.

HQLAx, a collateral lending solution to improve transparency and stability, is also mentioned in the